Permissionless Yield Farms, xSTEP and Tokenomics Loops
Another frantic few weeks at Step as it was all hands on deck delivering our recent launch of permission less yield farms:
This blog should condense a lot of the recent developments here at Step, how they interoperate with each other and what this means for STEP stakers, AMM LPs and all our awesome Step community!
xSTEP is born
Staked Step which we discussed in a previous post is a unique token in the Solana world. Sharing similarities with xSUSHI on Ethereum the amount of STEP staked is now at $15m at time of writing, an awesome feat and about 10% of our market cap. A core metric for us going forward will be ‘% of supply staked’ as Step revenue streams grow, so will yield trickling into xSTEP.
You’ll note that xSTEP is required in order to make a permissionless yield farm on Step. We actually had to delay the launch of yield farms a few weeks until xSTEP was ready but now it is out we are all systems go! In future there are more plans for usage of certain features being locked to xSTEP stakers only, we really like the idea for ‘stake for access’ as a business model compared with say a subscription fee. Probably going to see this in the areas of analytics and tx history csv exporting.
Permissionless Yield Farms
This task has been in development for months. It got sidelined a bit with some of our other important updates but was always on the cards as a major addition, and Steps’ yield farm creator is a step ahead of anything else out there. The core premise is we want Step to be a go-to place for projects looking to create their own liquidity pools.
Since the dawn of time in Defi it was the case that you needed to either build your own yield farms (contracts, UI) or you go and ask someone else nicely to list you. In the first case contracts are hard, there have been examples of rug pulls in the past when people roll their own so its a non-trivial undertaking for new projects who may not have many resources and just want to kickstart their token. In the latter case on asking someone else to list you, the answer is usually “no”. Often yield aggregation platforms do due diligence on tokens before they launch on their platform which can exclude new projects with no prior track record or force upon them specific emission schedules, fees, restrictions etc which if faced with no other option the project just needs to comply with.
This is different now with the Step yield farms. Not only can a project create farms with no prior intervention by us or anyone else, they also have flexibility on emission time periods, single or dual yield LP farms and soon to be launched- single asset farm creations too. This flexibility means anyone can get started, even community members who want to pitch in to build liquidity of their token.
We thought a lot about ways to deter bad actors from making a million farms of useless tokens etc, after many ideas the best solution was simply requiring new farms stake xSTEP in order to create their farm, this remains locked until the end of the emission period. At the moment this is set to 10 000 xSTEP, a number sufficiently high to keep away spam and bad actors (or if they want to spam they will end up pumping STEP in the process anyway) but low enough to still be something affordable for new projects. The whole farm creation process you can read about here https://docs.step.finance/using-step-finance/farming-on-step/creating-a-yield-farm
Closing the loop
DeFi projects often have a token but what gives it value are usually: memes, speculation or value accrual. Memes are fine but everyone tries them and not every project can pull it off, DOGE is a good example of a meme that has proven to be self sustaining and the value of DOGE is driven purely by memes, nothing fundamental about the token or how it works etc. Speculation is another high risk endeavour, often a projects coin does absolutely nothing but people may think it’ll do something in future so they buy it. For every success story there there’s another 100 where that didn’t work out. Perhaps the least ‘risky’ (although as with all risk its all relative) is a token which builds value into the token itself either via buybacks, burns, collateralisation, lockups or anything else people dream up. Value accrual tokens are probably the more solid bets that will at least have their price backstopped by the actual revenue flowing into the protocol so likelihood of going to zero would be less than the others.
We could have just left value accrual at “the tokens which go to treasury as fees from AMM, Compounding, Settlement we just buy step oneday and buying STEP is good for holders”. We could also have then gone and burned that STEP. Ultimately however we think ‘buyback and distribute’ is a more appealing model, while it keeps the same amount of STEP in circulation it rewards believers in the project (stakers) with non-dilutive rewards, a superior option than waiting for the price to pump because of a perceived burn amount. xSTEP helps us close this loop for revenue going back directly to stakers. However, xSTEP is even better than simply paying stakers, the token itself is an SPL so it can be used elsewhere as collateral or used as liquidity as a value accruing asset.
Yield Farms and the Tokenomics Loop
Feedback loops are necessary for explosive growth, the STEP tokenomics loop now follows the following stages:
- Permissionless Yield Farms start with high APYs
- To ape in you need 50% STEP as an LP
- This pumps TVL which increases likelihood of arbs
- Arbs on AMM bring fee revenue
- Fees go to Treasury wallet
- Treasury takes these fees and buy STEP then sends it to xSTEP contract
- xSTEP is needed for more Permissionless Yield Farms
- More STEP is acquired to ape into new farms which pumps STEP which increases liquidity on AMM in $ terms
This cycle also doesn’t include the fees we earn from compounding or open order settlement which are additional protocol revenue streams. Regardless, a positive feedback loop between AMM TVL and fee/value accrual for token holders exists now which a few months ago didn’t and we had none of these building blocks in place- now its simply a task of bolting on more value accruing products of which we have a strong pipeline of.
The cool thing about TVL in the AMM is you guarantee fees to stakers because every coin is constantly moving against every other coin in pricing so an AMM is constantly being arb’d to ensure there are no crazy price differences between liquidity pools, this constantly fee revenue is simply a function of the size of the TVL you accrue, which with Step we now have the tools available to incentivise that to grow all in a non-dilutive way to STEP token holders.
You’ll note none of the current yield farms are issuing STEP and we dont do dilutive STEP emissions for LPs anymore. The only STEP that would be issued in these farms is STEP which has been bought from the markets already, keeping supply constant, ensuring there is no ‘delta hedge’ strategies for STEP.
The metrics to track for STEP token holders is not just ‘% of supply Staked’ but also TVL and Revenue. Something which we will all be striving to increase over time!