How Redeemable rTokens Can Be Traded on Exchanges
The Proof-of-Stake (PoS) consensus mechanism has remained one of the most innovative products of the crypto ecosystem. It is an upgrade from the original consensus mechanism (Proof-of-Work) protocol which many queried can be time and energy-wasting.
The Proof-of-Stake protocol states that a user’s eligibility to mine and validate block transactions rests upon the amount of coins they possess; the higher your coins, the higher the mining percentage. This is a better alternative to Proof-of-Work, which involves solving computational puzzles in order to mine, validate blocks, and secure the entire network.
Ever since its development, PoS has ushered in memorable changes in the entire crypto space but at some point, there arose cries of discomfort, centered on users not being able to make use of their funds or assets should there be a need for it because of the locking protocol of the PoS mechanism. Once assets are staked on a PoS network, they are locked for a particular period of time and every staker will have to wait out those periods. This is where StaFi comes in to save the day.
StaFi
Staking Finance (StaFi) is a decentralized finance (DeFi) protocol that aims to solve the problem between token liquidity and Mainnet security by unlocking the liquidity of staked assets. StaFi solves this problem by issuing alternative tokens (rTokens) on a 1:1 basis to stakers for tokens staked on the original chain. For example, users will receive rFIS for staked FIS tokens and rXTZ for staked Tezoz tokens, etc. These alternative tokens can also be traded on specified exchanges.
rTokens
rToken is a redeemable token issued by StaFi for assets staked on the network, which can be traded, lent, or borrowed in various venues.
The StaFi protocol consists of three layers; the bottom layer, the contract layer, and the application layer. The rToken deals mainly with the contract layer because this is where the staking contracts are created. When a user stakes a native token through the necessary Staking Contract, a certain number of rTokens will be issued in correspondence with the number of native tokens staked in the contract and the rToken’s real-time exchange rate. As staking rewards for a particular native token accumulates, the rToken’s exchange rate will steadily increase, as well as the number of native tokens that can be redeemed.
The rToken idea came about as a result of users frowning over the concept of the PoS mechanism. In platforms adopting the PoS mechanism, stakers are expected to wait for a stipulated period of time before withdrawing their assets and obtaining income. However exciting the PoS protocol was at the initial stage of its development, it became a subject of criticism at some point; when users are in dire need of their assets but are subjected to waiting out the locking period is just one of the criticism points . Polkadot for example has a locking period of 28 days, Cosmos 21 days, and StaFi 14 days. Assuming there is a downtrend in the market and a user desires to convert their asset to a stable coin in order to avoid massive loss, he or she will not be able to in the original PoS concept.
rToken was created to remedy this asset-locking issue. It enables stakers to acquire the equivalent amount of their staked assets and are free to trade it anytime they wish, and also lend or borrow it.
rToken holders reserve the right to redeem staked native assets at any time whilst securing their corresponding staking income and they can also continue to participate in the governance of the original chain.
How to obtain rTokens
There are two main ways to obtain a rToken:
1) Stake native tokens through StaFi’s Staking Contract:
rTokens will be minted and sent to your designated wallet address based on the amount of native tokens you Stake (Qs) and the exchange rate of rToken (Cr);
2) Obtain rToken from Uniswap or other exchanges:
All rTokens can be traded and exchanged for native tokens at market exchange rates on decentralized or centralized exchanges that support rTokens.
Exchange Rate of rToken
Calculation Method
The rToken exchange rate (Ci) is positively correlated to the Staking income, which is mainly composed of the total amount of Native Token staked in the SC (Qstk), the total amount of redeemed Native Token (Qred), the amount of staking rewards (Qrew), the amount of slash (Qslh), the amount of Penalty (Qpey), and the commission ratio (Rcom), as well as the total amount of rToken issued (M), and the total amount of rToken destroyed (N). The formula is as follows:
Exchange Rate Update Frequency
The rToken exchange rate will be updated and announced by the system based on the Staking Reward Claim status on the original chain and the occurrence of Slash.
rFIS, rDOT, rETH: once an hour;
rToken Market Price and rToken Exchange Rate
The exchange rate of rToken represents the price relationship between rToken and the Native Token in the StaFi Staking Contract. For example, if the current rToken/Token exchange rate is 2, then the rToken holder can redeem 2 Native Tokens from the StaFi Staking Contract by burning 1 rToken.
The exchange rate of rToken sets the foundation for the rToken/Token price on the secondary market. Since rToken/Token can be traded 24/7 and price could potentially be affected by market fluctuation, short-term rToken/Token market prices and Token exchange rates may not be consistent. In an efficient market, however, once the rToken/Token market price is inconsistent with the rToken exchange rate, the price discrepancy is likely to be picked up and filled very quickly.
Conclusion
The development of alternative tokens for native tokens staked on PoS networks has proven very beneficial over time. Stakers can now stake freely and with more benefits.
StaFi’s rTokens initiative has been one of the best out there when it comes to alternative tokens for staking and there is still room for more improvement in the network.
Stay connected with the StaFi project using the Links below:
Official Website |*| Telegram || Medium |*| Twitter
