As Proof of Stake and delegated Proof of Stake models continue to gain momentum, we are creating the first stable coin chain which uses delegated Proof of Stake for Sybil control and consensus.
This new model will enable chain validators and delegators to stake tokens and receive incentives for signing blocks on the network. Bridge fees and interest generated by DAI locked in the protocol will be used to provide staking incentives which are up to 1.5x higher than current DeFi lending rates for DAI.
In this post, we will explore the STAKE token (previously named $DPOS) and the unique incentive model in which users place STAKE and receive xDai rewards. We will also lay out the proposed distribution schedule and types of distribution available for STAKE.
STAKE is a new ERC20 token designed to secure the on-chain payment layer and provide a mechanism for stable POS incentives. Users (validators and delegators) provide STAKE as collateral when participating in the consensus process. In exchange for providing STAKE (and supporting a node), users receive rewards in xDai, a stable token. The initial use case described below covers the xDai Stable chain, but other chains may use STAKE as well (multichain staking).
A dedicated staking token provides a separation of concerns on the chain. Two tokens exist simultaneously, and each has a specific purpose - either as a transactional token or a staking token for validators and their delegators.
This flexibility is important for the xDai Stable Chain, where xDai is used as the transactional token. xDai’s value always corresponds 1:1 with DAI, so the price is predictable and stable (within a small margin). It is designed for users who want to make purchases or send currency that maintains its value, with no time delays or high fees.
STAKE is a volatile ERC20 token with a fluctuating value. However, using the TokenBridge mechanics underlying the xDai Stable chain, the protocol is able to offer incentives to validators and delegators in the stable xDai currency while protecting the chain with STAKE.
When the xDai DPOS protocol starts, a large seed amount of DAI is locked in the bridge (and converted to xDai in the protocol). This locked DAI is provisioned to a lending mechanism where it accumulates interest, and this interest in turn provides staking rewards.
The amount of locked DAI will determine the maximum amount of STAKE that can be placed in the protocol. Max STAKE amount in USD will be considerably less than the total locked DAI amount. However, incentives for staking pools will be calculated based on interest from the total amount of DAI locked in the protocol. This difference between the amount of locked DAI and the amount of STAKE provides the opportunity for higher staking rewards.
Staking rewards will be paid in xDai, creating a stable reward mechanism. Validators and delegators will have the opportunity to earn stable incentives on their stake at much higher rates than current DeFi lending interest amounts.