Understanding The ADX Loyalty Pool and Elastic Issuance
Posted by AdEx Network on October 8th, 2020ADXStakingDeFi
Recently we announced the release of the AdEx Loyalty staking pool. It uses a Chainlink-powered ADX-USD price oracle for a novel DeFi concept we call elastic issuance. In this post we explain in more details how this pool works, what is elastic issuance and why it matters.
What is the AdEx Loyalty Pool
During the past few months, we brought our staking ecosystem to an entirely new level. We started off with a single validator pool - Validator Tom - and started looking into adding more pools based on popular demand by our stakers and community members.
We received very positive feedback about our staking, and decided to go ahead with the next pool: the AdEx Loyalty Pool.
This pool has a few noteworthy peculiarities:
- It has no lockup period: you can deposit/withdraw from it instantly at any time.
- Rewards are automatically added (re-staked) towards the pool.
- There is no slashing in this pool so there is no way you lose any of your tokens.
- The pool wraps ADX tokens and generates new tokens: ADX-LOYALTY. These are tradable!
- Staking in the loyalty pool allows stakers governance.
- The annual percentage yield (APY) of the pool varies based on the price of ADX - so it’s predictable. More on this further in this article.
The ADX-LOYALTY Pool Token
Unlike our regular validator pools, the loyalty pool is tokenized. This means it wraps ADX in its own token (ADX-LOYALTY) that can be transferred, traded, locked for governance or otherwise interacted with, to take advantage of the vibrant DeFi ecosystem on Ethereum.
This token is essentially an interest-bearing ADX derivative, like the Yearn Finance vault system for example.
When an ADX holders deposit their earnings to the Loyalty Pool, they will receive ADX-LOYALTY tokens. As long as they hold the tokens, they will receive ADX yield with predictable variable APY. If users need their ADX, they can unbond their Loyalty stake and receive back their ADX tokens, while the corresponding ADX-LOYALTY tokens get burned.
Elastic Issuance and Predictable APY
The Loyalty Pool annual percentage yield (APY) will range from 10% to 50% depending on the ADX price in steps. The APY will be higher when the price increases, and lower when the price falls into a lower bracket. We call this elastic issuance.
We pioneered elastic issuance to make sure that pool participants are incentivized to stay in while the price is high, but also to decrease excessive issuance if the price is low.
We get the price information from an ADX-USD price feed provided by Chainlink.
With the data derived from the oracle, we have set the following APY steps based on the ADX price ranges:
You can check the full table of steps here in the smart contract.
Along with the 10-50% predictable APY, the loyalty pool carries the ability to receive and redistribute any ADX sent to it. This means that it can be used for distributing additional rewards to ecosystem participants.
For example, when there are multiple validator pools, the pool creator may choose what happens to slashed ADX beforehand: whether they get burnt or they get sent to the Loyalty Pool.
Furthermore, this could be used to redistribute network income to governance participants via a buyback-and-make model.
As we mentioned, the Loyalty Pool gives stakers (i.e. ADX-LOYALTY holders) governance power. They will be able to vote on different proposals about the AdEx Network development (the AdEx advertising platform and the underlying protocol.
Proposals will be uploaded to our snapshot.page by our team and the community will be able to vote. These votes will help us make decisions for the AdEx roadmap.
At this stage, proposal voting outcomes are not binding, unless explicitly marked as such.
This governance mechanism can be used to change the pool parameters, such as loyalty pool price-issuance steps, Validator Tom pool staking incentives, publisher and advertiser incentives, etc.
The AdEx Loyalty Pool will accept a maximum of 25 million ADX. It has been set up this way in order to ensure that not too many new ADX tokens are issued while still keeping a predictable APY.
This works on a first-come first-serve basis: once the limit has been reached, new participants will not be able enter the pool.
Both the Tom Pool and the Loyalty Pool incentivize ADX stakers to keep their ADX either staked or in their own wallets.
The additional ADX minted by both pools slightly dilute the ADX supply and if holders just hold ADX without participating in a pool, the inflation decreases their ADX buying power, while stakers increase it depending on the APY%.
Security and Smart Contracts Audits
The AdEx loyalty pool contract has been audited - but as we’ve seen multiple times in the crypto space, audits do not guarantee security.
This is why, as with any other contract we’ve launched on mainnet, we perform extensive internal reviews and we ensure there’s full test coverage including adverse cases.