💡 Basics

Welcome to the Stargate Finance Basics, for some preliminary understanding of the mechanism.

The Goal

An asset that is able to preserve purchasing power in a hugely volatile market like that of cryptocurrency is highly desirable. Most efforts to create a stable currency are flawed because of their ties to the existing fiat monetary system. The goal of Stargate Finance is to create a liquidity black hole and the potential future reserve money on BSC and more.

SGT is created without needing to mirror the dollar's purchasing power. Instead of attempting to peg to the dollar, Stargate Finance creates a new asset by contracts, that can eventually serve as a reserve currency for the DeFi sector and beyond. The SGT token is not pegged to any fiats. Instead, it is backed by a basket of crypto assets, and its price is allowed to float above the value of those assets backing it.

The Way in General

The protocol must hold at least 1 unit of stablecoin to mint every new SGT entering circulation, and it expands its supply as it accrues more capital to back new issuance, as long as traded above the 1 dollar value.

The increase of the supply is distributed to those supporting the project by staking SGT. Every eight hours — a period known as a "round" — the protocol awards a percentage of the amount staked, which is automatically added to the staker's position. This has the effect of compounding rewards and is, in part, responsible for the attractive annual percentage yields.

Liquidity Dilemma and the Solution

Higher yield doesn't often ensure sustainability. There are cases in that projects are killed by the massive yields. Reducing yields discourages liquidity providers. Yet, maintaining them dilutes the token supply.

Also in many cases, a protocol's treasury is largely composed of its own native tokens, meaning that the protocol itself is constantly paying for liquidity that could disappear at any moment. As soon as it stops offering such attractive rates, liquidity providers disappear and the project risks drifting into obscurity.

Stargate Finance attempts to get around this with the protocol-owned liquidity (POL). Rather than 'renting' liquidity from token holders by paying rents as mining incentives, Squid God Finance buys it outright by minting SGT tokens. By bonding, Stargate Finance collects the market LPs into the protocol, as use the discounted SGT tokens as compensation.

When users buy LP bonds, they are in fact selling their share of the liquidity pool, as well as any future rewards the LP tokens stand to generate. The protocol treasury benefits both from increasing the value of reserves and from receiving the transaction fees generated from the LP tokens. Similarly, the bond-holder is both able to acquire SGT (vested over a five-day period) at a discounted rate and to subsequently earn yield for staking it.

Yield Maintenance

The minting/bonding system finances the consistently high staking yields. When users mint SGT, they contribute either LP tokens or other assets into the treasury, as long as traded with premiums. As the Risk Free Value (RFV) expands, the treasury will hold more stable assets and it can afford to back more SGT tokens and keep the distribution to stakers within a longer period of time. Hence the high APY is maintained.

Not a Stablecoin

While the overarching goal of Stargate Finance is to create a relatively stable asset that is decentralized and can be used as the future reserve currency, for now, the focus is not on stability. Instead, the protocol favours rapid expansion. During this initial phase, the primary objective is to build as large a treasury as possible.

The price can be expected to be volatile, as Stargate Finance is likely to offer more attractive yields to participants, especially the early players. And when fewer are staking, the protocol encourages renewed participation in the embedded mechanism. The SGT stakers are always rewarded compared with the SGT holders, and especially for long-term stakers, the price volatility is largely offset.

Preventing a Bank-run

In traditional finance, a bank run occurs when a large number of customers of a financial institution withdraw their deposits simultaneously. As more people withdraw their funds, the FUD increases, prompting more people to withdraw their deposits, resulting in the massive loss of reserves or treasury.

Stargate Finance develops an incentive structure that protects the SGT stakers. In scenarios that there are some whales selling, and some stakers panic and unstake their SGT tokens. The price of the SGT crashes because of the massive selling in a short time. There are users who stay in the staking pool. The remaining stakers will enjoy a much higher APY, as fewer stakers will be in the pool to share the rewards. Also bear in mind that the rewards in selling SGT at a premium earlier can only be distributed in a longer period of time, say, 300 days. Only staking for this period of time, can one be rewarded fully with the profits, proportionate to the players in the staking pool. In the end, the stakers who stay staked will be more likely to not only get their money back, but also make some profit.