Nov 2, 2022 at 05:26Contents
Blockchain technology is increasingly intertwined with the real world. We have already written about how NFTs can be used to sell real estate or titles to a certain object using a chip. Now, Web3 has made its way to agriculture!
Do you remember how stablecoins work? If not, let me remind you: the most popular ones are tied to the exchange rate of various currencies (but they can also be other valuable commodities, like oil or gold). Something similar has now appeared in the farming world thanks to the LandX project. The platform captures the advantages of agricultural commodities and brings them into the modern world and Web3 space.
“xTokens offer a new form of collateral for DeFi markets which are complementary to crypto assets and stablecoins, combining the best of all worlds,” developers say.
Unlike gold and other scarce resources, arable land has the added advantage of being a productive asset. Not only does it protect its value from inflation, but it also generates income for the owner through the sale of agricultural products.
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Like much in the world of cryptocurrency and digital assets, the above will sound interesting to most people, but completely incomprehensible. More about LandX, xTokens, and how it all relates to derivatives was explained on Twitter by the creator of the Seven c Pirate Crew NFT collection who goes under the nickname hoeem.
One of the basic things that all people need is food (remember Maslow’s pyramid?). No matter how chaotic the world may be, we need to eat. Agriculture has never been represented in decentralized finance (DeFi) until now.
Thanks to the LandX project, everyone gets a chance to own agricultural derivatives. But why do we need it? hoeem explained it with the example of wheat.
“Supply and demand, take wheat for example… The supply is currently shrinking due to a multitude of reasons: e.g. war and EU farms closing. The demand is growing as the population grows. Yes, but it has limitations as it’s difficult to fractionalize, you can’t buy yield-bearing xToken equivalent in TradFi unless you buy land and rent it out for commodity-denominated rent,” he tweeted.
A little reminder: a derivative is an instrument whose value depends on or is derived from an underlying asset or group of assets.
That is, the buyer can own a real farm, connected to the network, and get yields.
LandX then deducts one year of prepayment and up to 12 months of collateral. The farmer now mints the xToken received, the farmer can then sell the xTokens in various ways in the market, one way can be over-the-counter, or sold to the liquidity pool. The investor can buy these tokens either in the OTC market or in the liquidity pool. There are other options.
More about xTokens:
- xRice, xSoy, xCorn, and xWheat represent their real-life commodity counterparts. These are all grown on farmer’s land, regularly checked through validators, and then sold on the open market.
- xBasket represents an equal share of xRice, xSoy, xCorn, and xWheat. xBasket is suited for investors who prefer to hedge against a basket of commodities.
Through xTokens, the investor completely bypasses the complexities of being an agricultural land owner and simply captures the land’s production value directly. By staking xTokens, an investor receives commodity yield paid in cTokens. Each cToken is pegged to the price of one kilogram of the commodity at the market price.
What is a fair price of xToken
xTokens pay yield in units of commodity. It’s APR is inversely related to the price. At low prices the APR of xToken is high. At high prices the APR is low. This relationship facilitates price discovery by market forces.
— LandX (🌽,🌾) (@landxfinance) November 1, 2022
Why would farmers want to get into Web3?
Farmers can get financing and pay upfront. There are credit limitations in traditional financing.
Why might investors be interested in the LandX project?
Retail investors will be able to get returns from real farms. There is a gap in the market to have such alternatives to digital assets.
All that looks great, but note: we don’t give you any advice, we only tell you about what’s new and interesting in the world of cryptocurrencies and the Web3. Any transactions are a risk and all the consequences are yours alone. So be careful!
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