FAQ
Why do we need Stargate Finance?
Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
Stargate Finance aims to solve this by creating a non-pegged stablecoin called SGT. By focusing on supply growth rather than price appreciation, Squid God Finance hopes that SGT can function as a currency that is able to hold its purchasing power regardless of market volatility.
Is SGT a stablecoin?
No, SGT is not a stablecoin. Rather, SGT aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, SGT provides free-floating value its users can always fall back on, simply because of the fractional treasury reserves SGT draws its intrinsic value from.
SGT is backed, not pegged.
Each SGT is backed by 1 USD stablecoin, not pegged to it. Because the treasury backs every SGT with at least 1 USD, the protocol would buy back and burn SGT when it trades below 1 USD. This has the effect of pushing SGT price back up to 1 USD. SGT could always trade above 1 USD because there is no upper limit imposed by the protocol.
You might say that the SGT floor price or intrinsic value is 1 USD. We believe that the actual price will always be 1 USD + premium, but in the end, that is up to the market to decide.
How does it work?
At a high level, Squid God Finance consists of its protocol managed treasury, protocol owned liquidity, the bond mechanism (minting), and high staking rewards that are designed to control supply expansion.
Bonding in the "Mint" page generates profit for the protocol, and the treasury uses the profit to mint SGT and distributes them to the stakers. With LP bond, the protocol is able to accumulate liquidity to ensure system stability.
What is the deal with(🦑,🦑) ?
Staking
Minting (Bonding)
Selling
Staking and minting are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding (minting) does not (we consider buying SGT from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+🐚). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+🐚), while the good actor who moves price gets half of the downside (🤢). If both actions are detrimental, which implies both actors are selling, they both get the worst possible outcome (💩).
If we both stake (🦑, 🦑), it is the best thing for both of us and the protocol (both users gets the max gain in SGT🦑).
If one of us stakes and the other one bonds, it is also great because staking takes SGT off the market and put it into the protocol, while bonding provides liquidity and stablecoin for the treasury!
When one of us sells, it diminishes the effort of the other one who stakes or bonds.
Why is PCV important?
PCV is the Protocol Controlled Value, which is the value of assets the treasury owns and controls. The more PCV the better for the protocol and its users.
As the protocol controls the funds in its treasury, SGT can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 SGT with 1 USD. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy SGT below 1 USD with the treasury assets until no one is left to sell.
As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Why is the market price of SGT so volatile?
It is extremely important to understand how early in development the Squid God Finance protocol is. A large amount of discussion has centred around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of SGT supply, which when paired with the staking, minting, and yield mechanics of Squid God Finance, resulting in a fair amount of volatility.
SGT could trade at a very high price because the market is ready to pay a premium to capture a percentage of the current market capitalization. However, the price of SGT could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research on whether this project suits your goals.
What is the point of buying it now when SGT trades at a premium?
When you buy and stake SGT, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked SGT balance also increases along with the circulating supply. The implication is that if you buy SGT when the market cap is low, you would be capturing a larger percentage of the market cap.
What is a rebase?
Rebase is a mechanism by which your staked SGT balance increases automatically. When new SGT are minted by the protocol, a large portion of them goes to the stakers. Because stakers only see staked SGT balance instead of SGT the protocol utilizes the rebase mechanism to increase the staked SGT balance so that 1 staked SGT (GAME) is always redeemable for 1 SGT.
What is reward yield?
Reward yield is the percentage by which your staked SGT balance increases on the next round. It is also known as rebase rate.
What is APY?
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 SGT on day 1, after a year, your balance will grow to about 1377.
How is the APY calculated?
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of SGT distributed to the staking contract is calculated from SGT total supply using the following equation:
Note that the reward rate is subject to change by the protocol.
Why does the price of SGT become irrelevant in long term?
As illustrated above, your SGT balance will grow exponentially over time thanks to the power of compounding.
Let's say you buy an SGT for $400 now and the market decides that in 1 year time, the intrinsic value of SGT will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 SGT by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for SGT now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your SGT balance to grow exponentially and make this a worthwhile investment.
What will be SGT intrinsic value in the future?
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every SGT with 100 USD, the intrinsic value will be 100 USD. It can also be decided by the future DAO. For example, if the DAO decides to raise the price floor of SGT, its intrinsic value will rise accordingly.
How does the protocol manage to maintain the high staking APY?
Let’s say the protocol targets an APY of 100,000%. This would translate to a rebase rate of about 0.6328%, or a daily growth of about 2%.
If there are 100,000 SGT tokens staked right now, the protocol would need to mint an additional 2000 SGT to achieve this daily growth. This is achievable if the protocol can bring in at least 2000 USD daily from bond sales. If the protocol fails to achieve this, the APY of 100,000% cannot be guaranteed.
Do I have to unstake and stake SGT on every epoch to get my rebase rewards?
No. Once you have staked SGT with Squid God Finance, your staked SGT (GAME) balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
How do I track my rebase rewards?
You can track the rebase rewards by calculating the increase in the staked SGT balance.
1. Record down the current Index value on the staking page when you first stake your SGT. Let's call this the Start Index.
2. After staking for some SGT, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
3. By dividing the End Index by Start Index, you would get the ratio by which your staked SGT balance has increased.
Is Squid God Finance Audited?
Squid God Finance is currently unaudited. It is a fork of Olympus DAO on the avalanche Network. Stay cautious!
Why is it Minting and not Bonding?
Here at Squid God Finance, we believe that minting better describes the action that users are taking, when purchasing SGT with different assets. If you go to the "Mint" page of the website, you will be able to mint SGT tokens, effectively selling your assets for discounted SGT tokens. Despite the name difference, the process is exactly the same as a Bond Purchase on Olympus DAO.
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