Sovryn’s bitcoin-native protocol advances financial sovereignty in a way that aligns with Satoshi Nakamoto’s vision of a trustless, censorship-resistant, and peer-to-peer system of money. The founding team created the platform by expanding on proven technological advancements from Ethereum-based DeFi applications while improving on the known risk elements. The end result is a self-sustaining platform for trading, leveraging, and lending that runs on a bitcoin sidechain, with incentives for long-term growth hard-coded in.
Ethereum-based DeFi protocols have taken a great leap toward financial sovereignty by enabling trading and lending using an aggregation of decentralized exchanges [DEXes]. A DEX does not require KYC and allows users to hold their own tokens, while trading, lending, staking and providing liquidity. Platforms like Compound and Uniswap were created specifically as decentralized entities that would run on governance mechanisms with no central authority. With relatively low effort, participants can vote on the direction of these protocols using their Ethereum-based governance token. This advances decentralization, but they also introduce risks such as the threat of speculative attacks. Compound and Uniswap enable all token holders, regardless of whether they are staking or not, to participate in governance, creating a system where long term participation is not incentivized. Token holders who have no stake at all can abuse this type of governance model through the use of flash loans, which exploit arbitrage opportunities using large, uncollateralized loans to manipulate and capitalize on volatile token prices. Participants on these platforms hold tokens to gain a vote on protocol proposals, but have no long-term incentive to act in the best interest of the platform.
SOV is an ERC-20 token minted on RSK. SOV itself does not grant governance rights. Instead, SOV gives the option for the token holder to stake in the Sovryn protocol, which then provides the token holder with governance rights.
SOV is not an “altcoin” i.e. a cryptocurrency alternative to BTC. The purpose of SOV is to provide a pseudonymous, censorship-resistant mechanism for governing the parameters of the Sovryn protocol, while aligning the incentives of protocol governors with the long-term success of the protocol.
A Bitocracy is an evolved form of a Vetocracy, which is a governance system where no single entity can make decisions or changes to the system. A modern example of a Vetocracy would be the United Nations, which gives each member nation the right to veto. But this type of governance has its limitations, since any one nation can override a majority. Vetocracies are often the result of an inherent lack of trust among the participants and an unwillingness for any of the members to forego sovereignty.
Sovryn’s bitcoin-native mode of governance is more of a Bitocracy, which gives weighted voting rights to participants based on how much skin in the game they have, while aligning the incentives of all participants. Only users who stake SOV ("stakers") receive voting power and they can stake up to a three year period, during which SOV liquidity is suspended, thus removing arbitrage opportunities that could lead to abuses of the system. A Bitocracy encompasses a self-governing, decentralized platform where users interact with the blockchain with complete financial sovereignty, enjoying bitcoin-class security and long-term incentives to act in beneficial ways towards the protocol.
The Sovryn protocol is led by qualified stakers. The difference from other DeFi protocols is that instead of focusing on a highly decentralized governance model where the more the merrier, Bitocracy values qualified governance involving participants with skin in the game. At any time, Bitocracy participants may choose to take action to improve or expand the protocol, such as modifying a smart contract, issuing a grant, initiating a bounty, etc. All of these changes would be voted on by the community in a series of steps:
In this system, all staked SOV represents a voice in Bitocracy, but users also have a way to unilaterally exit if they’re unhappy with the direction the protocol is taking. Stakers can exit before the end of their staking duration, but they are charged a fee. The more time there is left on their staking duration at the time the staker exits, the higher the penalty, incentivizing them to stay for the full duration. You can find the table of unstaking penalties here.
By creating the right set of incentives to promote good governance and minimize threats, Sovryn sets its sights on the long term viability of a bitcoin-native trading platform. The Bitocracy model ensures that Sovryn can remain a self-sustaining DeFi platform, while granting each user full financial sovereignty.
To gain voting power, SOV holders must stake their SOV for a given period of time. Sovryn uses a quadratic equation with a mapping system to measure the total amount of tokens that are unstaked on any given day. This enables the protocol to compute the voting power of all the tokens staked up to a given point in time. Staking SOV for voting power is a feature that is permissionless and openly available to anyone. You can read more about the technical details of staking and how voting power is calculated here.
Aside from Bitocracy participation, there's a financially-rewarding reason for staking SOV. Tokenholders who stake their SOV receive staking rewards proportional to their share of the total voting power. For example a staker who has 1% of the voting power will receive 1% of the staking rewards. These staking rewards are earned as a pro rata share of the revenue that the platform generates from various transaction fees plus revenues from stakers who have a portion of their SOV slashed for early unstaking (see the slashing penalty amounts for early unstaking here). This gives SOV holders the ability to earn passive revenue from their staked SOV.
Staking rewards paid to stakers from protocol revenues are denominated in the token in which the fees were originally paid. For example, if a user borrows RBTC then their interest fee will be paid in RBTC, and a portion of that fee will go toward staking rewards.
Staking rewards must be withdrawn one token at a time and can be withdrawn at any time. Withdrawing staking rewards is a two step process:
When a staker withdraws their staking rewards via the fee proxy contract, the tokens withdrawn are automatically deposited into their respective Sovryn lending pool in exchange for the pool's iToken. An iToken is an interest-bearing token specific to each lending pool, which you can read more about here.
At any time, the staker can then redeem the iToken for the underlying token to fully withdraw their tokens from the Sovryn protocol. For example, if the protocol has earned fee revenues in RBTC and SOV, then when the staker withdraws their share of the accumulated RBTC and SOV staking rewards the tokens will be deposited into the RBTC and SOV lending pools in exchange for RBTC and SOV iTokens. Once the staker is ready to fully remove their staking rewards from the protocol, they can redeem the iTokens for the underlying RBTC and SOV tokens plus any interest they have earned from those lending pools.
You can see a flow of how this works here:
Staking SOV in the Sovryn protocol is a simple process. Use the following video to walk you through the process. Alternatively, you can use the step-by-step guide outlined below the video.
NOTE: If you have not already setup your wallet to engage with the Sovryn dapp, please go through the “Wallet Setup Guide” before proceeding.
Engage your wallet, by clicking on the “Engage Wallet” button on the right top. Be sure you are on the “STAKE” page as highlighted on the top menu.
Once the wallet is engaged the following Staking/Vesting page will appear. This page provides an overview of:
To start staking click on “Add New Stake”.
A staking modal will pop up. Here you can select the amount of SOV you want to stake and the end date of your staking period. Your voting power will be directly calculated based on your selections. Double check your selections, once satisfied click “CONFIRM”. In our example we stake 150 SOV until 2021-Aug-14, which results in a voting power of 480.
After clicking “CONFIRM” in Step-4 above, you will be prompted by your wallet with an approval/confirmation step.
For more information regarding wallet transactions and settings, please refer to the relevant section in our Wallet Setup Guide.
Please be advised that the current gas price in the RSK network should be in the range of 0.06 GWEI. In addition to this, when staking, two transactions will appear. The first transaction will approve the staking contract to withdraw SOV from your address. The gas limit for this approval transaction will be ~70,000 gas. The second transaction actually stakes your SOV. The gas limit for the staking transaction will be ~250,000 gas. NOTE: Learn more about gas here.
Congratulations! You have successfully completed the steps required for staking on Sovryn.
The governance of Sovryn depends heavily on the SOV stakeholders exercising their right to vote. It is important to fully understand what you are voting on. For that reason Sovryn produces SIPs (Sovryn Improvement Proposals) as informational explainers detailing the proposals in the upcoming vote. Examples of past SIPs can be found here.
As a community-driven project, your vote really matters. As an SOV stakeholder, it's your voice and your right. You truly make a difference in the development and direction of Sovryn.
Here are just a few of the many reasons why you should vote:
Voting within the Sovryn Bitocracy protocol is a simple process. Use the following video explainer as a guide. Alternatively, you can use the step-by-step guide outlined below the video.
Or if you continue from the staking page, click on “View Governance” and proceed to step-3.
NOTE: If you have not already setup your wallet to engage with the Sovryn dapp, please visit the “Wallet Setup Guide” before proceeding.
Engage your wallet, by clicking on the “Engage Wallet” button on the right top. Be sure you have “VOTE” selected from the top menu.
The Sovryn Bitocracy page opens up with the list of SIPs. Find the active SIP you want to vote on and click on “View Proposal”.
IMPORTANT: Carefully review the SIP and do extra research if necessary. Your vote matters!
You can either vote For or Against the SIP. If you believe the vote should pass, you click the green box “Vote For” on the left. If you believe the vote should not pass, you click the red box “Vote Against” on the right.
After clicking “Vote For” or “Vote Against” in Step-4 above, you will be prompted by your wallet with an approval/confirmation step.
For more information regarding wallet transactions and settings, please refer the relevant section in our Wallet Setup Guide.
Please be advised that the current gas price in the RSK network should be in the range of 0.06 GWEI. In addition to this, the gas limit for this voting transaction will be approximately 315,000 gas.
NOTE: Learn more about gas here.
Following your successful voting transaction a message will appear in place of your selection of Vote For/Against button. The button will change to “You Voted” confirming your vote was received and has been counted.
Congratulations! You have successfully voted on the Sovryn Bitocracy platform.
The Sovryn Bitocracy smart contracts support a feature called delegation that enables stakers to delegate their voting power to another address. Importantly, the address that voting power is delegated to DOES NOT gain the ability to unstake or transfer the SOV in the original address, the delegate address ONLY has the ability to submit and vote on Bitocracy proposals using that voting power.
Delegation is useful for two main purposes:
On the “Current Stakes" and “Current Vests” sections of the STAKE page you will see a “Delegate” button next to each of your stakes/vests. Click the “Delegate" button.
Enter the RSK address that you want to delegate your voting power to. Remember, this address will ONLY be able to submit and vote on proposals using your voting power, it CANNOT unstake or transfer your SOV. Click “Confirm” to sign and send the delegation transaction.
Wait for the transaction to confirm. This could take a minute or two depending on how many other transactions are happening on the RSK network at the time.
Once the transaction has a check-mark next to it, it is confirmed and you can click the “x” button to close the Transactions panel.
Once your delegation transaction is confirmed, you can see the address your voting power is delegated to on the main STAKE page.
To revoke your delegated voting power from an address and return the voting power back to your own address, repeat the same process to delegate your voting power, and simply enter your own address as the address that you want to delegate your voting power to. Once the delegation is confirmed, your voting power will be transferred from the previous delegate address to your own delegate address.
Visit the Delegates subcategory in the Sovryn Forum to learn more about how you can become a delegate in the Sovryn Bitocracy.
Thank you to the following contributors for their help with this documentation: