Derivative Tokens

Overview

Derivatives are a common concept in traditional finance (TradFi) and decentralized finance (DeFi).

A derivative token creates a secondary market for an asset, that would otherwise not exist.

JewelSwap is using derivatives to bring new possibilities to SUI, such as revenue sharing from different modules, access to new markets and new investment opportunities.

---

Basic Mechanism: Generic Explanation

1. Initial Deposit - Minting

   • Primary Token: Users deposit a primary token (e.g., CETUS). The primary token is being staked/locked or sent to a protocol to earn rewards.

   • In return, they receive a derivative token (e.g., JWLCETUS) on a 1:1 ratio with the deposited primary asset.

2. Earning Rewards - Staking

   • To earn staking rewards, users then stake their derivative tokens on JewelSwap.

   • Any derivative tokens not being staked thus increase the rewards for those who do stake their derivative tokens.

   • For some tokens, users will receive a liquid-staked token that represents their staking position (e.g. SJWLSUI). This token grows in value relative to JWLSUI.

3. APR Calculation - Rewards

   • The APR for staking is dynamic and depends on the underlying revenue source and possibly also of the underlying JewelSwap module.

     • If less revenue is generated by the staked/locked "primary tokens", subsequently the APR for stakers will be lower as well.

     • If less revenue is generated by the JewelSwap module utilizing the derivative token, less rewards for stakers are generated as well.

     • For more information how the revenue is generated for a specific derivative, check the derivative's docs page.

   • The fewer derivative tokens are being staked, the higher the APR.

   • Not all primary tokens are used for revenue generation. Some are used for liquidity provision. To learn more about this, check out the individual docs page for the JWL-token you are interested in and the POL mechanism.

4. Unstaking

   • Unstaking the derivatives from JewelSwap can happen anytime after the initial wait time has passed.

     • Example: You deposit JWLCETUS into staking on JewelSwap. You may not unstake the JWLCETUS for the next 7 days. After these 7 days have passed, you can keep them in staking or unstake them at any time.

   • Each derivative has a different unstaking mechanism. Some take 7 days to unstake, some have a lock period, some have a 10 day unstaking time - to find out for the specific derivative you are interested in, check it's specific docs page.

5. Redemption

   • Not all derivative tokens can be redeemed for their backing. Check the docs page of the specific derivative you are interested in.

     • The derivative tokens are sorted by "redeemable" and "non redeemable" in the menu. Please make sure to read the derivatives docs page and check the availability of redeemability.

   • To redeem a token, it must not be staked. A staked token cannot be redeemed. So to redeem a token, you first have to unstake it.

   • The unbonding period varies between the redeemable derivatives. Please check the unbonding duration of the derivative you are interested in, in it's docs page.