Unveiling the Power of Time-bound Tokens: A Deep Dive into Hourglass
An In-depth Research into Hourglass & TBTs
Overview
Launched in May 2023, it raised $4.2 million in a seed funding round led by Electric Capital, with participation from Coinbase Ventures, Circle Ventures, and others.
Hourglass is a DeFi protocol that provides infrastructure for Time-bound Tokens (TBTs) - tokens that represent assets staked in DeFi protocols for a specific period of time.
Hourglass introduces a place to stake TBTs and a marketplace to trade TBTs
Time-bound Tokens (TBTs) represent a novel solution to liquidity challenges in DeFi staking protocols. This article will explore the potential of TBTs and how Hourglass, a pioneering blockchain protocol, is leading the way in implementing this groundbreaking technology.
Introduction to Time-Bound Tokens
TBTs are tokens that represent assets staked in a blockchain protocol for a specified duration. For example, if a user stakes $frxETH in the Frax Finance protocol for a three-month period, the receipt they receive for this period is considered a TBT. This token also enables the user to earn staking rewards during the staking period
One characteristic that distinguishes TBTs is their status as ERC-1155 semi-fungible tokens. This unique token standard combines the features of both fungible (ERC-20) and non-fungible tokens (ERC-721). As a result, TBTs can carry information about the underlying staked asset (Non-fungible aspect) as well as the duration (Fungible aspect) for which the asset is locked.
In the Hourglass ecosystem, TBTs operate on a non-custodial basis. This means that the locked assets, which TBTs represent, are stored securely within "Hourglass custodian smart contracts" throughout the lock-up period. When the staking period concludes, users can redeem their matured TBTs for the corresponding staked assets.
This approach offers a solution to a notable issue in traditional DeFi staking mechanisms. Typically, these mechanisms prevent users from trading their locked assets, creating a liquidity problem. The inability to trade staked assets can discourage users from participating in staking, particularly when there's a risk of the token's value falling during the lock-up period.
The Benefits of TBTs
Providing DEXes with liquidity to collect fees and enable new product features.
Offering users extra rewards in exchange for trading liquidity for a specific period.
Giving users greater flexibility and utility with their staked assets.
Enabling risk management opportunities by allowing users to sell staked positions before the end of the lock period.’
Improving protocol stability through a more predictable TVL/Revenue figures.
Example: Frax
Users: Lets say Pepe stakes frxETH in Frax for 30 days. He earns extra rewards from staking. Pepe can use Hourglass to obtain a TBT representing that 30-day staked frxETH and trade it on Hourglass’s secondary marketplace, essentially enabling her to sell her staked frxETH position at anytime within that 30-day timeframe.
Protocol: For Frax, the TBT mechanism incentivizes long-term participation and ensures a steady supply of liquidity and steady TVL as staked frxETH is locked. It also protects the protocol from sudden liquidity crunches or “bank runs”. But with TBT secondary markets, liquidity of that market is also something to note.
Another use case would be Lido V2’s introduction of stETH withdrawal queues 👇
Lido V2 will allow stETH holders to withdraw from Lido at a 1:1 ratio. With TBTs, users can exit the withdrawal queue early, offering a layer of flexibility that hasn't existed before in DeFi.
Here's a hypothetical example to illustrate how it could work:
1. Pepe stakes 10 ETH with Lido and receives 10 stETH.
2. Pepe decides to withdraw 10 ETH, but there's a queue and it will take 30 days
3. 10 TBTs are minted for Pepe, each representing a claim on 1 ETH that will become available in 30 days.
4. Pepe sells his TBT on a secondary market. Chad buys them, accepting that he will have to wait 30 days to redeem them for ETH.
How Do TBTs compare to LSDs
TBTs and LSDs are closely related concepts. LSDs, such as stETH, represent staked assets in DeFi protocols. They allow users to stake ETH and stETH in a 1:1 ratio, which is liquid and can be used within the DeFi ecosystem for various purposes like LPing, as collateral for borrowing, all while still earning staking rewards.
TBTs are technically LSDs too, but the “derivative” part represents staked assets in DeFi protocols that are committed for a period of time. This time element is the core difference. These tokens serve as a sort of "receipt" for a user's commitment to a protocol. The longer a user commits their tokens to a protocol, the more rewards they can earn
Hourglass Staking
Hourglass operates a platform for users to receive time-bound tokens for long-term staking. They currently support the Frax and Convex ecosystems, with the only farm being Frax-Convex frxETH/ETH.
Users select a vault of a specific maturity to stake their LP tokens. Upon maturity, users can redeem TBTs for the underlying LP token. However, they must first request a withdrawal and wait for a 5-minute cooldown period as a security precaution so large amounts of tokens cannot be removed from the contract instantly
Rewards are claimable on the “Rewards” page on the last day of every month.
Hourglass Marketplace
Hourglass also operates a marketplace for trading these TBTs. This is necessary because TBTs cannot be pooled together like other tokens due to their time-bound nature. Instead, Hourglass implements a simple RFQ marketplace where users can buy or sell their TBTs.
Discounts
Discounts on TBTs on the Hourglass marketplace refer to the possibility of purchasing these tokens at a price lower than their nominal value. The discount varies depending on the length of stake.
For example, A trader could bid for a 3% discount on $ETH with a 10-month lock-up period. Theoretically, the shorter the lock-up period, the lower the discount % due to lower risk to the buyer. But, the actual discounts may be determined by market supply & demand dynamics.
Closing Thoughts
TBTs as an emerging "asset class" brings about the potential of greater utility across the DeFi ecosystem.
By creating a marketplace for semi-fungible tokens, Hourglass changes the utility dimensions for time-locked staked tokens across DeFi protocols.
By incentivizing long-term usage and offering greater flexibility, TBTs bring more stability and predictability to the liquidity of protocols because they can count on the liquidity being available for the duration of the lock-up period.
That's all I have for you.
If you enjoyed this article, please do subscribe - it’s completely free and you will be the first to receive updates on new article drops :)
It’s a flat out crime that you don’t have tons of comments and likes. Amazing work on Hourglass. Thanks for the Twitter/Substack work in general, I appreciate you bro 😎