ApeCoin Staking with Bored Ape Yacht Club NFT's

Borrow and Stake ApeCoin against Eligible NFT's via Parallel or do Paired Staking with Other APE or NFT Holders

Parallel allows users to maximize their ApeCoin Staking yields via an innovative mechanism by which users can simultaneously stake and borrow against their NFT’s. Following the ApeCoin DAO’s passage of AIP-21 and AIP-22, Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club NFT holders may earn further ApeCoin via staking.

The core challenge is that many BAYC, MAYC, BAKC, and ApeCoin holders do not hold sufficient ApeCoin or NFT’s to maximize their potential yields. Further the official Horizen Labs contract do not support auto-compounding of staking rewards. But Parallel has a solution. The protocol allows users to stake their NFT’s and borrow the necessary ApeCoin against them to maximize yields against their NFT’s. ParaSpace then auto-compounds ApeCoin staking rewards to maximize the user's effective returns.

Parallel likewise supports Peer 2 Peer staking for those who look for an alternative way to maximize their staking rewards with Bored Ape Yacht Club, Mutant Ape Yacht Club, or Bored Ape Kennel Club NFT's. Users can submit or accept offers to share staking rewards with APE holders, and they share rewards with another user who supplies the ApeCoin for the combined pairing. Each the holder of the NFT and ApeCoin receive a fixed share of auto-compounded rewards.

Parallel ApeCoin Staking Solves Two Key Problems in the Market

Parallel has built a platform to solve a simple problem: eligible Bored Ape, Mutant Ape, and Bored Ape Kennel Cub NFT holders do not have sufficient ApeCoin to maximize their yields. Furthermore the official ApeCoin DAO staking contracts do not auto-compound staking returns. Parallel helps solve both problems.

Our study of on-chain NFT holder data showed there were approximately 14,000 Ethereum addresses which are eligible to stake up to 141,000,000 ApeCoin but need an additional 100,000,000+ ApeCoin in order to maximize their staking amount. Approximately 92% of all eligible Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club NFT holders did not hold enough ApeCoin to maximize their eligible staking.

On the flipside there were approximately 134,000,000 ApeCoin held in wallets which did not hold any of the required NFT’s, and the ApeCoin-only staking pool yields will almost certainly prove inferior to those pools for BAYC, MAYC, and BAKC NFT holders.

Clearly there’s an imbalance and opportunity for those without NFT’s to lend ApeCoin to those with the required NFT’s.

Furthermore the staking rewards do not auto-compound, which effectively keeps true yields considerably lower than if they did. Parallel not only provides the possibility to borrow ApeCoin or look for a P2P pairing but then auto-compounds the user's staking rewards and significantly boosts effective returns.

See our more detailed data on Bored Ape Yacht Club, Mutant Ape Yacht Club, Bored Ape Kennel Club, and ApeCoin holdings: further data.

See more about our ApeCoin auto compounding.

Potential Staking Rewards Show Opportunity and Mismatch

What do Annual Percentage Yields look like if we assume NFT holders will use their available ApeCoin holdings and NFT’s to stake? Below we made certain assumptions in user behaviors and further assume that users do not purchase more ApeCoin ahead of staking. Given that the resulting ApeCoin APY’s will necessarily vary based on actual participation, view these figures as an approximation.

Further note that all APY’s are in terms of ApeCoin—not stablecoins or fiat—and these figures make no representations as to how much the user will actually earn in real USD or other fiat terms.

Estimated Ape Coin Staking Pool Yields in First 91 Days

If users were to have staked all of their eligible ApeCoin, Bored Ape Yacht Club holders might have reached staking APY’s in excess of 200% while ApeCoin-only stakers would receive approximately 30%. We need to emphasize that all of the above figures were high-level estimates based on key assumptions of user behavior. But the stark difference in returns for the ApeCoin-exclusive pool and the NFT-linked pools underlined the mismatch in funds.

How do we make matches between eligible ApeCoin tokenholders and those who hold only the NFT’s?

Parallel offers two choices:

  1. Borrow and stake ApeCoin along with your Bored/Mutant Ape Yacht Club and Kennel Club NFT's.

  2. Request and receive Peer 2 Peer ApeCoin staking alongside your eligible NFT's and/or ApeCoin.

Peer to Peer Matching - Parallel Brings Auto-Compounding to P2P ApeCoin Staking

The obvious imbalance between ApeCoin holders and BAYC/MAYC/BAKC holders invites the opportunity to match users. And one such method is Peer 2 Peer matching of eligible NFT holders along with ApeCoin holders. There is some additional friction to this method, and we generally believe P2Pool staking is the better choice.

Of course we understand some users may not feel comfortable borrowing against their valuable NFT's, and we recognize there may be other instances in which it makes more sense to use P2P staking.

Pros:

  1. NFT holders and ApeCoin holders may earn a fixed share of total rewards for NFT pool staking positions if they find a successful pairing.

  2. NFT holders who feel unwilling to use their NFT's as collateral for ApeCoin loans may instead seek P2P pairs for a share of rewards with ApeCoin holders.

  3. Parallel will automatically claim and re-stake all NFT pool rewards into the Single Side ApeCoin pool. Both the NFT holder and the ApeCoin holder will receive a fixed share of all staking rewards.

  4. Parallel will allow the NFT and ApeCoin holders to use their NFT and ApeCoin deposits in the P2P matching system as collateral for other ERC20 loans.

Cons:

  1. Finding a match can be time-consuming and far from exact, discouraging user participation.

  2. Peer 2 Peer matches are potentially inefficient as paired users do not have the correct mix of complementary assets.

  3. Users must negotiate their shares of staking rewards based on assets, adds further friction. Further users are unable to withdraw without mutual consent, and if one user unpairs the other user is no longer staked in the NFT ApeCoin staking pools. NB: Some may in fact view the permissionless withdraw capability of the P2P system as a 'Pro' as it does not depend on the available liquidity in the ApeCoin money market.

We believe the Peer 2 Pool model is generally a better solution for most users. Of course Parallel has listened to its users and seeks to provide maximum flexibility in both P2P and P2Pool ApeCoin staking options.

Parallel Offers First Peer 2 Pool Ape Staking Model, Provides Better User Experience

We believe the Peer 2 Pool model serves as the best way forward for ApeCoin staking. As an crypto-first, ParaSpace allows users to connect to a single pool to perform permissionless borrowing, lending, and staking of ApeCoin and related NFT assets.

Below we show a basic flow chart of users interacting with the Borrow/Lending pool which in turn stakes collateralized and borrowed NFT’s and ApeCoin on the user’s behalf. Staking rewards are then paid to the depositor of NFT’s by the ParaSpace smart contract—ensuring users can permissionlessly borrow/lend and ultimately stake their assets for ApeCoin staking.

The Peer 2 Pool model is instantaneous and does not require users to find pairings nor negotiate potential payout distributions—all rewards go to the depositor of the BAYC/MAYC/BAKC NFT’s and ApeCoin. Lenders in turn supply their ApeCoin to our auto-compounding ApeCoin staking pool and receive compound APE or cAPE--a derivative token which is backed 1:1 by ApeCoin staked and auto-compounded by Parallel in the official Horizen Labs contract.

The Interest Rate model on ApeCoin provides high Supply Rate yields which exceed projected ApeCoin staking pool yields at the Optimal ApeCoin utilization rate. Of course this comes at the cost of higher borrow rates, but ApeCoin staking yield projections for Bored Ape Yacht Club and Mutant Ape Yacht Club NFT holders in particular remain above the highest borrow rates in the interest rate model.

Yields for both ApeCoin staking and the ApeCoin money market ultimately depend on the utilization of each, and we expect users to borrow up until the point where ApeCoin staking yields remain profitable. If borrowing ApeCoin for staking becomes unprofitable, users will be incentivized to un-stake any borrowed ApeCoin and repay their loans.

Users may likewise move staking positions to the P2P matching system if P2Pool staking becomes unprofitable. But we have designed the interest rate model such that the NFT Pool effective APY's should remain above the Total cAPE Borrow APY.

Further note that the above Borrow APY's in our model assume the debt auto-compounds over time according to our interest rate model. In fact Parallel not only auto-compounds staking rewards but also automatically pays off the user's debt in cAPE as part of the auto-compounding.

Deposit and Stake, Unstake and Withdraw

Parallel allows the user to deposit their Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club NFT’s into the protocol along with their ApeCoin to immediately begin staking. Bored Apes, Mutant Apes, and Bored Ape Kennel Club NFT's must be collateralized in the Parallel protocol.

Parallel likewise allows the user to borrow and stake further ApeCoin if their existing balance is insufficient as described above. The resulting NFT + ApeCoin position is deposited directly into the ApeCoin Staking contract on behalf of the user, who in turn receives the nTokens matching their NFT’s as the depository receipts and claims to their NFT’s and ApeCoin staking rewards.

We know BAYC, MAYC, and BAKC owners will not take the decision to transfer their NFT's to a smart contract lightly, and that's precisely why Parallel requires all of its protocol changes to undergo security audit before releasing to Mainnet. See our External Audits for more.

Deposit and Stake User Flow

When the user later withdraws the protocol will call unstakeAndRepay which first claims any staking rewards from the Ape Staking contract, repays any $APE loans, and ultimately returns the user’s NFT and net ApeCoin to the user’s account. There are no fees charged if the user calls unstakeAndRepay , and the user may then continue to use their NFT and ApeCoin as collateral on Parallel or simply withdraw to their wallet.

Unstake and Withdraw Flow

sAPE and Re-staking Rewards

sAPE is a non-transferable token issued to stakers to represent their Staked ApeCoin via ParaSpace. As a further convenience to Parallelusers, any sAPE linked to Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club NFT’s will be used as additional collateral in the user’s account for further borrowing. The user may subsequently claim the staking rewards at any time and re-stake them up to their max ApeCoin staking limit.

Borrowing $APE to Stake with Bored/Mutant Ape Yacht Club NFT’s

Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club holders may deposit their NFT’s into the Parallel protocol as collateral to then borrow $APE, ETH, stablecoins, and several other ETH-derivative tokens. Parallel enhances the functionality of staking borrowed $APE to maximize flexibility.

Parallel will instantaneously stake any borrowed ApeCoin along with the relevant NFT. The smart contract will then credit the user’s account with both the borrowed ApeCoin and the collateralized NFT to give the user ample collateral against their borrowed position.

Thus total Credit (CRCR) available to the user includes the NFT Collateral in addition to the Staked ApeCoin (sAPE):

CR=∑i=1iNFTi in ETH × LTVi +sAPE in ETH×LTVsAPECR = \sum_{i=1}^i NFT_i \: in \: ETH \: \times \: LTV_i \ + sAPE \ in \ ETH \times LTV_{sAPE}

Or in short, any $APE borrowed for staking immediately becomes sAPE within the user’s account and used as collateral. This expands the user's credit available and ultimately the Health Factor of the user’s position.

The user deposits their Bored Ape Yacht Club, Mutant Ape Yacht Club, and/or Bored Ape Kennel Club NFT into ParaSpace for ApeCoin Staking, and the protocol calls its borrowAndStake function to simultaneously borrow the necessary ApeCoin and immediately stake it along with the NFT. The user can borrow the maximum amount available via available CRCR and as long as their Health Factor remains above 1.

The fact that sAPE becomes collateral gives the user a far greater Health Factor (HFHF) and makes it impossible for their NFT to face liquidation if the user makes no non-$APE borrows. If the user does borrow beyond their staked $APE, their NFT’s are safe from liquidation as long as their HFERC−721HF_{ERC-721} remains above 1:

HFERC−721=∑i=1iNFTi× LTiMax(0,Total Borrows+Interest Owed−sAPE)HF_{ERC-721} = \frac{\sum_{i=1}^i NFT_i \times \: LT_i} {Max(0,Total \ Borrows + Interest \ Owed - sAPE)}

The user's NFT will never be liquidated as long as they only borrow $APE in order to stake it. The only risk to such borrow positions is that their account's HFERC−20HF_{ERC-20} falls to 1 or below in which case the protocol will call unstakeAndRepay, ending their staking position and returning their NFT to their account.

Forced ApeCoin unstakeAndRepay Possible if NFT Floor Prices Decline against ApeCoin

Stakers should note their NFT will not be liquidated if they are only borrowing and staking ApeCoin along with their NFT. It is unlikely but nonetheless possible for their account's HFERC−20HF_{ERC-20} to force an unstakeAndRepay in the case of especially strong declines in NFT floor prices, appreciation in ApeCoin prices, and/or excessive net interest owed on ApeCoin borrows. But here it bears stressing that Parallel will automatically claim rewards and repay the user's loan such that their debt does not auto-compound.

Their NFT will not be liquidated but their ApeCoin+NFT position will be unstaked in order to repay the loan.

HFERC−20=∑i=1iNFTi× LTi+∑j=1jERC20j× LTjTotal Borrows+Interest OwedHF_{ERC-20} = \frac{\sum_{i=1}^i NFT_i \times \: LT_i + \sum_{j=1}^j ERC20_j \times \: LT_j} {Total \ Borrows + Interest \ Owed }

This is a limitation at launch as Parallel prioritized smart contract safety above all else. But the team will work towards an isolated borrowing model in a future launch to ensure we take the fairest view of any Staked ApeCoin positions in relation to $APE borrow positions. Below is the BAYC NFT-specific calculation of an account’s HFsAPEHF_{sAPE}:

HFsAPE=FloorBAYC× LTBAYC+sAPE×APEETH× LTAPEAPE Borrows×APEETH+Interest Owed HF_{sAPE} = \frac{Floor_{BAYC} \times \: LT_{BAYC} + sAPE \times APEETH \times \ LT_{APE}} {APE \ Borrows \times APEETH + Interest \ Owed }

If a user opens their ApeCoin Staking position with a Bored Ape Yacht Club NFT at a 70 ETH Floor Price (currently 20,000 $APE) and borrows the maximum stake (10,094 $APE ), the user’s ApeCoin borrow position could force an unstakeAndRepayif ApeCoin appreciates and/or the BAYC Floor Price falls to 3,700 $APE. Or an 82 percent decline in the $APE-denominated Floor Price of a Bored Ape Yacht Club NFT.

The protocol would allow the user themselves to call unstakeAndRepay at any time with no penalty. If, however, their position's HFERC−20HF_{ERC-20} falls to 1 or below, any user can call unstakeAndRepay and collect a 0.3% bonus charged to the borrower on the total sAPE position.

Suffice it to say we recommend each user monitor their borrow position such that they are not exposed to losses via forced unstakeAndRepay.

User’s ApeCoin Borrow Position Could be Unstaked and Repaid if BAYC Floor Price falls in $APE terms

A negative net interest rate could likewise force the account into an unstakeAndRepay. We'll define net interest rate as the ApeCoin borrow rate minus any sAPE staking yields. Current projections show it is unlikely net interest rates will be negative but not impossible. In the unlikely case that $APE borrowing rates significantly exceed sAPE staking rates the user should take care to monitor their Health Factor closely.

Notably however Parallel will use the user's staking rewards to automatically repay debt thus making it quite unlikely interest rates would force an unstakeAndRepay.

Key facts to consider for Borrowing $APE against Bored Ape Yacht Club and Mutant Ape Yacht Club NFT’s:

  1. Users may stake their Bored Ape Yacht Club, Mutant Ape Yacht Club, and Bored Ape Kennel Club NFT’s and borrow $APE to stake directly into the ApeCoin Staking contract.

  2. Borrowed ApeCoin is immediately staked on the user's behalf, and the resulting Staked $APE (sAPE) becomes collateral in the user’s Parallel account.

  3. If the user borrows only ApeCoin against their BAYC, MAYC, and/or BAKC NFT’s and stakes it, it is impossible the user’s NFT will be liquidated as the Borrowed $APE is offset by the sAPE as collateral.

  4. Users should instead monitor their account's ERC-20 HF (HFERC20HF_{ERC20}) as a significant appreciation in the APEETH exchange rate, a decline in the relevant NFT's Floor Prices, and/or sharply negative net interest rates could force an unstakeAndRepay, ending their ApeStaking position and returning their NFT to their account. The user will not lose their NFT to liquidation, but they will no longer participate in ApeCoin staking.

  5. Parallel will auto-claim and compound the user's staking rewards, likewise using these rewards to automatically pay off the user's loan such that their debt does not auto-compound.

An example of Borrowing Against a Bored Ape Yacht Club NFT

Let’s assume Sally owns a Bored Ape Yacht Club NFT but has 0 ApeCoin in her wallet. Thus she looks to borrow the maximum stake of 10,094 ApeCoin.

Given the current Bored Ape Yacht Club collection floor price of 70 ETH, Sally is able to borrow up to 70 ETH x 0.4 Collateral Factor, or 9,032 ApeCoin at current exchange rates PLUS a further 1,800 ApeCoin as available credit. Parallel calls borrowAndStake which allows Sally to borrow the maximum 10,094 ApeCoin.

  1. Sally collateralizes her Bored Ape Yacht Club NFT in the Parallel Protocol.

  2. She borrows the maximum 10,094 $APE against her NFT collateral via Parallel's borrowAndStake, and Parallel immediately stakes both her Bored Ape and ApeCoin into the staking contract on her behalf. Sally at any point claim her ApeCoin staking rewards, though ParaSpace will auto-claim and compound rewards at regular intervals. She can likewise call unstakeAndRepay which repays her debt and returns her BAYC to her account.

  3. After the initial 91 days of staking rewards, Sally decides to un-stake her NFT and withdraw ApeCoin staking rewards. Via the same Parallel interface she calls unstakeAndRepay. Parallel immediately claims outstanding ApeCoin rewards, un-stakes the ApeCoin and Bored Ape NFT, and repays Sally’s $APE loan. Sally then withdraws her Bored Ape NFT and any ApeCoin rewards from her Parallel account.

Sally would thus benefit from all ApeCoin staking rewards minus any interest paid on the $APE borrow through the same period.

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