⛔ Please read the warnings at the end of the article.
In the first article, we saw how the risk taken by those who supported the project during the different phases of the ICO is rewarded. In this article, we’re going to focus on JRT staking.
The staking is not (yet) a feature of our protocols; it does not aim to secure it (yet) but to allow the Jarvis Network to be more accessible to as many people as possible, and to reward those who take the risk of making it possible.
Staking pools
Staking pools have a snowball effect allowing to bootstrap some element of the network: when there are few participants, the rewards are shared between a small number, and are therefore relatively large, leading more people to buy JRT on exchanges to stake it, and further improving the network. When the network has found its cruising speed, the rewards decrease while remain attractive.
See staking as an artificial launching pad for some aspect of Jarvis.
There are three staking pools and each has a purpose for ensuring the proper functioning of the Jarvis Network.
- The sponsorship pool makes the network more accessible by helping to finance transaction costs in the ecosystem, for example offering free fiat to DAI conversions;
- the liquidity pool makes the JRT more accessible and more liquid so that everyone can buy or sell their tokens with little slippage;
- the validator pool makes the network more secure by verifying that the prices and data external to the Blockchain used in the various protocols are fair and not manipulated.
The DAO will be responsible for specifying the staking rewards at the start of each quarter and may award prizes to further reward the most important contributors. The role of the DAO and its policy of redistribution of its capital of 100M of JRT will be detailed in another article.
This article only concerns the liquidity pool staking through Uniswap, the others pools will be the subject of article that will be published when they will go live.
The liquidity pool staking
The participants at this pool will share :
- 5% of the commissions collected by the protocols
- 10,000 JRT per day financed by the DAO fund the first year
- 100% of the commissions collected by Uniswap, i.e. 0.3 or 0.6% on each exchange.
This pool is about contributing to the liquidity of the JRT on Uniswap (and later on Kyber and Bancor) to limit price slippage during major purchases or sales and to make it more accessible by allowing it to be exchanged for any ERC20 token listed on Uniswap.
To reward liquidity providers, 5% of the commissions collected in the Jarvis Network and 10,000 JRT per day will be shared between contributors in proportion to their contribution. These commissions are in addition to those they will automatically receive from Uniswap: each time a user exchanges JRT for ETH they pay 0.3%, and 0.6% when they exchange JRT for another ERC20 such as DAI or MKR for example; these commissions are fully paid to the liquidity providers.
Click here to read a tutorial about how to supply liquidity on Uniswap.
It is complicated to calculate the profitability of this pool because of the way Uniswap works; indeed, providing liquidity involves risks.
The risks
Uniswap is a decentralized exchange using liquidity pools instead of an order book. When someone wants to sell their JRT, they send them to the smart contract and receives ETH in exchange, according to the JRT / ETH exchange rate (we clarify this point below); if there are more JRT sales than purchases, or if they are large, the ETH pool can be siphoned off, while lowering the price of JRT; in which case, the liquidity providers are left with more JRTs and almost no ETH. Conversely, in the event of major purchases, the JRT reserve can be emptied.
This risk, nicely called impermanent loss, can be mitigated by providing more liquidity (explanation below) or through arbitrage: when the token is listed on two different exchanges and a price gap widens between them, arbitragists take advantage of it by selling on one while buying on the other, reducing gap and stabilizing the price.
How exchange works on Uniswap
A contributor decides to create the JRT-ETH liquidity pool on Uniswap, and contributes $2,400 to it; as they created the pool, they decide the initial price of 0.1 USD— 0.00083 ETH — for a JRT; they must deposit 1,200 dollars of JRT, amounting 12,000 tokens, and it's equivalent in ETH, amounting 10 ETH (taking 120 dollars as Ether price).
When the pair is created, a constant k is calculated, with k = x * y, x being the number of ETH and y the number of JRT. Therefore, the constant k in our example would be 120,000. This constant is used to calculate the exchange rate for each exchange on Uniswap.
Example 1: a user wishes to sell 1,000 JRT and sends them to the ETH-JRT pool, which thus counts 13,000 (12,000 initial + 1,000 new). The number of ETH they will receive in exchange is calculated according to k, so that k is always equal to 120,000. With a little math, we calculate that it will receive 0.7693 ETH. Since k = x * y, therefore x = k / y, which for for our example would be 120,000 (k) / 13,000 (y) = 9.2307 (x); there were 10 ETH in the pool, 10–9.3207 = 0.7693. The exchange rate used is therefore 0.00076 ETH (0.0912 dollars), i.e. a price offset of 8%.
Example 2: a user wants to sell 120,000 JRTs and sends them to the pool, which then has 132,000. The seller receives 10–120,000 / 132,000 = 9.09 ETH, an exchange rate of 0.000076 ETH (0.0090 dollars), or a price offset of 91%.
The greater the sales volume in relation to the liquidity of the pool, the greater the slippage and the price fall. At this stage, the contributor to the pool would only have 0.91 ETH left, but would have 132,000 JRT on the other hand. To this would be added the commissions earned from Uniswap, the one from the Jarvis Network and the rewards in JRT to reward the staking. Some will see it as an interesting result since it means having acquired 120,000 JRT in exchange for 9 ETH, others will see it a disappointing result.
Example 3: another contributor decides to provide liquidity to the pool until it is endowed with 100 ETH and 120,000 JRT. A new constant k is calculated, that is 12,000,000 (k is recalculated each time liquidity is added or removed); selling 120,000 JRT would have less impact on the price: 100–12,000,000 / 240,000 = 50 ETH, i.e. an exchange rate of 0.00042 EHT (0.05 dollar), i.e. a price offset of 50% at instead of 91…
Conclusion
It is important to note that staking your JRTs does not prevent the collection of commissions from owning JRT: you would collect the commissions you are entitled too as explained in our previous article in addition to your staking rewards. Technically speaking, when a contributor provides liquidity to Uniswap, or sponsors incompressible costs, they receive ERC20 tokens representing their balances. These tokens are tracked and used to know how much commissions and staking rewards one should receive.
Staking JRT to get more and get some of the revenue makes JRT more attractive and fully fulfils its role: to reward those who allow Jarvis to be.
The next articles will deal with the distribution of JRTs from the DAO fund and JRT’s buyout policy on exchanges.
Pascal.
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⛔ Risk Warning: Investing in digital financial assets involves a high degree of risk and volatility and is not suitable for all investors; do not risk more money than you can afford to lose. Please consult an independent professional financial or legal advisor to make sure the product is right for you.
⛔ Disclaimer: This article contains text, data, graphics, photographs, illustrations and information (“Information”) connected with Jarvis International and/or other entities part of the Jarvis group ( “Jarvis”). Jarvis attempts to ensure Information is accurate, however Information is provided “AS IS” and on an “AS AVAILABLE” basis and may not be accurate or up to date. The publication of this article does not represent solicitation by Jarvis of buying the token “Jarvis Reward Token” and is not to be considered as a recommendation by Jarvis as to the suitability of any investment, if any, herein described. No action should be taken or omitted to be taken in reliance upon Information in this document. Jarvis accepts no liability for the results of any action taken on the basis of the Information.
