Blog: HXRO Staking and Liquidity Incentives Pt 2. 6/4/2022
An overview of Hxro Network mainnet staking and incentive rewards
As Hxro approaches the mainnet launch of its derivative primitives on Solana, the network will also transition the ecosystem’s token, HXRO, from an ERC20 based token to a native Solana SPL token. This transition presents a significant opportunity for the network to redesign its overall token economics and mechanics. This will allow the network to continue optimization within the ecosystem, improving token utility and supporting for exponential growth.
Many of the concepts introduced by network contributors in this proposal have proven to be extremely successful in various Ethereum/Avalanche ecosystems, but they have not yet been applied to any significant Solana ecosystem project.
We hope the success of the model being proposed can set a path for both Hxro and the Solana ecosystem as a whole to share in exponential growth and sustainability over the long term.
Transfer from HXRO ERC20 to Native Solana HXRO (SPL)
First, we are excited to announce that HXRO tokens will soon undergo a transference from ERC20 HXRO to SPL. Given HXRO has already been circulating and has a reasonably wide distribution of ownership, we know this will not be an easy task. That said, it is a necessary step for HXRO Network to continue to optimize its functionality within the network ecosystem and to execute on ecosystem objectives both in the short and long term.
The process will give all token holders the ability to easily bridge their native ERC20 HXRO to native SPL HXRO. Network contributors are currently completing the bridge work (this will be done via Wormhole) that will facilitate a smooth transition without disrupting token supply.
We are estimating that we will begin token transfers of locked HXRO (for founders and strategic round tokens) mid-April. More updates and instructions will be provided to the community as work progresses.
It should be noted that all staking and rewards will function on Solana. Therefore in order to participate in Network Staking and Rewards, you will need to transfer to native HXRO SPL when it is available.
Escrowed HXRO Rewards (esHXRO)
For all rewards paid to the network participants that are denominated in HXRO token, contributors propose that all reward payments will be made in “escrowed” HXRO.
Under this proposal, escrowed HXRO (or “esHXRO”) is the mechanism by which HXRO rewards are paid to network participants. esHXRO is a claiming token that is backed 1:1 by standard HXRO. esHXRO is not transferable and cannot be traded. Participants will receive all other rewards in the denomination in which the network earns the fee, such as USDC. At launch into the foreseeable future, this would mean all rewards other than esHXRO would be received in stablecoins (USDC).
esHXRO can be used in the following ways:
- esHXRO can be staked and locked to the network in the same way standard HXRO can be staked. It will receive the same stakeweight/governance weight and multiplier benefits for the duration of locking, the same as HXRO.
- esHXRO can be claimed for HXRO. esHXRO will unlock and automatically convert to HXRO 1/365 per day once it is committed to the claiming contract.
It is important to note again that esHXRO is not transferable. Received rewards will be frozen in the associated SPL wallet for any purpose other than staking it to the HXRO Network or claiming it for HXRO.
It should be noted that esHXRO does not change overall token supply. No esHXRO can be created without being backed 1:1 by an existing HXRO token.
Staking Rewards and HXRO Network Value Accrual
HXRO generates transaction fees on every transaction made on every network derivatives and parimutuel contract. In the case of derivatives such as futures and options, fees are generated through a maker/taker fee model. Contract fees are based on the notional value of the trade. At the outset of trading, this will be set to 5bps for taking and 0bps for making. At launch, all transaction fees on derivatives are paid to the network in USDC (multi-collateral is in the roadmap) In the case of parimutuel markets, the user or store has the option of paying the transaction fee in either HXRO or in USDC. If paid in USDC the base fee is 3% of notional position value. If the fee is paid in HXRO, the fee is reduced to 1.5%.
As discussed in Part 1 of the staking and rewards blog post, all fees generated will accrue back to staked token holders and other critical elements of the network, including Treasury, Insurance Fund, SAMM and THEO providers, and liquidity/volume incentive rewards .
At launch, we propose the breakdown of fees to be as follows:
50% - Staked/Governance Token Holders
12.5% - Treasury (including grants)
12.5% - Liquidity Provider Pools
12.5% - Insurance Fund
6.25%- SAMM Probability Providers
6.25% - THEO Surface Providers
(note: Post launch and as the network ecosystem grows, the Network can re-factor fee distributions as needed through governance.)
At mainnet launch the network will offer multiple ways for participants to earn rewards for their contribution to the network.
Examples of how ecosystem participants are able to earn rewards are:
- Staking to the network for governance participation;
- Daily trading volume incentive tier rewards;
- Participating in a SAMM or THEO AMM liquidity pool;
- Publishing to a SAMM probability or THEO surface provider oracle, and;
- Running a network “store” (building/operating/connecting a centralized or defi app into Hxro Network liquidity).
Daily Volume Incentive Tier Rewards - The Path to $1Trillion
Hxro Network contributors propose to implement a daily incentive rewards program paid to participants who are additive to aggregate network liquidity and transaction volume. The proposed daily volume incentive reward program would work as follows: 1. Notional volume from all trading activity within the network is aggregated. This includes both derivatives activity and parimutuel activity.
2. Any wallet that participates in transaction volume, regardless of which contract they interact with, will be eligible to receive a prorata share of the network's daily reward.
3. Daily reward is paid in esHXRO.
Contributors propose to initially allocate 50,000,000 HXRO to back esHXRO incentive reward emissions. These rewards will be funded by Hxro Network founders and will be repaid by the network on a schedule over a multi-year period.
Rewards are emitted based on gross notional value denominated in USD and are designed to emit based on 1000 epochs, with each epoch representing $1 billion of gross notional network transaction volume (hence the $1T).
We apply a simple exponential decay function to esHXRO emissions curve. Based on the model, the emissions would look like this:
esHXRO emissions curve for network daily volume incentive rewards
The first epoch would emit 400,000 esHXRO for the first $1 billion of volume and would follow the curve until $1T is reached. Additionally, we propose (as mentioned above in the fee distribution) that 12.5% of network transactions fees are sent to the volume rewards program to provide rewards funding in perpetuity (or until the community decides to discontinue the program).
HXRO Token Market | Protocol Owned Liquidity - Auction
Protocol owned liquidity is still a relatively new to defi although we are seeing more and more of this concept in Ethereum, Avalanche, and other ecosystems. This model has proven to be extremely successful in rapidly building DEX token market liquidity while mitigating the mercenary capital problem. This occurs when protocols engage in a “race to the bottom," over-allocating incentives to attract liquidity, and over-inflating protocol token issuance, only to see capital withdrawn once farms no longer yield competitive returns.
Instead of Hxro relying on providing over-funded incentives to liquidity pool farms in exchange for LP’s locking up 2-sided liquidity in an AMM, the Network treasury will hold an open auction for a fixed number of esHXRO. This esHXRO will have an additional lockup period beyond the standard esHXRO lock. The fair-launch, bonding curve-style auction mechanism from Strata Protocol will be used, and 100% of the proceeds from the auction will immediately be allocated to HXRO/USDC Solana-based DEX AMM pools. DEX allocations will be determined by the community.
The amount of the auction will be communicated well in advance of the auction going live.
We feel this model for establishing DEX liquidity will provide the Hxro ecosystem with robust DEX market liquidity upon which the Network can build out its community and ecosystem. Based on the success of this auction, we anticipate we can hold future auctions as a means for the protocol treasury to fund capital pools. A high-level visual of Network Staking and Incentives Design Flow can be defined here:
This proposal will be discussed in the Hxro Network Discord channel found here. Stay tuned for more updates.