¶ Governance on Sovryn
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 known risk elements. The result is an autonomous platform for trading, leveraging, and lending that runs on a bitcoin sidechain, with incentives for long-term growth hard-coded in.
¶ Governance on other DeFi platforms
Ethereum-based DeFi protocols have taken a great leap toward financial sovereignty by enabling trading and lending by aggregation of decentralized exchanges (DEXs). A DEX does not require KYC and allows users to hold their 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 it 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.
¶ The SOV token
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.
¶ Bitocracy
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 this staking period 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.
¶ Bitocracy in action
Qualified stakers lead the Sovryn protocol. 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 must be voted on by the community in a series of steps:
- Participant(s) make a proposal in code.
- Stakers vote on the proposal.
- If the proposal is approved, then an execution delay begins. If anyone disagrees strongly with the proposal, then they have this time to walk away before the proposal is executed.
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 remaining on their staking duration when 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.
¶ Staking SOV
¶ Stake for voting power
To gain voting power, SOV holders must stake their SOV for a given period. 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.
¶ Stake for rewards
Aside from Bitocracy participation, there's a financially rewarding reason for staking SOV. Token holders who stake their SOV receive staking rewards proportional to their share of the total voting power. For example, a staker with 1% of the voting power will receive 1% of the staking rewards. These staking rewards are earned as a pro-rata share of the platform's revenue 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, 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:
- Withdraw staking rewards via the fee proxy smart contract. Tokens withdrawn via the fee proxy contract will automatically be deposited by the contract into the token's respective lending pool in exchange for that pool's iToken.
- Use the Sovryn lending interface to redeem the iToken for the underlying tokens plus any interest earned while the tokens were in the lending pool.
Detailed explanation:
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. When suppose 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 remove their staking rewards from the protocol fully, 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:
¶ SOV Staking Yield - 7/23/21 per SIP-0024 formula
¶ How to stake
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 in the video below.
¶ Step 1. Connect your wallet
NOTE: If you have not already set up your wallet to connect with the Sovryn dapp, please go through the Wallet Setup Guide before proceeding.
- Connect your wallet by clicking on the Connect Wallet button on the right top.
¶ Step 2. Go to the Bitocracy → Stake
- Using the top drop-down menu, navigate to the Staking page through Bitocracy.
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Step 3. Add New Stake
Once the wallet is connected, the following Staking/Vesting page will appear. This page provides an overview of:
- Total staked SOV
- Combined Voting Power
- Current Stakes
- Current Vests
- Staking History
To start staking, click Add New Stake.
¶
Step 4. Stake options
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 preferences; once satisfied, click CONFIRM. In our example, we stake 150 SOV until 2021-Aug-14, which results in voting power of 480.
¶
Step 5. Approve & Confirm your transaction
After clicking CONFIRM in Step-4 above, you will be prompted by your wallet with an approval/confirmation step.
- Please be advised that the current gas price in the RSK network should be in the range of 0.065 GWEI.
- NOTE: Learn more about gas here.
- Process of staking is done in two transactions:
- The first transaction will approve the staking contract to withdraw SOV from your address.
- The second one will place your SOV into the contract.
Congratulations! You have successfully completed the steps required for staking on Sovryn.
¶ Voting
The governance of Sovryn depends heavily on the SOV stakeholders exercising their right to vote. It is important to understand what you are voting on fully. 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 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:
- SIPs have consequences. Each and every SIP is of significant importance, which is why they require a community vote to pass. As a stakeholder, you have the ability to participate in the direction of Sovryn, not just for yourself but for the entire community. Voting enables you to take a stand for the issues you care about. You are an integral part of this project: exercise your right to help decide what's best.
- Not voting is giving up your voice. The direction of the Sovryn project is decided by the people who vote. If you don't vote, others make the decisions for you. Your vote is your voice.
- Your SOV is your asset. Voting is your chance to decide how SOV is utilized, allocated, and distributed.
- Voting is an opportunity for change. It gives you the ability to make a positive impact. Support the measures and proposals that you feel help the Sovryn community, and oppose the ones you feel strongly against. The objective is to move the project forward for the greater good. Do your part, make your voice heard!
- The Sovryn community depends on you! It is made up of people from all walks of life, from all corners of the world. Some may not value the importance of voting, while others may not fully appreciate the privilege: In that sense, when you vote, you do so not only for yourself but for the benefit of others as well.
¶ How to 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 in the video below.
https://www.youtube.com/embed/oNqkD31W_-Q
¶ Step 1. Connect your wallet
NOTE: If you have not already set up your wallet to connect with the Sovryn dapp, please visit the Wallet Setup Guide before proceeding.
- Connect your wallet by clicking on the Connect Wallet button on the right top.
¶ Step 2. Go to bitocracy.sovryn.app
- Move to the Sovryn Bitocracy page or select Bitocracy from the top menu and continue with the Governance tab.
- The Sovryn Bitocracy page opens up with the list of SIPs. Find the active SIP you want to vote on and click the View Proposal link.
¶
Step 4. Cast your vote
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.
¶
Step 5. Approve & Confirm your transaction
- After clicking voting in Step-4 above, you will be prompted by your wallet with an approval/confirmation step.
- Please be advised that the current gas price in the RSK network should be in the range of 0.065 GWEI. In addition to this, the gas limit for this voting transaction will be approximately 315,000 gas.
NOTE: Learn more about gas here.
- Please be advised that the current gas price in the RSK network should be in the range of 0.065 GWEI. In addition to this, the gas limit for this voting transaction will be approximately 315,000 gas.
Following your successful voting transaction, a message will appear in place of your selection of the 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.
¶ Delegation
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 can ONLY submit and vote on Bitocracy proposals using that voting power.
¶ Why delegate?
Delegation is useful for two main purposes:
- You want to keep your SOV transfer authority on one address and voting power on another address. For example, you could keep the private keys with transfer authority in a cold storage address that takes a lot of time and effort to access and maintain the voting power on an address you can easily access from your mobile or desktop wallet.
- You want to delegate your voting power to a third party for some reason, either temporarily or long-term. For example, if a community member wants to submit a proposal that you support but does not by themselves have enough voting power to submit the proposal, then you and other stakers who support the proposal could temporarily delegate voting power to the community member so they will have enough voting power to submit their proposal. Another example is if you want to delegate your voting power to someone whom you consider an expert on the Sovryn protocol, who you think will be a good governor of the system, then you can delegate your voting power long term until you want to either take back your delegation or delegate your voting power to someone else.
¶ How to delegate
¶ Step 1. Click the Delegate button
- 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.
¶ Step 2. Enter delegate address
- 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 checkmark next to it, it is confirmed, and you can click the "x" button to close the Transactions panel.
¶ Step 3. See the address that you have delegated your voting power to
- Once your delegation transaction is confirmed, you can see the address your voting power is delegated to on the main Stake page.
¶ Revoke your delegated voting power
- 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.
¶ Become a Bitocracy delegate
- Visit the Delegates subcategory in the Sovryn Forum to learn more about how you can become a delegate in the Sovryn Bitocracy.