Passive staking has taken the DeFi-space by storm and garnered a lot of interest among its eager participants. These protocols charge a fixed fee on every transaction which is then instantly distributed to all holders of the token, effectively bypassing all the extra costs associated with claiming rewards from staking.
A large number of clones and forks of the original protocol has emerged, but despite their many claims to the contrary, none have really made any substantial changes or improvements to the core mechanics.
Problem
While these kinds of protocols have some very interesting mechanics, and while there are very clear benefits to passive staking, there are several potential improvements that could be made.
One of the big issues with having a fixed fee on all transactions is that it flat out disincentivizes all forms of trading in favor of holding. This is a problem when the rewards for holding are supposed to be coming from trading.
Even worse is the fact that in almost all other protocols which implement passive staking, simply holding tokens is always more profitable than acting as a liquidity provider. This will be detrimental to the longevity and security of any protocol. Ideally the incentives for providing liquidity should be greater than, or at least equal to, simply holding the token.
Solution
With the issues outlined above we would like to propose a new and improved iteration of passive staking; an iteration in which the fees are structured more soundly while also maintaining incentives for liquidity providers.
First we tackle the issue of having a fixed fee. Instead of thinking in terms of fees we will frame the mechanics in terms of vesting. In our protocol there is no explicit fee imposed on swaps. We instead impose a period of vesting on all accounts, whereby any sales made with tokens that are not yet fully vested will be subject to a fee relative to the time spent vesting. In this model the fees imposed are only implicit rather than explicit and compulsory.
After a purchase has been made this initial fee is equal to some proportion of the newly acquired tokens.
As time passes this implicit fee diminishes - or more accurately, the tokens become increasingly vested - in a gradual fashion until the fee reaches zero percent and the entire amount can be sold without incurring a fee.
If these tokens are sold at any point before the tokens are fully vested the fee is deducted from the final settlement of the swap. Unlike other similar protocols however, the fees are not instantly distributed and reflected in the balances of all holders. Instead the fees are deferred in equal proportion into two separate vaults.
Any account whose tokens are sufficiently vested will be entitled to a share of the balance in one of these pools. The size of their share will depend on the total time spent vesting, as well as their balance relative to the circulating supply of tokens. Their share will be reflected in the balance of their account and no extra steps will be required to claim this share. Whenever a sale is done the contract will seamlessly tap into their share of the vault whenever appropriate.
The purpose of the second vault is to act as a source of rewards for those who choose to provide liquidity. Providers will be able to stake their LP shares in exchange of tokens.
A substantial amount of tokens will be used to seed this second vault to ensure that early providers of liquidity are sufficiently compensated.
