[Blog] A Sovryn's Journal

A Sovryn’s Journal
January 6, 2022

Intro

Dear Sovryn Community,

this is the first of hopefully many blog posts from “A Sovryn’s Journal”. I go by the pseudonym Sacro, welcome to my blog.

In this series I want to discuss current events around Sovryn. I am a regular user and a SOV staker. Apart from my belief that Sovryn is great and systems like Sovryn will make bitcoin even more successful in the future, I share no affiliation with the Sovryn team. I would like to try to summarize what is happening around Sovryn from my own perspective once a month. In addition, I would like to provide an update on the profitability of staking SOV at regular intervals.

The info and facts about Sovryn presented here are researched to the best of my knowledge, but may contain errors. DYOR / not financial advice. If facts are misrepresented here, feel free to consider this blog as quality assurance between community management and retail users :-).

I would like to take up the following points this time:

  • Sovryn Staker revenue sources and revenue calculation
  • SIP 31 AMM fee split
  • Mynt AMM pool and arbitrage with the bonding curve
  • Rumors

Staking + SIP 31

The staking system in Sovryn is simply ingenious. Simple and ingenious. Game theory, incentivizing foresight, candy and penalties. Just what the animal in us needs.

Staking income depends on the amount of the stake AND on the time duration of the liquidity lock-up. Revenue share (Voting Power) = Investment * Investment duration. But how profitable is it? The income of a Sovryn staker can be divided into several sources. Not all of them are easy to predict. I will try to keep track of the staking revenue in every following blog post. This post is meant as an intro so the given values are rough estimates. Hopefully they get more accurate once I have more data. A Sovryn staker receives the following benefits:

  • SIP 24 liquid SOV
  • protocol fee share
  • airdrops, i.e. from launching sub-protocols
  • early unstaking penalties from other stakers.

First of all, there is SIP-0024: Liquid SOV rewards for sovryn stakers, distributed every 2 weeks. The longer the duration of the stake, the higher the APY. For the maximum duration of 3 years there is about 20% APY or 60% SOV revenue in total (figure 1). If you compound the liquid SOV every 2 weeks you get an average 27% apy or 81% SOV revenue in total (figure 2). If you extend the stake every 2 weeks, so that the lock-up is permanently 3 years and you compound the liquid SOV, you can watch your SOV stack go parabolic but please note that these SOV will not be liquid but locked for another 3 years (figure 3). It’s unknown if this outcome is even possible because SIP 24 states that the exchequer might let the SIP 24 liquid SOV incentives run out. However, extending the stake keeps the voting power at the maximum, which also increases the revenue of the other sources.

Next, there is the fee share in rbtc that is credited every Friday. This depends on the dapp volume. It’s very difficult to estimate APY numbers here because it fluctuates a lot. Please take this ratio only as a rough estimate. I will try to keep track of it in the coming months and gather some data around it: The revenue share depends on the staked voting power. Dividing the weekly rbtc payout by the staked voting power, we can calculate and track how much satoshis per voting power one can receive each week.

Between October and December and before SIP 31 (AMM fee split with stakers, which I’ll come to in a minute), this income was roughly 1.75 satoshi / voting power every week. If we assume an example calculation with a 1000 SOV stake and maximum stake duration, i.e. 10000 Voting power, that makes 17.500 Satoshis per week. Calculated over the year, that would be 840,000 satoshis or approx. 50 SOV at the current price. Roughly estimated 5% APY for a permanently extended maximum staking duration. That’s not much yet, but can become very rewarding if the dapp volume increases.

After some delay, SIP 31 was released in december, granting sov stakers a share of the amm pool fees. If you’ve been tearing your hair out over the satoshi/voting power estimate, get ready: On january 4 (a tuesday) SOV stakers received a special payout. To the best of my knowledge, this is the first payout from SIP31 in rbtc. It would be nice to get some official confirmation on this. This payout was very high. Roughly 20 sats / voting power. However, it is unclear over what period of time these fees were accumulated. From now on, I expect these fees to be paid out every Friday with the fee share. It will be interesting to see how the sats / voting power rate develops in the coming weeks. Cliffhanger.

In addition to that, SOV stakers also benefit from airdrops. Sovryn stakers receive 1% of the mynt supply over a period of 12 months, depending on their share of the total staked voting power. The first payout is expected on February 7. You can look forward to the MYNT / voting power ratio in the next blog if you can bring yourself to read it. Furthermore, SOV stakers will also receive 6% of the OG tokens and 3% of the ZERO tokens as an airdrop. Expect the OG / voting power and Zero / voting power analysis and a dubious airdrop apy calculation!

Last but not least, there is a fee for those who end their stake before expiration. Depending on the remaining term, between 1 and 30% of the stake will be divided among the remaining sov stakers. There will probably be a dapp update on this shortly. Rumor has it that the first SOV will be paid out soon. Let’s see how much SOV stakers can get per voting power!

So, what’s the actual APY on staking? I have no clue. You get SOV, you get Subprotocol tokens, you get rbtc. It depends on the personal share of the total voluntarily staked voting power, which fluctuates. It depends on the dapp volume. It depends on compounding SIP 24 rewards. And it depends on how many stakers exit before their journey is over. Hopefully I can bring more light into this next time. I will try to collect the data and provide it in the future. For a 3 year stake without compounding, current APY is above 40%. Cliffhanger. Wait, didn’t I say the staking system is simple? I guess it depends on how deep you go down the Sovryn rabbit hole.

MYNT

SIP 0037 was overwhelmingly approved and the Sovryn Mynt subprotocol can finally start. I am very excited to see what will happen with MYNT in 2022. For this time, however, I would like to limit myself to what is currently possible with Mynt. The AMM pool, the bonding curve and huge SOV Christmas presents.

It was great to see the MYNT / rBTC AMM go live before Christmas. And it was even better to read about the Liquidity Mining rewards. 15k SOV per week?! Wow that’s a lot, considering the existing MYNT supply. That must be HUGE APY. How big is the pool going to be? I aped my MYNT directly into the pool and was not disappointed. APY north of 300%, SOV rewards exploding, merry Christmas.

With great rewards comes greed, demand for MYNT skyrocketed because of the huge SOV rewards in the AMM pool. MYNT / SOV topped out at 0.023. During bootstrap event, it was converted for 0.01. That’s a 2.3x at peak. (We don’t talk about USD values here, too much pain and USD is a shitcoin anyway.)

The bonding curve works, but the UI is not live. Only smart people can arbitrage the huge difference between MYNT / rbtc, SOV / rbtc and MYNT / SOV. And it was arbitraged, as it appears that there are rather smart Sovryns around. Interestingly, the current value for SOV / MYNT is still 0.135. It’s great to see the bonding curve working. I love the concept here, lot’s of respect to John Light for bringing this up! More MYNT was minted, the bonding curve price increased, but there’s still a premium for MYNT and this premium comes from the big liquidity mining rewards. Exciting Christmas times.

Hopefully, the arbitrage opportunities will increase the dapp volumes once the bonding curves for all the subprotocols are live. But what happens, when SOV rewards for MYNT / rbtc drop? Might get ugly. Hopefully they only drop when the bonding curve is live. Otherwise, I could see a lot of pain for regular users. Besides the great APY on the pool, there’s also 2 airdrop events for MYNT holders. The first event was on January 3, the next will be on February 3. Both airdrops account for 3% of MYNT bootstrap supply. I have to say that I am very happy with the project launch as I feel rewarded for getting MYNT early – although I could not profit from the arbitrage opportunity with the bonding curve that blinked like a Christmas tree.

Rumors

Rumor 1: Jack Dorsey likes to drink Sovryn tea.

Rumor 2: several thousand SOV (unstaking penalty) are waiting to be distributed to loyal SOV stakers.

Rumor 3: ZERO may not start with its own token right away and will be taken care of by Sovryn governance instead.

Rumor 4: SOV might appreciate in price again.

Looking forward to a sovryn 2022 with you! And if any team member reads this: You are doing incredible work, keep going, ignore the hate. Oh, and: When Binance? Best greetings,

Sacro

Figure 1
fig 1

Figure 2
fig 2

Figure 3
fig 3

PS: Thanks to CEK for providing the voluntarily staked SOV list regularly!

20 Likes

Wow! What a great post! Looking forward to more of these in the future!

4 Likes

Awesome job Sacro!

I will be looking forward to this every month.

If you’re interested, i would also like to read about how much new stakers join in and at what rate is the VP dilution happening.

Again, awesome job!

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i bealieve these AMM split fees are being paid either on monday or on tuesday every week. I heard in a commnity call that the plan is to distribute the two resources separately. One at the begining of the week and one at the end. A member of the team can confirm this!

This is a great initiative and I feel like this will be a very intresting resource of information in the future.

Great job Sacro!

Stay sovryn!!!

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Thank you for all the feedback! I will definitely look out for the separate distributions and new stakers / VP dilution!

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Great post to start of a Sovryn 2022!!!

Thanks Sacro! You could maybe consider posting this on other platforms too, such as Reddit, have you done that already? It’s perfect for new people trying to get a sense of ways to invest in Sovryn.

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Thanks for the thought, i jist posted it here

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Hey Sacro, great initiative.

I waneted to bring these things up in the community call but this might be a better forum to have this discussion. Here are some of my thoughts and concerns around the profitability of staking $SOV for long term.

For good governance the voters need to have “skin in the game”, an experession you will hear a lot, so you have to stake your tokens in the Bitocracy. If the protocol does well, the token price will increases, however you will not be able to benefit from this as you have had to lock up your liquidity. SIP24 mitigates this by giving liquid $SOV as reward to the stakers which is great but these are only temporary and will be stopped at the discretion of the exchequer since the $SOV supply is limited. The point being, staking is attractive for now but perhaps not so much in the future once these rewards run out.

Airdrops from new or sub-protocols are nice to have but they are not something I can quantify as no one knows how many such protocols will launch on Sovryn and under which conditions. Again, nice to have but I view them as a bonus. I would put unstaking penalties in the same category.

The main revenue source is the fee that the protocol generates and distributes to the stakers, this is what I would really like to discuss here. SIP24 was in response to the low volume on the DEX as the project is still in its infancy. In my opinion voluntary stakers should have been earning fees from the AMM swaps from the beginning, SIP31 corrects that. As the DEX seems more volume and more protocols get implemented with the growth of the ecosystem the earning from fees should increase.

However, exchanges generate volume/revenue by listing tokens that people wants to trade, just look at the volume of meme tokens. Since Sovyrn is not supposed to be a “shitcoin casino” that method of fee generation would be out of the question without alienating a portion of Sovryn supporters.

Which brings me to my main concern, Yago has mentioned that ZK rollups will be available in 6-12 months that will bring “infinite scalibility” and the fees “too cheap to meter”, he has expresseed similar sentiment about fees before i.e. “race to the bottom”. As someone who is excited about the upcoming developments I am happy to see all the improvements but I am beginning to question how profitable staking would be if the fees are to continuously go down. I can imagine the team/community coming up with interesting ideas for value accrual to the $SOV token but I am unaware of anything like that at the moment.

Happy to be corrected if my concerns are misplaced.

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Hi Bon,

i think your concerns are valid to some degree and i think this would be a great topic to discuss during a community call. Here are my thoughts on this:

-Even if your tokens are staked, you profit from an appreciating price. They are still your tokens and now worth more. You can sell them if you want, but get a penalty. That seems fair. They will also eventually unlock and then you can realize the profit more easily. Staking is not meant for swing-trading SOV tokens. BUT in this regard, i think it would be very interesting to be able to borrow against staked tokens. Maybe with ZERO in the future? Maybe by letting the fee share pay down the debt? More utility for SOV=great. The billionaires borrow against their stocks all the time. And to me, SOV feels a bit like a dividend paying stock (with benefits).

-SIP24 is currently very important, i agree. Besides your point, there’s also the high SOV inflation rate over the first 2-3 years. Besides the relatively low Dapp volume, SIP 24 also makes up for that inflation and loss of token value. Staking needs to be rewarding in the future.

-Sovryn is way more than an exchange as you know. It will offer many more products, ZERO beeing the first of this kind. Borrowing and lending, Perpetual swaps etc. will all provide revenue that may hopefully become significant for stakers even if the fees go down. The fees at Sovryn are already low. Your concern about revenue generation (race to zero) is valid, but it won’t exactly reach zero. AMM pools must have a revenue for Liquidity providers or noone will provide liquidity. It’s well possible that in the future, more competitors will drive the fees down. But liquidity is valuable and has a price and that’s not 0.

-So where will the revenue come from when the fees go down? A very important question and difficult to answer. Maybe network effects? More people using it?

-Will a big revenue stream from staking even be necessary? Will it be the Voting power thats the really valuable thing in order to have say in a big institution/network state? How much is such Power worth and will people pay for that kind of power?

ZK Rollups will slash the gas fees, Not the exchange fees. The exchange fees remain the same. For example ZK Rollups will make the LP Rewards Claim fee much much cheaper than it is today.

I would make the case that if the gas fees get reduced to near zero, there is an opportunity to actually increase the exchange fees (e.g if gas fees drop by 25% you can increase the exchange fees by 25% and you keep the total fee the same) to generate even more revenue for the protocol or if we want to attract even more volume we can keep the exchange fees the same.

@Bon - @Sacro and @Sitizen both give good responses. I will add only that even if fees per transaction become very low, overall transaction fees may still be significant for overall settlement. Beyond that, there are other avenues of revenue that we haven’t explored yet, such as well regulated “MEV” that can be very significant indeed.

Could you talk more about “regulated MEV” as I had only heard about MEV as something of a negative, this can be discussed in or after the community call as I think more revenue generation ideas should already be explored as they will take time to develop. Would this need to be worked on by the core developers or can external devs be contracted to build this for Sovryn?

What do you mean USD is a shitcoin Do you mean xUSD ?

No i did not mean xUSD. It was meant as a joke. The US-Dollar has pretty bad tokenomics, don’t you agree?

Hi,

That’s why I’m in crypto isn’t it :slight_smile:

I found your statement confusing and misleading, hence my comment.

By the way, is there any risk to xUSD in any particular decision by the FED regarding stablecoins?

regards

I am no expert with regard to xUSD, you should ask in the babelfish discord server. I think there is risk with regard to decisions by legislators or the FED but i also think that babelfish / xUSD has been built to be particularly resilient against that risk.

Well done! Happy to see more contributions like this.

1 Like