If you’ve been interested in DeFi 2.0, you must have heard of Wonderland Money.
It is the largest fork of Olympus DAO, the pioneer of DeFi 2.0. It has a similar concept to Olympus, and was a fork built on the Avalanche network.
Amassing over US$1.8 billion in Total Value Locked (TVL) and over US$2.8 billion in market capitalization, it is little wonder why Wonderland has been making its rounds in crypto spaces.
Today’s article brings you a sneak peek of what goes on behind Wonderland Money, and simplifies this daunting DeFi 2.0 protocol for you.
What is Wonderland?
Wonderland is a decentralized reserve currency protocol, built on the Avalanche network.
In essence, it seeks to be a reserve currency system built from a treasury of assets. For Wonderland, its native currency and token is $TIME.
Have you ever wondered where the value of a currency, or even a stablecoin, comes from? It can be quite a head-scratcher.
For $TIME tokens, this is clear. Each token is backed by a basket of assets, such as MIM, TIME-AVAX LP tokens, and more.
Instead of being pegged to US$1 like most stablecoins, $TIME is backed by the treasury assets it has. This means that these assets give the $TIME token an intrinsic value that it cannot fall below.
For example, if the treasury has US$500 million of balance, and there is a supply of one million TIME tokens in circulation, this gives each TIME token an intrinsic value of US$500.
In the long term, this system offers stability and consistency, so that $TIME tokens can be used as a global unit-of-account and medium-of-exchange currency.
Where did Wonderland come from?
It is a fork of Olympus DAO, but building it on the Avalanche network allows for faster speeds and much lower transaction fees.
This makes it a lot more accessible to users, who might not wish to fork out the high gas fees on Ethereum, where Olympus DAO is built on.
It is also notable that Wonderland is built by Daniele Sesta, a well known figure in the crypto circle, as an individual who built and pioneered various innovative projects, including Abracadabra Money and Popsicle Finance.
Why all the hype behind Wonderland?
Most people fall into two camps when they come across Wonderland.
The first group easily dismisses Wonderland and other Olympus forks as scams when they notice the sky-high APYs for staking (read: over 80,000%).
The second group are attracted by the same APYs, and are interested in getting a slice of the pie.
However, before we do so, we need to understand how exactly a protocol can offer APYs northwards of 80,000%?
To explain this, we first need to understand two key points:
First, the difference between APYs and APRs.
While APYs of 80,000% sounds mouth-wateringly attractive, we have to understand that APY rates take into account the effect of compounding.
This means that you can only receive a total of 80,000% increase if you stake your $TIME tokens, and not withdraw it for an entire year, allowing auto-compounding to work its magic.
In fact, Wonderland also shares the 5-day reward rate, which is currently a little under 10%. While this is nothing to scoff at, it is important to first understand the context of the APY vs APR numbers.
Next, how can these high APYs be sustained over a long run?
Assuming an 80,000% APY, this would require Wonderland to provide about 2% staking rewards every day.
Let’s assume that there are 10,000 TIME stakers in the protocol currently. This would mean that each day, Wonderland would need to mint an additional 2% of 10,000 = 200 TIME tokens everyday to pay them the rewards.
This will depend on the minting performance of the protocol. If there are enough people minting at least 200 TIME tokens worth everyday, the APYs will be maintained.
In fact, if minters mint more value than 200 TIME tokens, this should imply an increase in APY too. The reverse is also true.
Here’s an oversimplified summary of this complex web of relationships:
- Stakers can earn high rewards from the high APYs.
- Minters buy TIME tokens at a discount, and contribute to the high APYs and Wonderland’s treasury.
- Wonderland gets increased treasury balances and TIME token backing with more minters, and this incentivizes even more users to come onboard.
How does it work for me?
This might still sound rather daunting. But for us users, we can simply choose between two strategies to participate: staking and minting.
Staking on Wonderland
Staking entails trading for Wonderland’s native currency (TIME) on a separate DeFi exchange (e.g. Trader Joe), and staking on Wonderland Money.
Once you stake, rebase happens every eight hours. This allows you to automatically earn a reward yield every eight hours, as pre-determined by the platform.
In fact, you don’t need to claim and restake any rewards. This is all done automatically, leveraging the magic of compounding.
Minting on Wonderland
Minting requires you to sell certain assets to Wonderland Money. These assets currently include TIME-MIM liquidity pools, wrapped AVAX, and more.
The benefit for minting is that you can buy new TIME tokens at a cheaper price.
However, these tokens have a five-day vesting period. This means that you will not receive all your tokens at once. Instead, you can claim and restake them over the course of five days.
Another benefit that minting offers is that you are contributing to Wonderland’s treasury balance, as you are essentially selling your tokens to the protocol rather than through an exchange.
With a growing treasury balance, Wonderland can increase the backing per $TIME, while sustaining the high reward APYs for stakers for a longer time. The protocol can also use the treasury balance to invest in other protocols to grow further.
Wonderland’s future prospects
While Wonderland was only launched a few months ago, it has already achieved commendable results.
It has amassed a treasury of US$820 million, with a TVL of US$1.8 billion. It also has a fanatic frog nation community, with over 79,000 Twitter followers and 44,000 Discord members.
More importantly, it has also shown some price strengths as it withstood recent market corrections.
But what’s next?
With this huge sum of treasury, Sesta has been hinting in interviews that he intends to evolve Wonderland into building a gaming project in future.
With the metaverse and gaming projects gaining rapid traction recently, this should be rather bullish for Wonderland.
Featured Image Credit: Business Insider / Wonderland