Hello dear Sovryn community,
welcome to part 3 of “A Sovryn’s Journal”.
The previous part can be found here
The markets are red, the hype is gone. The best time to build – And a good time to review the investment theses. So this issue will try to shed some light on SOV tokenomics and continue to explore protocol revenue share. Where are we now, where are we going? When Moon? Spoiler: Soon, i mean: when it’s ready.
The data presented here has been collected by myself and researched to the best of my knowledge. Nevertheless, they may be incorrect and do not represent official data for the Sovryn project. As always, this analysis involves a good chunk of bullish moon math. Do your own research, don’t listen to random internet degens.
I would like to discuss the following points:
-Update on Staking
The price of the SOV token depends on many factors. The tokenomics are only one component of many, but will be examined here in more detail.
The SOV tokenomics can be found using this link SOV Token Emission Schedule - February 2021 - Google Sheets
Currently, there is a very high token inflation. Obviously all tokens have already been minted, but for the sake of simplicity I will use the term token inflation for SOV tokens that finished their vesting period and are becoming liquid in the market. To get a rough idea: For 01/22, there’s about 30.000.000 usable SOV token, and in this month, more than 3.000.000 token were added to that. This will continue for some time in 2022. This is expressed in the following chart (I believe we’re in month 13 now).
Not all of the tokens are sold to the market. They may be held in wallets, idle, or they may be used for liquidity mining or staking. I’ll get to the staking part later. But the increase in unlocked SOV puts pressure on the price, as can be seen clearly. Add to that a bitcoin price that lost 50% of it’s value in recent months and you get to where we are now. Some might say hell, I say asymmetric opportunity.
Let’s dive deeper. Sovryn says that all tokens will be unlocked over a 7 year time period. I’d anticipate that the day that all SOV tokens are unlocked will be infinite due to degen stakers always extending their stake. But we should not close our eyes before the fact that by early 2024, 90 mil SOV tokens will be or have been liquid. And by early 2023, in a year from now, this is true for 70 mil SOV tokens.
This looks bad for investors that are down much already. More pain is likely in the short term, at least if you only factor in tokenomics. But why am I still bullish mid-long term? This blog is just getting started.
Here’s the chart for the monthly token inflation rate. It divides the monthly token issuance by the total unlocked SOV supply.
You can see that with regard to inflation percentages, the worst is already behind us. But we are still at a very high level. Fortunately, the trend is strongly downward. While the monthly inflation rate was still 14% in november, it is now “only” 9%. Realistically, a supply shock might not occur until early 2023, when the inflation rate drops from 4.2% to 2.7%. All of a sudden, new SOV supply becomes scarce.
On a sidenote, the liquidity mining SOV rewards only make up 105.000 SOV per week, or round about 420.000 SOV token per month. It’s not so much compared to the overall 3 mil tokens hitting the market per month. SIP 24 liquid SOV is even less, I estimate it to be 40.000 SOV per month (If Exchequer reads this, please give moar LM rewards and reward your faithful Sovryn degens during these unstable times and to compensate for impermanent loss . Let’s ride the bear for a few weeks! This could be combined with a marketing push for new products!
Another way of showing the high inflation rate but also the increasing scarcity of the SOV token is the following chart:
The unloading of 3 mil + tokens per month since october seems to correlate with the depreciating SOV price, there is more supply than demand. The start of 2023 might put a change to this. 2024 is going to be fun, at least if you look at tokenomics only. We also got a halving there so I dare to dream of a lambo by that time. The good thing is that SOV holders can put their SOV to work and earn yield /liquid SOV on it, those gains should at least compensate a bit for the current depreciation of the token.
When to enter SOV and build a stake? I think the time is in 2022. Not saying all in right now, but it could certainly be more profitable to DCA in during these times than to do so when the supply runs dry in 10-24 months. Clock is ticking.
Pun intended: I’d say don’t expect fireworks too soon. We don’t say soon anymore though, only “when its ready”. So i should say “Don’t expect fireworks when it’s ready”. Oh wait.
For me personally, tokenomics are ok. I knew them when I invested and I did not like them back then. But I like the project and the devs and the community, so I took the risk. Other Sovryn’s raise concerns over the tokenomics/price and I tend to understand them.
Here’s a thought: Fundamentals are important, other stuff is important. BUT the price is also important, always. If we look to open Sovryn up, start adoption, get out of alpha: Who in their right mind would invest/use something that looks like the SOV Chart? Everyone is a degen inside and people want the lambo.
We will onboard more users through a rising SOV price than through the most sophisticated marketing strategies in the world! Price increase is the best advertising that exists.
Update on Staking:
You will see a lot of graphs here. Some of them are dubious speculation and moon math. I hope you like them.
The first chart shows the voluntary staked voting power. The trend is upward. In 2022, about 5 million liquid SOV have been added so far, but there is only 1.2 million more staked VP in CW 7 than at the beginning of the year.
The 2nd chart of this chapter shows the number of voluntarily staked SOV tokens. Almost 300,000 SOV have been added since the beginning of the year. The trend is rising.
As detailed in previous issues, I track the weekly payout in satoshi’s / volunteer voting power. This was around 3 sats/VP in January and has recently increased to 5 sats/VP. Despite the larger number of voting power, the weekly profit has increased. Very nice!
What I would also like to point out is the following chart. Here’s the idea: you buy sov at the current weekly price, stake the maximum time period and then get the first payout next week. From this, a weekly current investment yield in % is derived, which is dependent on the SOV price you bought in and the weekly distribution. If the SOV price falls, the voting power is bought at a lower price. This increases the weekly yield as a percentage. A falling SOV price and constant or slightly increasing sats/VP payout leads to an increase of the curve and can be a measure for the fundamental value/buying opportunities of the SOV token based on dapp volume and staking rewards. This chart is moving higher and is one reason why I remain very bullish on Sovryn. Right now, you get more than 0.5% of your investment paid out in btc, each week. You can compound that. This is insanity. This does not include SIP 24 liquid SOV or other staking income streams. Anon thinks SOV goes to 1k sats? This chart doubts it. The weekly btc yield on staked SOV would be 5%. Please keep in mind that I was talking about moon math though. If more people understand this, more SOV will get staked, reducing the sats/VP ratio and the %yield so the curve will go down again. However, dapp volume and rbtc staking rewards provide fundamental value to the SOV token. Let’s hope that the dapp volume increases over the year so that more SOV can be locked and the rewards can stay as good as they are now.
The next chart buys and invests 1000 SOV in maximum stake duration at the current time and assumes that the dapp volume remains constant and that the VP remains constant. if you then invest your weekly sats in SOV compound it, you get the following payoff curve for sats:
Same assumption, but now represented as SOV token stake:
These are already very nice numbers. But there are still the SIP-24 liquid SOV, what happens if we also take them and compound it?
But now enough with the nonsense, many greetings, your man from the moon.
The fact is this: no one knows how the overall voting power, dapp volume and token price will develop. But should the volume remain constant and voting power continue to grow at the current pace, sov staking is extremely attractive at these prices. Who else gives you weekly rbtc payouts plus other attractive bonuses?
Let’s see, what happened to the rumors from issue 2?
-OG launches without a token. Seems to be correct.
-zero launches without a token. Seems to be correct.
-DROPPR launches without a token. Seems to be correct BUT they launch via revenue sharing NFT’s. Sounds really cool to me. Exciting project, looking forward to the degen NFT’s!
-Bitcoin-backed stablecoin based on the perps: I have no idea. It’s very silent around that.
-Sovryn Core Devs stopped coding because they realized that outtrading us degenplebs in the perp competition is far more profitable. I definitely got rekt. Was really fun though, perps looking good!
-Yago will convince each BTC OG individually of Sovryn and he is far from finished. Great conversations.
- A bitcoin friendly bank is trying with its tentacles to include the sovryn protocol in the backend. In addition, many arms want to grab the Sovryn token on certain exchanges.