A Sovryn’s Journal
January 6, 2022
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
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.
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.
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,
PS: Thanks to CEK for providing the voluntarily staked SOV list regularly!