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Staking
Last updated
Last updated
Staking plays a critical role in the protocol, as allocating staked $SAFU against cover products opens up available capacity so other members can purchase cover. Previously, any member could participate in the risk assessment process, though there were technical barriers and cost-prohibitive gas fees that prevented more members from staking $SAFU.
In the updated staking model, members can participate in one of two roles:
$SAFU stakers. Members who choose a fixed timeframe delegate their staked $SAFU to risk experts who manage staking pools.
Staking pool managers. Members with risk and pricing expertise that create and manage risk-staking pools.
Members who lack the technical expertise or the time to assess risk and manage $SAFU stakes can choose to participate as $SAFU stakers by delegating staked $SAFU to one or multiple staking pools. Delegating $SAFU allows members to socialize gas costs and passively earn $SAFU rewards when people buy cover from the associated staking pool.
When someone chooses to stake and delegate their $SAFU, they delegate both capital and voting power. Staking pool managers can use the delegated $SAFU stakes to allocate against cover products within the pool and use the pool’s voting power to participate in onchain governance. However, delegated $SAFU stakes cannot be used in the Claims Assessment process.
$SAFU stakers do not control how their $SAFU is allocated within a staking pool. However, they can review staking pools to see which cover products are included in the pool, the staking pool manager’s record of past $SAFU burns, and the staking pool’s current APY.
When someone decides to stake their $SAFU, they need to choose the length of time that their $SAFU will be locked in a staking pool: this is referred to as the staking period.
Members can choose to stake their $SAFU for as little as 91 days or as long as two years. There are a total of eight staking periods to choose from. Members can delegate their $SAFU to multiple staking pools and for multiple staking periods.
1
91
2
182
3
273
4
364
5
455
6
546
7
637
8
728
Each staking period will have a fixed date range, so all $SAFU delegated in one staking period will expire simultaneously. If a member delegates their staked $SAFU to Staking Period #1 noted above 20 days into the 91-day period, then their staked $SAFU would be subject to a 71-day lockup when Staking Period #1 ends and members can withdraw their $SAFU.
Once someone chooses their preferred staking period and stakes their $SAFU in one or multiple pools, their staking positions are tokenized as an NFT (ERC-721). Staked $SAFU cannot be withdrawn before the staking period ends, but members can always choose to sell their staking position and access liquidity before the staking period ends.
Members must use their whitelisted address to withdraw rewards as they accrue to the tokenized staking position. However, a member can transfer their staking NFT to a non-member address for various reasons (e.g., holding a staking position in an address secured by a hardware wallet). Because these NFTs are transferable, someone can switch their membership address before a staking period, or staking periods, end as the NFT can be transferred to an address, and membership can then be transferred to that address.
When members purchase cover and pay the cover fee, 90% of the cover fee is minted in $SAFU rewards and distributed to stakers in the pool. Staking rewards are streamed over the course of the cover period and accrue to tokenized staking positions. These rewards do not compound to staking positions and are freely withdrawable by individual NFT owners at any time, so long as the owner is a member of the Safura.
Tokenized staking positions accrue rewards using a time-based veToken model, where locking $SAFU for longer periods increases the share of cover fees a member will receive. $SAFU stakers who are long-term aligned receive greater rewards. Staking rewards are calculated as follows:
rewardShares = stakeShares * (1 + (10% * LOCK_PERIODS_IN_A_YEAR * daysUntilStakeLockPeriodEnds / 365)
Where:
stakeShares is the amount of $SAFU staked in one position for a given lock period
LOCK_PERIODS_IN_A_YEAR = 4
Example
stake = 100 $SAFU
stakeShares = 100
daysUntilStakeLockPeriodEnds = 92
rewardShares = 100 * (1 + 10% * 4 * 92 / 365) = 100 * (1 + 0.10) = 100 * 1.10 = 110
When members stake $SAFU and enter into longer-term staking periods (i.e., lock periods), they receive more stake shares, which increases the share of cover fees they receive every time someone buys cover from the staking pool.
Stake shares decrease over time as a member’s staking position approaches the end of the lock period. Delegating staked $SAFU to a staking pool for a 728-day staking period will provide the highest share of cover fees, given the staking shares would remain high for a year before starting to diminish as the remaining lock period decreases below 365 days. You can refer to the available staking periods in the section above.
This mechanism aligns incentives between $SAFU stakers, who benefit from higher staking shares for longer-term staking periods; staking pool managers, who benefit from long-term capacity that can be used to sell covers for up to 364 days; and cover buyers, who benefit from access to deep capacity for longer periods when they decide to purchase protection.
When members delegate their staked $SAFU to a pool, their $SAFU can be burned to facilitate claim payouts if members who purchased cover from the pool file successful claims.
If a claim is filed and approved by claims assessors, then the staked $SAFU allocated to the relevant cover product is burned proportionally across all stakers.
Each cover has reserved capacity denominated in $SAFU, which determines the conversion rate applied to a staking pool when $SAFU is burned to facilitate a claim payout. The protocol also takes the global capacity factor into account.
See the following scenario for an example:
The total cover amount is 100 $S
1 $SAFU is equal to 0.1 $S at the time of the cover buy
The claim amount is equal to 50 $S
The global capacity factor is 2
The $SAFU burned to facilitate the claim payout would be as follows:
50 ($S) / 0.1 ($S/$SAFU) / 2 = 250 $SAFU
$SAFU stakers earn rewards but risk losing their staked $SAFU, as $SAFU burns can result in a portion of a position or the whole position being burned.