Qearn: Risk-Free Yield by Locking QU
Qearn allocates a portion of emissions to a staking pool, offering risk-free yield and reducing circulating supply through weekly locks and burns.
Qsilver · Jul 4, 2024.
Introduction
The concept for Qearn originated with MrUnhappyX and was further developed by KYE, leading to the creation of the #qearn channel to explore this innovative idea.
The core idea is to allocate a percentage of current emissions to a staking pool, for example, 100 billion QU per week. The aim is to reduce the circulating supply while providing a risk-free yield to those willing to lock their QU.
After evaluating various approaches, we found that a simple weekly “auction” for one-year locks is the best method. This allows for natural yield discovery while maintaining the simplicity necessary for rapid development.
To implement this, the core code managing end-of-epoch coin emissions needs to allocate 10% to the Qearn smart contract (SC). This logic could be merged into the QUTIL SC or implemented as a new SC. These are implementation details that do not affect the overall concept.
Weekly Locking and Unlocking
Once the proposal is approved, each week 100 billion QU will be available for a 52-week locking bonus. Participants locking their QU for 52 weeks and not unlocking will share the 100 billion QU bonus proportionally. This bonus is adjusted by an unlocking penalty that will burn a portion, reward those who remain locked, and return part to the unlocker, as detailed in the table at the end of the article.
The yield is determined at the end of each week's lock period. For example, if 800 billion QU are locked in a week and remain locked for the full 52 weeks, they will share the 100 billion QU, resulting in a 12.5% yield. Immediately after locking, the minimum yield of 12.5% is known.
To provide flexibility and minimize risk, locked funds can be unlocked at any time, though a significant portion of the bonus will be burned. For instance, if over 52 weeks, 300 billion QU are unlocked, the yield could increase from 12.5% to 20%.
The initial amount locked and the amount unlocked over the year will vary, necessitating yield discovery to establish a normal yield. There is no impermanent loss as only QU is locked, making it essentially a risk-free QU yield. Depending on market conditions, the yield could be around 5%, with 2 trillion QU locked per week, or 20%, with 500 billion QU locked per week.
Burns
Burning a part of the earned bonus benefits the overall system without harming anyone. The original locker receives all their funds back, plus part of the earned amount, and the minimum yield increases for everyone else.
To prevent abuse through locking and unlocking, the burn amount scales up for each epoch the funds are locked, reaching 51% of the earned bonus if unlocked after 51 weeks. If unlocked before a week elapses, 0% would be burned.
For example, if the average unlock time is 25 weeks for 300 billion QU, then 25% of the earnings would be burned, resulting in 9.375 billion QU burned, and the remaining 500 billion QU would split 91.625 billion QU for an 18.325% yield.
Circulating Supply
The impact on circulating supply will be significant even with low locking levels. A 10% yield estimate implies 1 trillion QU would be removed from the circulating supply each week, offset by a 900 billion QU increase due to the 100 billion QU set aside, resulting in a 100 billion QU net decrease per epoch.
This creates a dramatic supply shock, shifting from 1% weekly inflation to 0.1% weekly deflation.
Effect on Price?
Quorum Levers on Supply
By implementing Qearn functionality and weekly burn percentages (initially set at 0%), the quorum gains fine-tuned control over the circulating supply, adapting to market conditions. This expedites reaching supply equilibrium and prepares the system for burns from smart contract usage.
Conclusion
Qearn offers substantial benefits with no discernible downsides and aligns with future plans for emission control by the quorum.
“Wen, Wen, Wen?” remains the only question.
Extra Notes
To prevent spam attacks, a minimum locking of 10 million QU is likely necessary.
A table can specify the percentage of the accrued minimum yield paid out to the unlocker, burned, and used to boost the yield for others:
Week
-From | Week
-To | Early
Unlock % | Burn % | Boost % |
0 | 3 | 0 | 0 | 100 |
4 | 7 | 5 | 45 | 50 |
8 | 11 | 5 | 45 | 50 |
12 | 15 | 10 | 45 | 45 |
16 | 19 | 15 | 40 | 45 |
20 | 23 | 20 | 40 | 40 |
24 | 27 | 25 | 35 | 40 |
28 | 31 | 30 | 35 | 35 |
32 | 35 | 35 | 35 | 30 |
36 | 39 | 40 | 30 | 30 |
40 | 43 | 45 | 30 | 25 |
44 | 47 | 50 | 30 | 20 |
48 | 51 | 55 | 25 | 20 |
52 | 52 | 100 | 0 | 0 |
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