LST on The Root Network
LST on The Root Network
On The Root Network (TRN), an XRPL sidechain specialized in gaming and the metaverse, users can earn staking rewards by staking ROOT tokens.
TRN utilizes a staking structure called Vortex, which has the following unique features: ROOT staking operates on 90-day cycles known as Epochs. To receive staking rewards, ROOT stakers must maintain their staking position until the end of the Epoch. If they unstake during the middle of an Epoch, they forfeit any staking rewards for that period.
Doppler Finance has implemented an LST (Liquid Staking Token) mechanism that operates seamlessly on the Vortex system, ensuring stability and functionality even within this unique staking structure.
Key Considerations
To create an LST structure compatible with the Vortex system, Doppler Finance carefully considered the following factors when designing the ROOT LST:
LST Price Stability: Due to the characteristics of the Vortex system, a discount may be applied to LSTs during the early days of the 90-day epoch cycle, potentially introducing price volatility for the remainder of the epoch. Minimizing this price instability throughout the epoch period is critical to maintaining trust and usability.
Yield for Mid-Epoch Unstaking: In TRN’s staking system, individuals who unstake before the end of an epoch do not receive any staking rewards. LST mechanism must adhere to this principle, ensuring that yield is not distributed to users who unstake in the middle of an epoch, thus preserving the protocol’s sustainability.
Scalability: The mechanism must avoid scalability issues that works well with the increased demand for minting LST. A scalable design ensures the protocol can handle larger adoption without compromising efficiency.
By addressing these considerations, Doppler Finance aims to provide a robust and sustainable LST solution for the Vortex system.
Dual Token Structure
To meet these conditions, Doppler Finance has developed a Dual Token structure for its Liquid Staking Token.
dROOT
Receipt tokens obtained from depositing ROOT into the protocol. However, dROOT does not accrue staking yield.
dROOT to ROOT exchange ratio on the DEX should be maintained near 1:1 to ensure that dROOT remains an asset pegged to ROOT. Given that the discount rate is applied only for the unbonding period, it is expected that risk management will be easier compared to the case where the underlying asset should remain to be staked until the end of the epoch.
How to mint dROOT: Deposit ROOT in protocol / Purchasing dROOT from DEX
How to redeem dROOT: Request unstaking through the protocol (with a 28-day unbonding period) / Selling dROOT on DEX
sdROOT
A token that accrues yield, with its value increasing consistently based on the holding period. It is expected to be predominantly utilized in DeFi applications such as yield farming.
The portion of dROOT that has not been converted to ROOT by the end of the epoch will increase the yield of sdROOT. This is because the yield accumulated by the corresponding ROOT for this dROOT will be claimed by sdROOT holders rather than dROOT holders.
How to mint sdROOT: Staking dROOT into the protocol / Purchasing sdROOT from DEX
How to redeem sdROOT: Requesting redemption through the protocol after the end of Epoch / Selling sdROOT on DEX
Why Dual Token Structure?
Price Stability Perspective: Having only sdRoot could lead to price instability due to the maximum 90-day unbonding period discount applied to sdRoot. In the current structure, having a separate dRoot with only a 28-day unbonding period will result in a lower discount rate for dRoot compared to sdRoot. Additionally, mechanisms such as early redemption of dRoot and swapping dRoot to ROOT via the dRoot to ROOT pool are available, further improving the price stability of LST.
Ensuring Yield only for Stakers Who Maintain Their Staking Position until Epoch End: In a system composed of a single token, all tokens must be staked until the end of the epoch to receive yield. Otherwise, users who should not receive yield who unstaked their LST during the epoch may still receive it, resulting in continuous losses for the protocol. With the dual-token structure, assets that are obliged to maintain the staked position until the end of the epoch can be secured separately as sdRoot, ensuring that assets are locked until the end of the epoch.
Ensuring Scalability: The previous structure required actual ROOT to be secured in buffers, limiting scalability. However, with the introduction of dRoot, a structure where ROOT does not need to be secured until actual interest is received can be created. Pre-issued dRoot remains locked in the vault until the end of the epoch, and the risk is minimal as it is unlocked only when actual interest is paid at the end of the epoch.
Staking & Unstaking
Staking Process
1, 2. User sends ROOT to the dRoot Minter Contract and receives dRoot.
The dRoot Minter Contract stakes the user's ROOT through Vortex.
3-1, 4. User deposits dRoot into the sdRoot Vault and receives sdRoot.
The value of sdRoot increases linearly daily through Vortex's daily snapshot, determining the number of sdRoot to be issued against the dRoot deposited by the user.
Daily snapshots estimate the increased amount of ROOT daily, issuing dRoot to the sdRoot vault as a reward.
The sdRoot vault, similar to ERC-4626, automatically updates the dRoot to sdRoot exchange rate based on the reward issued in dRoot.
Users can engage in activities like yield farming in DeFi using the obtained sdRoot.
3-2. If users prefer to engage in reward farming using dRoot instead of staking for accruing staking yield from the network, they can do so without converting to sdRoot and use dRoot directly in DeFi.
Withdrawal Process
1, 2. Towards the end of the epoch, sdRoot withdrawals become available. During this period, users return their held sdRoot to the sdRoot Vault and receive dRoot in return.
The current proposed method sets the last 1-2 days of the epoch as the sdRoot withdrawal period, during which users return sdRoot. After the epoch ends, users can claim dRoot.
3, 4. After receiving dRoot, users return it to the dRoot Minter contract and can retrieve ROOT after 28 days. Alternatively, users can pay an Early Redemption Fee to receive ROOT immediately.
The dRoot Minter contract requests ROOT unstaking from Vortex, which then returns ROOT to the user.
The Early Redemption feature operates by providing ROOT from a separate treasury of the LST protocol. If the treasury lacks sufficient ROOT, the Early Redemption feature will be disabled.
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