🐚 Minting

Overview

Minting (or Bonding) is swapping a certain type of crypto assets or Liquidity Pool (LP) tokens from Decentralized Exchanges to the protocol for SGT, at a discount price. The protocol quotes an amount of SGT and a vesting period for the trade. We can also call it bonding as it performs a bit similar to the bond in traditional finance. The SGT is released in a certain short period of time.

The SGT tokens are minted from the contract. When you trigger the minting function, you are selling your cryptoassets or LP tokens. The protocol creates more SGT to you than you’d get on the market, which means you are buying SGT at a discount. But your exposure becomes entirely to SGT and no longer to the paid assets or LP tokens.

What happens when minting?

1. Minting is the second-best choice for SGT holders

When users choose to mint SGT, they will sell their cryptoassets or LP tokens, and trade for some predefined amount of discounted SGT tokens that are vested in 5 days. The tokens are released linearly. Like in a 5-day term, after 2 days, 40% of the rewards can be claimed.

The choice is also good for SGT holders, as after they join in the LPs in Dexes and paired with an equal value of other assets, like USDC, they can enjoy some discount in getting more SGT tokens by minting/bonding, in 5 days. They may harvest some instant profit in a relatively short period of time. They can choose to realize the profit by selling or continue to earn by staking.

2. Minting provides a cheaper way to get SGT for newcomers or users stacking more SGT

Through minting, users are likely to get SGT at a discounted price (though it is not guaranteed according to the market and algorithm in pricing the bond). This is a valuable choice for newcomers or the ones stacking more SGT, as it can be cheaper than buying SGT from the secondary market.

3. Minting is an active, short-term strategy

The price discovery mechanism of the secondary bond market renders mints discounts more or less unpredictable. Therefore minting is considered a more active investment strategy that has to be monitored constantly in order to be more profitable as compared to staking.

4. Minting can provide arbitraging opportunities for traders

The price for minting is dynamically controlled by the embedded algorithm. Please check the following contents for details. Therefore, according to the current price and the bonds outstanding, there could be arbitraging opportunities against the secondary market price. For example, when the minting price is cheap, which translates into a large discount, traders could trigger the minting function and sell on the market to capture profits.

5. The process allows Stargate Finance to accumulate its own liquidity

Importantly, the minting process can allow Stargate Finance to accumulate its POL (Protocol Owned Liquidity). More POL ensures there is always locked exit liquidity in our trading pools to facilitate market operations and protect token holders. Since Stargate Finance becomes its own market, on top of additional certainty for SGT investors, the protocol accrues more and more revenue from LP rewards bolstering our treasury.

Algorithms in minting

Minting happens by allowing users to purchase a bond. This bond price is the Mint price.

$$Bond Price = 1 + Premium$$

SGT has an intrinsic value of 1 USD. In order to make a profit from bonding, Stargate Finance charges a premium for each bond.

$$Premium = debt Ratio * BCV$$

The premium is derived from the debt ratio of the system and a scaling variable called BCV. BCV allows us to control the rate at which bond prices increase.

The premium determines profit due to the protocol and in turn, stakers. This is because the new SGT is minted from the profit and subsequently distributed among all stakers.

$$debt Ratio = bondsOutstanding/SGTSupply$$

The debt ratio is the total SGT to be released to bonders divided by the total supply of SGT. This allows us to measure the current debt burden of the protocol.

$$bondPayout_{reserveBond} = marketValue_{asset}\ /\ bondPrice$$

Bond payout determines the number of SGT sold to a bonder. For reserve bonds, the market value of the assets supplied by the bonder is used to determine the bond payout. For example, if a user supplies 1000 USDC and the bond price is 250 USDC, the user will get 4 SGT.

$$bondPayout_{lpBond} = marketValue_{lpToken}\ /\ bondPrice$$

For liquidity bonds, the market value of the LP tokens supplied by the bonder is used to determine the bond payout. For example, if a user supplies 0.01 SGT-USDC LP token which is valued at 1000 DAI at the time of bonding, and the bond price is 250 USDC, the user will get 4 SGT.

An Example

$SGT is selling at $220, and the bond/minting price is $200. Users buy 10 bonds for $2000, instead of buying on the market for $2200. Stargate Finance mints 10 SGT for the users and 10 SGT is given to the DAO. Stargate Finance makes $2000-10-10=$1980 as profit, reserved for later distribution.