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Rinse, Relax, Repeat

I had my first and only onsen experience in Japan over twenty years ago. I don’t use the word “only” with any sense of regret. I quite enjoyed it and wish I had taken time to go more often. To westerners, an onsen is simply a hot spring used for bathing and relaxation. At an onsen, the initial bathing occurs before entering the hot spring. In fact, it’s considered rude to enter the hot spring without first cleansing oneself. Once in the hot spring, relaxation, rejuvenation, and healing are said to take place. This understanding is important to unlocking the meaning behind Sprite Onsen – the ERC-based NFT and yield farming project.

At the request of a friend and holder, I created two infographics covering the basics of the Sprite Onsen concept. With the opening of onsen Season 1 roughly a month away, I wanted to revisit the project again. (Infographic 1)

Heating Up

The magic of an actual onsen is that the water is naturally geothermally heated. It is believed that this natural heating source provides rejuvenating and healing benefits to the body. According to Wikipedia, there are about 3,000 established onsen facilities across Japan. In crypto, there is only one – Sprite Onsen.

For roughly three months, holders of the Onsen Pass, an exclusive NFT, have been awaiting the opportunity to bathe in the accumulated USDC rewards that have been piling up during this first heating period. This bathing is symbolic – more analogous to the workings of an actual onsen. For the purposes of Sprite Onsen, the pass will allow holders to take part in a special staking pool that will pay out USDC rewards to the tune of 57.29%. To date, the pool has accumulated over $41,000 in USDC. The accumulation of these rewards aren’t accidental.

The Nature of Onsen Math

Those who minted the Onsen Pass invested a hefty sum – $1,000 USDC and a combination of forty-one deflationary tokens called Sprites. The sprite tokens are burned with the minting of each pass. This burning mechanism will cause token values to increase as demand for the Onsen Pass NFTs increases. Funding the onsen rewards comes down to math and smart AI script writing.

• Source 1: 3% of the 10% taxes on every token buy or sell is collected in Ethereum in the Sprite AI wallet. Using the AI script, this wallet takes yield farming positions in the best Ethereum farms on SushiSwap. The pending rewards are liquidated in USDC and sent to the onsen for rewards.
• Source 2: 33% of the USDC spent on Onsen Pass mint fees are also collected and used to take yield farming positions in Ethereum farms on SushiSwap. Weekly rewards are liquidated in USDC and sent to the onsen for rewards.

The AI script allows it to rotate yield positions prior to expiration. This ensures that rewards don’t dry up.

Onsen Season 1 is Nearly Upon Us

There were 5,000 Onsen Passes available for mint, but like the Sprite tokens, there is a deflationary mechanism that burns passes as well. In time the onsen passes should increase in value and be worth considerably more if holders choose to sell them on the OpenSea NFT marketplace. That brings me to…

• Source 3: A 5% royalty fee is collected in USDC from sales on OpenSea and sent to the onsen for rewards.

When the staking pool (onsen) opens on September 1st, pass holders are currently looking at receiving over half their investment back in USDC rewards over the Season 1 rewards period. This seasonal opening and closing of the onsen gives rewards time to be replenished, effectively ensuring holders that their passes will be valuable for seasons to come.

The last numbers I looked at showed that the yield position on SushiSwap was over $100,000 in value. This is exceptional considering the project has only minted out just over 70 of the 5000 available NFTs.

So Where’s The Value?

I think the Sprite Onsen concept is brilliant. I feared that late minters would water down the rewards pool, but it appears that the cost to mint an Onsen Pass has risen above the initial $1,000 USDC to closer to $1020 USDC. This rise in costs appears to incentivize early minting. I can’t say for sure if that is by design, but I can say that it causes me a bit of anxiety. I have long been a fan of the concept, but the $1,000 plus mint fee is beyond my budget…well, I could swing it, but I don’t want to sell any of my current holdings. Part of me wonders if others are in a similar position – love the concept, but a bit short of the funds needed to make the plunge into the onsen.

I also wonder if there is a mechanism by which the mint fees could be reduced in an effort to see the number of mints increase, thus generating a stronger yield position. If this occurs, then I’m sure something would be done to compensate early minters, perhaps providing them an additional pass for free. This would mean that the new mint fee would be closer to $500 USDC, something more manageable for us small time investors.

The Sprite Onsen concept takes a bit to fully understand. There is an additional Sprite token cascading concept that I didn’t explore in this write up. I think there’s an opportunity to mint out the Onsen Pass NFTs, but I believe a lower price point would make the project more accessible to smaller investors and create the buy and sell volume that can spark the project’s success and visibility.

Let me know what you think. You can find out more at spriteonsen.app.