Staking LENDR → explained
In crypto, the staking concept can be difficult to unravel for a lot of new traders and investors. If you are new to the staking “game” it’s useful to get some understanding of the way staking works.
What is staking?
Staking is simply putting the crypto you are holding to work, and collecting the rewards. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle. Your crypto, if you choose to stake it, becomes part of that process. The staking usually happens via a “staking pool” which is simply the combination of all the assets contributed by multiple stakeholders to unify their staking power.
Protocol owned liquidity
In Lendr it consists of a protocol-managed treasury, also called protocol owned liquidity (POL). What the protocol does is instead of relying on providing incentives to the market to provide liquidity to liquidity pools, the protocol-owned liquidity model instead utilizes a “bonding” mechanism. Bonding essentially involves the protocol selling their tokens at a discount to buyers, who in exchange will provide another token (e.g., DAI), which forms part of the protocol’s treasury. The treasury can then be deployed to provide liquidity directly to DEXs (earning trading fees) and can be invested to generate returns.
The bonding process
The bonding process consists of the protocol selling their own token (e.g. Lendr) in exchange for another token (e.g. DAI or ETH). It can also be the liquidity pool token (e.g. Lendr/ETH) from the buyer. This makes the buyer bond instead of buying tokens on the open market. This is because the protocol is selling their token at a discount to the current market price. To prevent the buyer from selling the token with immediate profit. The marked price is vested over a period, preventing immediate arbitrage opportunities.
The result of the bonding process should be that the protocol ends upholding a large value in the treasury. This can be compared to when a national reserve bank would sell its country´s currency which they own. To then buy a foreign currency from the market. Then store the foreign currency in their own treasury.
On Lendr the stakers stake their Lendr tokens in return for more Lendr tokens, while minters provide Dai, wrapped Eth (wEth), and wrapped BTC (wBTC) tokens in exchange for discounted Lendr tokens after a fixed vesting period.
Advantages of the protocol owned liquidity model
- Retains liquidity by using the protocol, by paying a lower price on discounted tokens
- The protocol keeps the trading fees from their own trading pair in DEXs
- Treasury assets generate revenue for the protocol
- Assuming sufficient scale in the treasury, the trading pair is able to absorb higher trades with less price impact
How do I start staking Lendr?
Staking allows you to earn Lendr passively via auto-compounding. By staking your Lendr with the Lendr app, you receive sLendr (staked Lendr) in return at a 1:1 ratio. After that, your sLendr balance will increase automatically on every epoch based on the current APY.
I don’t have any Lendr tokens —> go here to learn how to buy Lendr.
