[Circle of Tokens] SIP-24 Liquid SOV

Bitocracy Circle of Tokens
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Hello Sovryns,

this post aims to report on the current situation with SIP-24 liquid SOV rewards. A large part of the data used here is taken from @CEK 's weekly staking updates. Many thanks for that!

If you follow CEK’s weekly posts, you already know that the number of voluntarily staked SOV has increased significantly in the last months. In addition, the average staking duration is getting longer and longer.

Of course, this also means that the SIP-24 rewards that the protocol has to pay out are getting bigger. With the possibility to use compound interest on the liquid SOV every 2 weeks, the SOV to be paid out can increase exponentially.

It is therefore necessary to keep track of how many SIP 24 rewards have to be paid out. It should be noted that the SIP 24 rewards continue to be paid out over a period of 3 years for sovryns that have stakes over such a long period of time. So even if the SIP 24 rewards are discontinued, the payments will continue for a long time for such stakers.

Here is the data for the year 2022: (Note: Higher VP multiplier = longer average staking duration)

W1: 2,170,490 Staked SOV; 8,965,000 VP; 4.13 VP multiplier
W2: 2,279,277 Staked SOV; 9,346,000 VP; 4.10 VP multiplier
W3: 2,315,403 Staked SOV; 9,723,000 VP; 4.20 VP multiplier
W4: 2,350,446 Staked SOV; 9,741,000 VP; 4.14 VP multiplier
W5: 2,412,911 Staked SOV; 10,136,000 VP; 4.20 VP multiplier
W6: 2,421,739 Staked SOV; 9,923,000 VP; 4.10 VP multiplier
W7: 2,456,507 Staked SOV; 10,234,000 VP; 4.17 VP multiplier
W8: 2,618,360 Staked SOV; 11,058,000 VP; 4.22 VP multiplier
W9: 2,641,585 Staked SOV; 11,350,000 VP; 4.30 VP multiplier
W10: 2,753,828 Staked SOV; 12,300,000 VP; 4.46 VP multiplier
W11: 2,767,724 Staked SOV; 12,800,000 VP; 4.62 VP multiplier
W12: 2,880,296 Staked SOV; 13,650,000 VP; 4.74 VP multiplier
W13: 3,141,452 Staked SOV; 16,180,000 VP; 5.15 VP multiplier
W14: 3,075,376 Staked SOV; 16,402,000 VP; 5.22 VP multiplier
W15: 3,249,095 Staked SOV; 18,253,122 VP; 5.62 VP multiplier
W16: 3,555,424 Staked SOV; 20,956,964 VP; 5.89 VP multiplier
W17: 3,565,077 Staked SOV; 21,221,324 VP; 5.95 VP multiplier
W18: 3,442,359 Staked SOV; 21,229,359 VP; 6.16 VP multiplier
W19: 3,389,228 Staked SOV; 21,674,688 VP; 6.39 VP multiplier
W20: 3,668,657 Staked SOV; 24,128,688 VP; 6.58 VP multiplier

If we run the numbers, convert the VP multiplier into the average staking duration in days based on the quadratic VP formula and calculate how much reward periods there are for the overall staked SOV tokens at each week, we can create a chart that shows how many liquid SOV in total have to be paid. We can then add some trendlines to guess how it may evolve over the next weeks. Here it is:

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Compound interest and longer average staking durations may increase the cost of SIP-24 rewards by a lot very soon. It may not play out like drawn here, but we must monitor it. Maybe it’s also time to start a discussion if it’s reasonable to reduce the SIP-24 APY or cut it.

As a staker, I really enjoy the Sip-24 rewards and I’d be happy if they continue in some way. But there might come a time where there are not enough SOV available anymore to pay the SIP-24 rewards. Changes must be made at some point.
Please don’t hate me for this suggestion :slight_smile:

Sacro

6 Likes
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Well we knew that SIP24 rewards could stop for new stakers at any time, that was clearly stated in SIP24 and no one should get upset if the community and team decides it is time to cut the rewards. I don’t think it will upset anyone. For those who are already long term stakers, they will still get the rewards for next 3 years but won’t be able to compound anymore. For those who are not staking actually it is better because the price of SOV could go up (I assume non-stakers have liquid SOV) because of that. Correct me if I am wrong.

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@Sacro I highly commend you for all your brilliant work. I think you are not part of the core team, right? I hope you get rewarded in SOV for your contribution, and if not, you should. That’s the spirit of a true DAO imho.

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Thank you :slight_smile:
I am not part of the core team, just an active community member and recently became the voluntary head of the Circle of Tokens.
Of course, my long-term SOV stake also gives me a financial incentive to help Sovryn become the #1 Bitcoin DeFi project out there.

Here’s the updated chart:
W1: 2,170,490 Staked SOV; 8,965,000 VP; 4.13 VP multiplier
W2: 2,279,277 Staked SOV; 9,346,000 VP; 4.10 VP multiplier
W3: 2,315,403 Staked SOV; 9,723,000 VP; 4.20 VP multiplier
W4: 2,350,446 Staked SOV; 9,741,000 VP; 4.14 VP multiplier
W5: 2,412,911 Staked SOV; 10,136,000 VP; 4.20 VP multiplier
W6: 2,421,739 Staked SOV; 9,923,000 VP; 4.10 VP multiplier
W7: 2,456,507 Staked SOV; 10,234,000 VP; 4.17 VP multiplier
W8: 2,618,360 Staked SOV; 11,058,000 VP; 4.22 VP multiplier
W9: 2,641,585 Staked SOV; 11,350,000 VP; 4.30 VP multiplier
W10: 2,753,828 Staked SOV; 12,300,000 VP; 4.46 VP multiplier
W11: 2,767,724 Staked SOV; 12,800,000 VP; 4.62 VP multiplier
W12: 2,880,296 Staked SOV; 13,650,000 VP; 4.74 VP multiplier
W13: 3,141,452 Staked SOV; 16,180,000 VP; 5.15 VP multiplier
W14: 3,075,376 Staked SOV; 16,402,000 VP; 5.22 VP multiplier
W15: 3,249,095 Staked SOV; 18,253,122 VP; 5.62 VP multiplier
W16: 3,555,424 Staked SOV; 20,956,964 VP; 5.89 VP multiplier
W17: 3,565,077 Staked SOV; 21,221,324 VP; 5.95 VP multiplier
W18: 3,442,359 Staked SOV; 21,229,359 VP; 6.16 VP multiplier
W19: 3,389,228 Staked SOV; 21,674,688 VP; 6.39 VP multiplier
W20: 3,668,657 Staked SOV; 24,128,688 VP; 6.58 VP multiplier
W21: 3,705,535 Staked SOV; 24,807,729 VP; 6.69 VP multiplier
W22: 3,845,696 Staked SOV; 25,998,080 VP; 6.76 VP multiplier

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Again, I really commend you for your hands-on contributions. In other projects this effort gets rewarded with tokens…we could even have small/part-time/informal roles listed on the wiki for people to just take up, or apply for.

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Another Update, thanks to @CEK again!
SIP-24 debt passed the 600.000 SOV mark. Average staking duration is 33 reward periods or 66 weeks now. It seems to be following the middle trendline pretty close. Next friday is SIP-24 SOV payout day so there may be another round of extended and increased stakes.

W23: 4,014,843 staked SOV; 28,123,813 VP; 7.0 VP multiplier. Stakes getting longer and larger.

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By the way: Congrats Sovryn for reaching 4 million voluntarily staked SOV for the first time and the highest average staking duration ever recorded.
You are a crazy bunch of degens.

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soo sip-24 ends at the end of june? is this confirmed?

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A proposal to end SIP-24 by end of june (and other measures) will be published very soon as pointed out in today’s call.
The Circle only proposes these measures, we do not have the power to implement the proposed changes so i can’t confirm this.
But i think it is likely that it will happen, as there are constant constructive discussions between Exchequer and us.

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I think this will backfire badly in the end. It will turn SOV into just another farming token that is to be sold as quickly as possible to increase yield. As it is now, a very lengthy staking period (years) is heavily incentivized. This proposal, with one stroke of the pen, will remove nearly all incentives to stake new SOV. The RBTC fee revenue is very, very, VERY small and not enough to incentivize staking by itself. The result is that all newly acquired SOV, be it through staking or liquidity mining, will immediately be sold for RBTC. I know with certainty that I will do that, because it is the only cause of action that makes economic sense. No one in his right mind will add more stake without incentives. No one cares about voting power, which is centralized anyway, and no one cares much about infinitesimally small RBTC rewards when they can get more RBTC by selling farmed SOV. All DeFi protocol tokens have this problem. I had thought that Sovryn had found a solution by incentivizing long term staking, but now it was decided to fall (jump) into the same trap. Steady, relentless selling pressure from mining and staking rewards becoming liquid is now to be expected, and if you think about it, there is now no more incentive to buy and hold SOV , only short term speculation, so buying will dry up on top of increased selling. I hope I am wrong, but looking at the rest of the DeFi space I feel I am right. Let’s see.

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The SIP-24 system was not sustainable. It incentivized the lock-up of SOV tokens by giving out more SOV. If you follow the token price, it should be clear that this system is failing.
The SOV token would have no intrinsic value if the only value proposal would be to receive more SOV if you lock up SOV.
Fortunately, this is not how the SOV token works. It’s intrinsic value comes from RBTC and ZUSD revenue, generated by the protocol and distributed to stakers based on their voting power. If the protocol generates no revenue, it fails and so does the SOV token. If it generates revenue (we have the hope that it will with ZERO), the protocol revenue and with it, staking APY in rbtc and ZUSD will determine the value of the SOV token.
We are not jumping into the typical DeFi trap, we are jumping out of it.

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The problem is that CURRENTLY the value of RBTC rewards is not truly meaningful.I am not denying that they could become meaningful in the future, but at this point in time it would be more lucrative to only farm SOV for sale under the proposed incentive structure. In my opinion, if reduction of inflation is that much of a concern, it would have been better for the token price to look at rewards across the board (XUSD lending incentives are the first that should be cut imo), and if a reduction of staking rewards is seen as necessary, it would have been much better to phase them out on a schedule and see how it affects token value rather than just eliminating them cold turkey. This is my opinion at least, and we will see how the market reacts.

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I fully agree with the sustainability aspect and that we shouldn’t copy what failed elsewhere.

I wouldn’t say that SIP24 is failing because of the token price. Friday sell-offs are also down to Liquidity Pool Providers who might have no SOV at all. Do we have data on ratio LP rewards sellers versus SOV stakers? Why on earth would you sell liquid SOV if you are a long-term staker? I didn’t sell a single token on any Friday, but accumulate. Yes that creates more debt, but quite frankly, I agree with @theberni that is the sole reason why I am not speculatin, because I am long-term locked in, incentivised by the same low time preference Yago always advocate!

Moreover, the low token price has a lot to do with delayed development and product launches imho. Whilst I have no affiliation and found the tone disgusting in parts, D Man and BCW rightfully turned up the heat. My understanding is that most of Sovryns products are EVM-compatible hard forks. How long did it take for Sushi to go live with Uni’s code? If there is a systemic reason why seemingly every hard fork takes quarters instead of weeks to launch on RSK, then this should have been made transparent. Most people like to be treated as adults and can understand delays if there is a clear explanation, not excuse. It’s business 101.

Imho the lack of transparency between December and April/May might be the main reason for the token price implosion, plus the general bear markets drawdowns. FYI - there are projects where various roadmaps get updated and made public minutes after a circle meeting has ended. That’s web3 spirit!

Anyway, I am max staked for 100% of my SOV and happy with my decision. It will either be worth very little to nothing in 5-10 years time, or be worth life-changing money between the value of SOV and my DCA’d BTC.

A strong yet always critical believer.

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I personally believe that transparency has increased throughout 2022. In my view in three respects:

On the one hand, things are being promised that can be delivered. And in fact, the new roadmap is being fulfilled, as promised, on time and on budget. If this were not the case, I would say so. In 2021 it was not.

Secondly, it is becoming clear that whoever does not want Sovryn as Sovryn is, says goodbye to Sovryn. This is very important, because this process makes it more authentic. There is no trickery and no Trojan horses. Sovryn fights, resists, survives and grows stronger. Any doubt or fear leads to abandoning Sovryn. There are no twists of strategy, but attrition and retreat of those who do not share it.

Thirdly, the price of sov transparently shows the perceived value of the market. It is good to find the confluence between value and price, however long it takes. Rushing for shortcuts can corrupt everything. Sov’s caretakers are needed. And this is where the Circle of Tokens comes in, helping those who create value, the team.

So these measures suggested by the Circle of Tokens help to give Sovryn credibility and solvency. A group of people call a spade a spade, watch over and look after Sovryn, beyond where the team itself can or knows how to do so.

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Yes, we cut XUSD lending rewards as well and we are looking at rewards across the board (see our first and second proposal). SIP 24 is implemented in a way that it’s on - or off. We can’t keep it running because the debt would rise too much. But we are looking for a potential SIP 24 2.0 in the future.

Once SIP 24 ends, there may be less incentive to hold SOV. You are free to sell your liquid SOV at these prices. You could also just Hodl it for some time, as many do with their bitcoin and their stocks and gold. We’ll see how staking numbers behave and how selling from stakers will behave. If Zero creates no revenue in the first months and selling gets very bad, we may put a SIP 24 2.0 with less rewards in place for a few months.

Reward changes will only be seen after some time. For SIP-24 it may be visible relatively quickly, but LM rewards have a 10 month vesting so the impact of reduced rewards will take a few months.

All this reduction of SOV supply will have a big impact on circulating supply and with that, on the amount of staked SOV. If there is less staked SOV, the revenue per staked SOV increases which is very likely positive for the SOV price. (Or same amount of SOV staked and increased platform revenue).

We are trying to find a balance between platform revenue and staked SOV, so that SOV staking offers a reasonable APY without extra SOV rewards. Right now, platform revenue is very low so we should reduce the amount of SOV hitting the open market. If revenue grows, so can and will the amount of staked SOV.

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I disagree with the assertion that stopping SIP-24 will remove nearly all incentive to stake.
It is true that rBTC rewards are very small at the moment, but if I believe in the validity of the project and its potential, then a natural consequence ofthat belief is that I think that these will increase over time.
I have aready seen some early income from ZERO coming in, and I have no reason to think that this will not increase over time.
SOV is still in its Alpha phase, in its very early days. As an investment, it is certainly speculative and I would never advise anyone to invest funds that they cannot afford to lose. But for those who are willing to take that risk, I am stocking with SOV.
My plan is this: If the SIP-24 reward plan is discontinued, then I will leave my current stake where it is, staked with max duration. Any further SOV income I receive I will continue to stake, but I will probably stake them for one year on a rolling basis, so that each individual stake will become liquid after a year.
I do not intend to ever sell my SOV, but I eventually hope to live on the rBTC income

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