sTLOS EVM Single Asset Staking Implementation Governance Amendment
Token staking is an important component of blockchain economies that affects tokenomics, governance and project valuation. To date, Telos users have enjoyed the benefits of substantial annual returns from Resource Exchange (REX) staking due to inflows from the Telos token reserves while still garnering Telos governance voting rights simply by staking their TLOS tokens into REX. With the launch and growth of Telos EVM (tEVM), however, the advantages of staking enjoyed by users of native Telos features are not equitably shared by Telos EVM users. Tokens cannot be staked on tEVM into pools that replicate the security, impermanent loss (IL) protection, and governance participation advantages of native TLOS staking. This divides the rewards to Telos users depending on the sub-platform (native or EVM) that they engage in, which is outside the ethos of the Telos community. This proposal aims to begin to correct this imbalance and provide other benefits, such as increasing the Total Value Locked (TVL) in DeFi protocols on the overall Telos network.
The method for addressing this is to create a staking mechanism suitable for the tEVM ecosystem that best equalizes the benefits across users of both platforms. This new tEVM staking mechanism is called sTLOS, or single-asset staked TLOS, on the Telos EVM that will allow users to receive similar benefits to those enjoyed by native TLOS stakers, while expanding the ability for TVL on the overall Telos network.
The most common form of asset staking in EVM DeFi is staking two assets in a pool where they can be traded against one another, allowing users to easily exchange assets and take advantage of arbitrage opportunities between their value on multiple exchanges. These two-asset staking pools carry the risk of impermanent loss when there is a significant change between the value of the tokens that does not retrace over the course of a liquidity provider’s staking period. This impermanent loss often becomes permanent and is therefore highly risky compared to REX-style token-staking on Telos native that uses only one token and is therefore immune to IL. To replicate this on tEVM, sTLOS is a single-asset staking token that serves as a fungible, tradable deposit receipt for TLOS staked into a vault on tEVM–eliminating IL.
sTLOS will take advantage of a new EVM token standard, ERC-4626 (Tokenized Vault Standard), which is soon being used across EVMs for creating single-token staking pools. The TCD has implemented an OpenZeppelin ERC-4626 Solidity smart contract which is further audited by the proven auditing team at Sentnl. This provides a common interface for staking features that are well known across EVMs. Like REX on Telos native, the sTLOS staking pool will allow users to stake TLOS tokens and receive sTLOS tokens in return as a deposit receipt.
Anyone who holds the sTLOS deposit receipt can claim the underlying TLOS tokens from the pool. In Figure 1, Alice stakes TLOS in exchange for sTLOS. When she sells this sTLOS to Bob, he is able to redeem the staked TLOS tokens instead of Alice. While governance voting will not be implemented in the initial implementation of sTLOS, this is intended in the future, at which time, whoever holds the sTLOS tokens will be considered the beneficial owner of the tokens for governance purposes.
As an incentive to stake TLOS for sTLOS, funds will be drawn from the Telos reserve account (exrsrv.tf) to pay a staking reward to stakers similar to how REX rewards are earned on Telos native. This reward can ultimately be redeemed by whoever holds the sTLOS tokens in the future. Like REX tokens on Telos native, the value of tEVM sTLOS tokens will constantly rise relative to TLOS tokens due to the additional tokens staked into the sTLOS ERC-4626 vault. For example, if a single user were to stake 100 TLOS into the single-token staking pool, when 1 TLOS=1 sTLOS and holds the sTLOS deposit receipts until an additional 25 TLOS were deposited into the vault from the Telos reserves, then the value of the sTLOS tokens (assuming no other depositors at this time) would grow in value to 125 TLOS. If the original depositor sold their sTLOS tokens, then this amount could be claimed by whoever owns the sTLOS at the time of redemption. (Figure 2).
A key advantage of sTLOS tokens is that the underlying tokens can be subsequently staked, along with another token, into a two-asset liquidity pool. This transaction would earn liquidity provider (LP) tokens for the account staking the tokens. At the users discretion, these tokens could subsequently be deposited into farming pools to earn additional rewards (Figure 3).
Expanding Total Value Locked
This process incentivizes the staking of additional funds in the form of TVL. As a result, Telos EVM would receive a greater level of liquidity, and seemingly increase the Total Value Locked into staking, liquidity, lending and farming mechanisms on the chain. This is generally seen as advantageous and a reflection of greater value imbued into a blockchain and is therefore considered desirable in DeFi protocols. However, the Telos Core Developers are aware that some chains use this as a form of leverage. Telos EVM is not the first blockchain to implement such a staking structure and many other chains that use this double-count the amount of tokens locked. For example, staking one TLOS to a single-asset staking pool and then staking the resulting sTLOS depository receipt would typically be counted as 2 TLOS staked, even though, in fact, only one real TLOS token has been staked and one synthetic sTLOS token has been staked again. Together, these actually represent only one real TLOS token. The opportunity to increase TVL comes from the ability to gain the security of single-asset staking for sTLOS and then opting to stake that sTLOS into a multi-coin staking option. It’s common for DeFi projects to double-book these staked tokens. Telos will not do so and will request that DeFi tracking websites not double-count these as TVL so as not to reflect unnatural liquidity leverage on Telos, though it will be outside our control whether they abide by our request.
Balancing Rewards Between REX an sTLOS
The Telos Blockchain Network is governed by its users and significant resources have been deployed to ensure easy access to creating and voting on governance ballots including ballots to amend the Telos governance documents themselves. The staking of TLOS token reserves (which exist due to unclaimed tokens set aside for but unclaimed by exchange customers and Telos/EOS genesis accounts) to Telos REX was established by a Telos governance amendment voted on by the Telos users. In order to redistribute some of the tokens currently directed towards Telos REX on the native chain towards the tEVM sTLOS staking pool, a Telos amendment proposal will be required.
A recent poll of Telos community members determined that the voters prefer to establish an initial division of 40% of the tokens currently sent to Telos REX being designated to the tEVM sTLOS staking rewards instead with an initial unstaking period of 10 days. These staking rewards features are meant to bring stability and balance across various staking pools, not to create land rush scenarios where the first accounts to stake in one pool realize overlarge rewards at the expense of other nor where users feel the need to constantly readjust their staking to maximize their rewards. Therefore the rewards-splitting equation between REX and sTLOS takes into account the relative balance staked between these pools. Rewards are divided into these pools by first calculating what percentage of the total staked TLOS tokens are staked in sTLOS and REX pools and then further multiplying the ratio that exists in sTLOS by the combined amount of TLOS staked these by the 60%/40% split between REX and sTLOS respectively. Whatever staking reward is earned by 1 TLOS staked into REX over a given period, the same amount of TLOS staked to sTLOS over the same period would receive ⅔ that amount (40%/60%).
The splitting function receives TLOS from account exrsrv.tf and calculates the amount to be sent on to the sTLOS staking pool as rewards by first calculating the token distribution ratio of user-staked TLOS tokens in the sTLOS and REX pools and the pro rata percentage to be transmitted to sTLOS staking. The equation is:
amount of tokens to send to sTLOS = a * ( b / c ) * d
a = the amount that is sent to REX from account exrsrv.tf in any given payment
b = the amount of tokens staked into sTLOS
c = the amount of tokens staked into REX
d = the voter selected distribution percentage of funds to be sent to the sTLOS pool as staking rewards
If there are 100 TLOS sent to REX, 100,000 TLOS in sTLOS pool, 1,000,000 TLOS in the REX pool, and a user selected amount of 40% to go to sTLOS then:
100 TLOS * ( 100,000 / 1,000,000 ) * 0.40 = 4 TLOS sent to sTLOS staking.
If there are 100 TLOS sent to REX, 1,000,000 TLOS in sTLOS pool, 1,000,000 TLOS in the REX pool, and a user selected amount of 40% to go to sTLOS then:
100 TLOS * ( 1,000,000 / 1,000,000 ) * 0.40 = 40 TLOS sent to sTLOS staking.
b / c is the ratio of funds in the pools. In Example 1, there are one-tenth the number staked into sTLOS as REX, Therefore, the amount of TLOS sent to REX is first multiplied by one-tenth for the difference between the amount of TLOS staked into each pool and then multiplied by 40% which is the current rewards ratio between sTLOS and REX. With equal amounts in each, the numeric value of that ratio would be 1 meaning that only d matters. The second example proves this out. In Example 2, the amount of TLOS staked into each pool is the same and therefore the ratio is 1 so each staking pool will simply receive the amount determined by the rewards ratio (40%).
Given that there are no clear models for how users will redistribute funds based on new staking parameters, it’s expected that the Telos community will need to regularly propose updated ratios in order to find the most equitable distribution between Telos native REX and Telos EVM sTLOS.
The Amend Proposal
A Telos Amend proposal will be submitted to propose altering the Telos Blockchain Network Operating Agreement (TBNOA). The proposed amendment requires adding text to TBNOA Clause 44 as follows.
The current text of TBNOA Clause 44 is hosted at the deterministic filehash: https://api.dstor.cloud/ipfs/QmNc55mPi8sd7B1jK5tLsocK2Qak6EZeEGi4YS3M9Pv3Fj/. Text deleted in the proposed text is highlighted in (italicized bold).
## 44. Resource Exchange
Upon a 2/3+1 majority vote by the then current Block Producers to do so, computer code and/or contracts enabling a “Resource Exchange” for staking an account’s system resources to a common exchange which leases or rents out said resources to others for a fee (even a zero value fee) and disburses said fees to all resource-staking Members in return for an equal percentage of network income from RAM transaction fees, name bidding fees, or any other fee for commonly owned or managed Telos resources shall be implemented in the Telos Blockchain Network computer code and/or contracts. The form of this Resource Exchange may be modified or removed in the future upon a 2/3+1 majority vote by the then current Block Producers. For as long as funds exist in the Exchange Token Reserve Fund named “exrsrv.tf”, funds from that account may be deposited into the Resource Exchange account named “eosio.rex” for disbursement at a rate of 1,000,000 TLOS per month through block 98,000,000; 1,350,000 TLOS per month for blocks 98,000,001 through block 113,000,000; 1,500,000 TLOS per month for blocks 113,000,001 through block 128,000,000; 1,700,000 TLOS per month from block 128,000,001. This rate may be adjusted by a 2/3+1 vote of the Block Producers provided it does not exceed the limits set in Clause 49 “Telos Economic Development”.
The text proposed for TBNOA Clause 44 by this Amend proposal is hosted at the deterministic filehash: https://api.dstor.cloud/ipfs/QmUviAJp2etDhbibkZYRJnUTPGJVG9T6rwd6DMGBjbNzEY. Proposed text additions are highlighted in (bold)
## 44. Resource Exchange and sTLOS Rewards
Upon a 2/3+1 majority vote by the then-current Block Producers to do so, computer code and/or contracts enabling a “Resource Exchange” for staking an account’s system resources to a common exchange which leases or rents out said resources to others for a fee (even a zero value fee) and disburses said fees to all resource-staking Members in return for an equal percentage of network income from RAM transaction fees, name bidding fees, or any other fee for commonly owned or managed Telos resources shall be implemented in the Telos Blockchain Network computer code and/or contracts. The form of this Resource Exchange may be modified or removed in the future upon a 2/3+1 majority vote by the then current Block Producers. Once the Telos Block Producers have deployed an Ethereum Virtual Machine (EVM) smart contract named “eosio.evm” onto the Telos mainnet, a portion of the funds designated for the Resource Exchange may be directed to a single-asset TLOS token staking pool implemented as a staking vault smart contract by regularly transferring the funds to the “eosio.evm” address to be designated by the Telos Block Producers as the sTLOS staking account with the purpose of disbursing said funds to all TLOS-staking Members of the sTLOS liquidity pool. Members staking TLOS tokens into this pool will receive a number of sTLOS depository receipt fungible tokens commensurate with the amount of tokens staked and the TLOS-to-sTLOS ratio, which will continuously rise for as long as funds are transferred into the account from the Resource Exchange. For as long as funds exist in the Exchange Token Reserve Fund named “exrsrv.tf”, funds from that account may be deposited into the Resource Exchange account named “eosio.rex” for disbursement at a rate of 1,000,000 TLOS per month through block 98,000,000; 1,350,000 TLOS per month for blocks 98,000,001 through block 113,000,000; 1,500,000 TLOS per month for blocks 113,000,001 through block 128,000,000; 1,700,000 TLOS per month from block 128,000,001. From block 228,000,000, This amount will be 1,700,000 TLOS to the account “eosio.rex” with a percentage further transmitted to the sTLOS rewards account designated by the Block Producers. The amount forwarded from the REX staking rewards account to the sTLOS staking rewards account shall be calculated by first programmatically calculating the current ratio of TLOS tokens staked to REX and sTLOS reward-earning accounts and then multiplying by the governance-determined rewards ratio which as of block 228,000,000 shall be 40.00% of the total amount sent to REX forwarded to sTLOS the staking rewards account. Reverting or “unstaking” sTLOS tokens into TLOS tokens shall require a minimum of 10 days from an account owner’s action to unstake the tokens until the tokens are made liquid for the Member to withdraw. These parameters may be adjusted by a 2/3+1 vote of the Block Producers provided it does not exceed the limits set in Clause 49 “Telos Economic Development”. All references to specific block numbers in any Telos Governance Document refers to that block number or as soon as the Block Producers and developer teams are practically able to deploy such changes thereafter.
A successful Telos Amend vote on proposal `reward.stlos` will replace the current text of the TBNOA Clause 44 with the proposed text.
by Douglas Horn, on behalf of the Telos Core Developers
To cast your votes, click here.
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