xUSD Staking
Demand side incentives - increase demand
Last updated
Demand side incentives - increase demand
Last updated
Complimentary to the variable interest rates is our injected liquidity pool (ILP). The ILP is a staking product that's analogous to a savings account. Anyone can purchase xUSD and place that in a the ILP and earn a yield from it.
The ILP is funded directly out of the interest produced by vault holders, and so is sustainable and scalable with the entire xUSD supply. As the interest is harvested each day, a configurable percentage of the total income is diverted from the CompX treasury, to the ILP staking contract and distributed to each user in the pool in proportion with their overall stake. These extra tokens are kept in the contract rather than sent out to users wallets. Because of this, user position is compounded every time the interest bot runs.
Because the funding of this contract is tied to the overall interest being brought in by the protocol daily, the net effect is that this contract pays out more when interest rates rise and less as they fall. This mirrors the increased expense for vault owners with an increased yield for xUSD holders. As interest rates rise, this staking pool will become more and more attractive to users who will be able to profit by simply staking their xUSD in the ILP. This will drive purchasing of the token on the open market as xUSD becomes more desirable. Because this is accessible to anyone in Algorand Defi (rather than just vault holders), this pool has the potential to push the peg positively with more strength than increased interest on vaults alone.
As xUSD approaches its peg and the interest rate decreases, incentive to continue staking in this pool is reduced and people will remove their stakes for other opportunities. The staking contract is written to be flexible for users. It has no lock up periods, or penalties that result from removing tokens from the contract. This allows users maximum flexibility to take advantage of changing market conditions. However, to avoid gaming the system, payout won't commence until tokens have been in the contract for over 24 hours.
Because this contract relies on taking interest from the collateral wallets, there may be fringe cases in which all of the tokens for a collateral type have been loaned out. In this case, the bot won't be able to collect any interest. However, this interest isn't lost. The interest will continue to be tracked by the protocol and will be collected when either more xUSD is added to that collateral type, or one of the vaults borrowing from that asset repays a portion of their debt freeing up some tokens. At that point, the bot will be able to pull the back interest out and distribute it as intended. The net result will be a delay in the distribution to the ILP, but not a loss for the ILP in the long term.
