How to protect your staking rewards.

Fantom Foundation

Published in

Fantom Foundation

3 min readDec 14, 2019

By Andre Cronje

To understand how to protect your staking rewards, we need to explain a few trading and finance terms first;

Long Position

In a long position, you believe the asset you are holding will increase in value against another asset. If you buy an asset at $1, because you believe it will go to $2, you are long that asset against USD. To have a long position, you buy the asset.

Short Position

Int a short position, you believe the asset will decrease in value against another asset. The asset is currently at $1, you believe it will go to $0.50, you are short that asset against USD. To have a short position, you borrow the asset, and sell it.

Stop Loss

A stop loss protects you from losses should the price decrease. If you are long an asset, and the asset is $1 currently, you could put a stop loss at $0.75, if the price increases the stop loss isn’t triggered. If the price decreases to $0.75, the asset is sold. Stop losses protect your position.

Long Liquidity

If you are long an asset, you have the asset. You can use this asset for its intended purposes, but only where this asset can be used. Your collateral (value you think will decrease) is locked up. If you buy an asset at $1, you have the asset, but you don’t have the $1. That $1 is your collateral

Collateralized Lending

If you are long an asset, you would like to use the asset as collateral, so you can lend another asset. If you are long asset A, you could use it as collateral to borrow $1. This allows you liquidity against your long position.

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If you are long an asset, you would protect yourself against losses with a stop loss, and provide yourself additional liquidity with collateralized lending.

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CSDT

With a CSDT position, you take an asset you are long on and use it as collateral. This gives you 66% of the assets value in USD liquid. You still own your long asset. Should the price fall to below the assets value, you still have your USD (however the asset is sold, exactly like a stop loss), and if the price stays the same or increases, you have liquidity.

CSDT as a long position

When you put your collateral into a CSDT, you are long that asset. You believe the item will increase in value.

CSDT is a stop loss

With CSDT you have an automatic stop loss, should the price decrease you will have the counter asset. In this case USD.

CSDT is long liquidity via collateralized lending

With CSDT you have immediate access to up to 66% of the assets value liquid.

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Staking

A quick comparison of CSDT to traditional staking is required to understand the benefits of CSDT.

Inflationary

Staking models are inflationary. This means it creates more supply out of nothing. If there are currently 10 tokens, and inflation is 10%, there will be 11 tokens. When supply increases, price decreases. So if with 10 tokens the price per token is $1, the total available USD for this token is $10. If you increase it to 11, with no additional new source of USD, the price would change to $0.90 This is disadvantageous to early holders, who end up paying more for an increasing supply.

Sustainability

Inflationary staking is unsustainable, if your inflation is 10%, and you have a capped supply, you can only create 10% more tokens, after that, no more tokens can be created. This means the incentive to continue earning lifetime rewards disappears.

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TLDR: CSDT is a long, stop loss, with immediate liquidity

It protects your down side and provides you liquidity.

CSDT is a sustainable, non inflationary staking solution.

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To go in-depth about CSDT and sustainable staking rewards. Check out XAR Network’s newest blog here.