As we celebrate the recent launch of the pNetwork DAO, let’s break down some of the key components and mechanisms that will keep it running smoothly.
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Power the pNetwork DAO and earn 42% interest APR on your stake
Governance models, the Aragon framework and staking PNT
DeFi and skin in the game
In the decentralised finance world, we’re experiencing a particularly exciting time. More and more people are championing blockchain finance alternatives, which offer transparency, accessibility and open collaboration.
With more than $4 billion locked in DeFi today, together we are abandoning old systems and shifting value into new, decentralized ones, creating the foundation for a strong digital economy.
So as curious new users and early adopters filter into this space, projects must find ways to not only build new technology, but build completely new communities (the backbone of decentralized products and tools). We form this mutual trust and long-term relationship with our users through shared vision, ongoing education, and rewards (economic incentives).
DeFi is unique in that it allows users to be directly involved in a project’s success by having skin in the game. Having skin in the game means that you put something at risk when you become involved in a project and work towards a shared goal. When executives invest their own money in their company stocks for example, it’s considered a sign of good faith and demonstrates confidence in the future of the company.
A blockchain itself requires its own users to have skin in the game. It has a built-in economic incentive to keep it running (through mining or validator rewards). You cannot participate in a blockchain network without holding its token, which is essentially a share of that network.
Incentivising new users with rewards for their contributions and involvement is an effective way to grow a user base, and honour and give back to that community. We want our users to have skin in the game, just as we do, so we can build great products that stem from community interests and industry needs.
“Ideas need to have skin in the game.” — Nassim Nicholas Taleb, author of Skin In The Game
Staking is an increasingly popular tool in decentralized finance. In overly simplified terms, it’s the act of putting something at stake, such as locking up some tokens as collateral. This makes it perfect for creating a skin in the game scenario.
There are many various and unique applications for staking in DeFi. You may have heard of the Proof of Stake consensum mechanism, which powers and secures certain blockchains. A set of validators take turns proposing and voting on the next block, and the more tokens a validator has at stake, the higher their chances become of winning this lottery. “The weight of each validator’s vote depends on the size of its deposit (i.e. stake).”
Lending and borrowing is a popular avenue of DeFi. Certain platforms like Compound allow you to loan your assets to create liquidity pools. When users in the blockchain community borrow from these pools of loaned tokens, they pay interest. To incentivise users to stake their tokens and provide liquidity, all lenders receive a distributed share of interest (which usually comes from accumulated network fees). Interest rates are based on supply and demand algorithms. Coins or tokens have their own cToken version, such as cDAI for DAI, which you’ll receive in exchange when you supply that asset to the pool. cTokens simply represent your loaned asset which is earning interest. Compound recently introduced COMP token, which is used to incentivise their users “to collectively steward the protocol into the future with good governance.”
Taking a look at DeFi Pulse rankings, the top three ranking DeFi assets are all tokens at stake — Maker, Compound and Synthetix.
Staking is very useful for other use cases, such as staking some tokens when registering for an event to encourage you to show up. Some platforms also require you to stake tokens when you sign up to prove your authenticity — to ensure you have skin in the game — or even create a token-based reputation system. Staking discourages people to create fake accounts or act badly within the network, as they have money they could lose for doing just that. Think of free mail services — spammers frequently create many new accounts for free, but they’d be far less likely to create these fake accounts if they had to stake tokens each time.
The Eidoo Card and Staking Account programs are examples of staking in action. Both features allow users to stake their assets, locking them up for a period of time, but are not contributing to a liquidity pool which others can borrow from. In the case of the Eidoo Card, users must stake a certain amount of PNT tokens to access the VIP and Black cards, which validates their intention to use the card and allows them to earn a higher percentage of crypto cashback as a reward. As for the Staking Accounts, this initiative rewarded those who invested in the project.
In the case of a Decentralized Autonomous Organisation (DAO), staking tokens can be a great way to ensure that members are aligned and that control of a project is truly in the hands of its users.
The KyberDAO, for example, enables KNC token holders “to play a critical role in determining the incentive system, building a wide base of stakeholders, and facilitating economic flow in the network. Together, KNC holders can chart the future success of Kyber Network.”
The pNetwork DAO — how do we incentivise growth and participation?
The pNetwork DAO also leverages staking to encourage community participation and ensure decentralized governance over the system. By staking $PNT, the governance token at the heart of the pNetwork, users have the opportunity to vote on various development proposals, influencing the direction of the pTokens project.
Staking is a way to bring together and align incentives for our community as a democratic collective, as we each act as stakeholders of the pNetwork. By staking in the DAO, our users and team show their commitment to the project, who want to co-govern the pNetwork and see it grow successfully.
This highly-engaged and diverse community is the most important piece of the decentralization puzzle. Rewards earned through staking and voting are designed to encourage active participation and boost adoption of the pNetwork ecosystem, as well as uniting a community with shared goals.
Staking in the DAO is also meant to positively affect the token economy of PNT. By locking up tokens in the DAO, it reduces the circulating supply of tokens, which creates scarcity and demand, as opposed to inflationary economies which see value diminish over time.
Upon its launch, a large portion of $PNT tokens has been staked within the DAO, including the company treasury and team-owned tokens, as well as the reserve dedicated to the Eidoo Card cashback program. These staked tokens increase the total number of staked $PNT tokens to over 34 million. With a total supply of 60 million, this will reduce the circulating supply to approximately half the current total supply.
The $PNT community has already staked millions of tokens through the Eidoo Card program and Staking Accounts initiative of December 2019. These hundreds of early supporters will serve as the pNetwork’s inaugural community base, and now have the possibility to gain extra rewards on their initial stake by voting in the DAO.
The steps to staking
Those holding $PNT will be able to start staking their tokens in the pNetwork DAO straight away. You will do this via a custom platform, created using Aragon.
Stake in the pNetwork DAO
Today we’re excited to launch the pNetwork DAO, the first major step towards decentralising the pTokens system. We hope…
The Staking Manager app is the gateway for interacting with the DAO. Use it to stake and unstake your PNT, which is how you enter and exit the DAO.
When depositing your $PNT via the Staking Manager, the stake will be tokenised and a receipt will be issued, represented by a new token called daoPNT. This is similar to Compound’s C tokens such as cDAI, which represents your stake in their liquidity pools.
This process of tokenising PNT to issue daoPNT is referred to as “DAO staking”. Every time you withdraw your tokens, you are burning daoPNT and unstaking the corresponding amount of PNT tokens.
By staking PNT and then actively voting in the DAO, you will receive an overall reward rate of 63% over two years. The reward is split so that in the first year you will receive 42%, and later transition to half that rate (21%) in the second year. This interest is designed as a “simple interest,” meaning it is calculated on the original amount of tokens you staked. If you add more tokens to your stake, you will receive more tokens. However, if you withdraw your stake partially or in full, you lose rewards.
Every two weeks, rewards are distributed to active members of the DAO. Active members are those who participate via voting during the epoch (a two-week period). Members are required to vote in all proposals but one for the smart contract to confirm your eligibility for rewards distribution. For example, if there are three proposals during an epoch, a member must vote on at least two to qualify for rewards.
Once active participation is confirmed, the smart contract will calculate rewards based on the minimum amount of tokens held at the time of voting and the amount held at the end of the epoch. Note that all tokens earned through interest will be released after one year. This time lock is a security measure to prevent an individual’s voting power from increasing during the period through the compounding of tokens.
Up to 28.35M PNT tokens are dedicated to the staking initiative. These tokens are generated through an inflation mechanism that will grow the total supply of 60 million PNT.
All staked PNT tokens will enter a short time-lock of 7 days. This is to avoid abuse of the DAO. Most of the PNT tokens initially at stake upon the DAO launch have a significantly longer time-lock, as the company and team have decided to voluntarily re-lock their tokens to demonstrate their commitment to the project.
The daoPNT token acts as a “ticket” for voting within the DAO. You can learn more about voting in our introductory guide to the pNetwork DAO, or in our upcoming post, which explores governance systems.
We also recently introduced our yield farming iniative, Steroids. The programme allows you to earn up to 10% interest rewards during just one month when you add liquidity to the PNT/USDT pool on Uniswap V2.
Decentralized finance is the dawn of many new exciting tools and technologies. No matter where or how you’re staking, you’re likely to have far more autonomy, control and influence than when getting involved in traditional portfolios. No intermediaries also means less margins cutting into your yield! Earning rewards on your crypto holdings can be a great way to put your funds to work, rather than just having them sit there.
Though please note, as with all investments, staking carries risks. It’s important to remember that when engaging with staking mechanisms and blockchain interactions, users may be exposing themselves to market volatility and the risks of smart contract failure. It’s always recommended to research each project and examine official communications from its teams.
For more information on the evolving opportunities and communities within DeFi, keep an eye on this blog for the next pNetwork DAO Deep Dive.
Next up: Decentralized governance…
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