Please provide a flowchart that breaks down how the 5.9% return is generated when staking in sOADA, and explain all the parameters influencing it, including ADA staking rewards rate and OADA.
Sure thing! The OADA system currently has two yield streams, the Stake Auction AMO and the Splash Stableswap AMO.
The Stake Auction is actually similar to our Liquidity Bonds products but is a much more powerful version because unlike the bonds it does not lock up any ADA for 3/6/12 month long periods, instead only selling the staking rights epoch by epoch. To put things in perspective, this current epoch alone we’ve already sold 5.8M ADA staking rights at 4% and there’s still 72 hours left. Additionally, Stake Auction fees paid in OADA are actually burned, therefore perpetually increasing the yield on sOADA as there is a progressively higher amount of ADA backing a lesser amount of OADA. You can check out this product at the following link:
The Splash Stableswap is the other current source of yield into the system. This AMO deploys large amounts of paired ADA/OADA into the stableswap to ensure a 0.99-1.01 peg at all times. As the biggest LP in the system it accrues a fair amount of the trading volume profits, currently at an implied 4.32% APY. The AMO additionally profits from arbitraging price discrepancies to maintain the peg as tight as possible. For example, if OADA sales bring the price down to 0.99 ADA, the AMO can then sell 1 ADA from the reserves for about 1.01 OADA and burning it, bringing both assets closer to price parity. So removing ADA from the system actually removes even more OADA, once again perpetually increasing the yield on sOADA as there is a progressively higher amount of ADA backing a lesser amount of OADA.
Due to all the burning of OADA that happens in both AMOs, as the system matures over time the yield will always be higher due to the ADA reserves backing less OADA in comparison. Lastly, since OADA forgoes any of the yield, and there’s about 1/5 of all OADA unstaked, that directly equates to the yield on sOADA receiving a 25% natural leverage boost. This is why increasing the monetary premium of OADA by giving it additional use cases with yield, such as pairing OADA/CNT pools on Splash (which will be incentivized like Curve and Aero/Velodrome once SPLASH rewards go live) and creating OADA lending markets in Liqwid and Lenfi equates to a higher yield for sOADA, while economically stimulating more of the Cardano ecosystem overall.
Can your system work without cheap ADA liquidity?
It sure can! It has actually scaled up to almost 15M ADA in just a month and a half of being live. But an added factor of cheap ADA liquidity would help it scale even faster, create more yield, and offer more risk profile alternative to users while also creating lots more activity in ADA/OADA/sOADA Liqwid markets for LQ Stakers to directly benefit from as well.
I really appreciate you jumping in to conversation Florian, so please let me know if there’s any other questions or stuff you would like me to clarify further!