Hedron the Sleeping Giant | Part 2 - ICOSA & Hedron Staking
Updated: Nov 4, 2022
In Part 1 of this Series, we discussed what Hedron is, how it functions, as well as how it could help and be helped by Hex over time. If you have not watched that video, go to the link somewhere on this screen and watch it before watching this video. You will need the information there to grasp the content in this video.
Another element that I failed to include in the previous video, is that Hedron has no admin keys and has locked and immutable code. No one can ever change the code, exactly like HEX.
Today, I will introduce to you: Icosa. Icosa is the staking platform form the Hedron protocol that allows Hedron holders to stake their Hedron to earn ICSA – the new token Icosa in the system – obtain ICSA by selling HSI’s to the smart contract, staking ICSA to earn both ICSA and HDRN Tokens, and obtain an NFT that is worth a percentage of a We Are All the Source Address Pool where users can earn ICSA as well. This pool is like a giant game of chicken, where users can only obtain their ICSA from the pool by burning their NFT and removing themselves from the pool, consequently increasing everyone’s percentage of the payout they receive.
Sounds simple, right? HAH!
There are so many ramifications for both Hex and Hedron with this system it is amazing. Let’s start the deep dive.
The Hedron staking pool
The protocol allows users to stake their Hedron to earn the new token ICSA. The amount of ICSA distributed in the pool as yield is calculated here:
HDRNburnedinpreviousday/TshareRate=ICSA to Pool
This means that the amount of ICSA distributed as yield throughout the pool is based off of the amount of Hedron burned in the previous day, which is then divided by the T-share rate at that time – which is always increasing. This is an important piece to remember down the road. Your yield is based on the percentage of HDRN in the pool you have staked. As a quick refresher, the Hedron burn comes from 3 places: Liquidation auctions, Hedron advance premiums and Early end stake penalties.
In the pools, there can only be one single stake per Address in each pool. Let’s move on to the staking mechanics now.
In order to understand the minimum stake lengths in these pools, we must establish the Classes of HDRN Token Holders. A Whale is defined as holding 1% of the supply, a Shark Holds 0.1% of the supply, A Dolphin holds 0.01% of the supply and a Squid holds 0.001% of the supply. Anything less than these tiers will not have a minimum stake length.
A Whale sized stake must stake for a Minimum of 360 days. The benefit to the whale comes in the form of a 20% bonus in yield for the entirety of the stake. A Shark sized stake must be staked for a minimum of 240 days. The benefit to the Shark sized stake is a 15% bonus in yield for the entirety of the stake. A Dolphin sized stake must stake for a minimum of 180 Days and gets a bonus of 10% yield over that period. Finally, as far as the minimums and bonuses go, a Squid must stake for 90 days and receives a 5% bonus for serving the minimum. Everyone else must serve for 30 days as a minimum, without a bonus. These bonuses are received at the end of the stake; however, stakes themselves can be diluted or increased in the percentage of supply a stake has at a given time.
Due to Hedron having inflationary mechanics as well as Deflationary mechanics, the supply can swing higher or lower every day. In the case where the inflation outpaces the Hedron burned, it is possible that any tier of supply holder could be knocked down into the lower tier. This reduces their bonus they receive at the end of their stake but also reduces the timeframe required to serve without incurring penalties from emergency end staking - More on that later though.
A user can also be diluted due to a brilliant mechanic in the staking pool: The ability to add to a stake at any point. The only catch to this is that the minimum stake length is reset any time the stake is added to. This means that users can both increase their own positions in the pool at any time and get knocked down by other users at any time. It solely depends on what happens with the total supply.
Additionally, imagine being able to add Hex to your Hex stakes over time to increase the payout you would receive. This is what the Icosa staking platform allows
Conversely, if Hedron’s supply deflates at a rapid rate, Stakers could be moved up a tier and have their bonus increased. The minimum time they must serve in the stake does not change until either the stake is over OR the user adds more funds to reset the stake time. So, what happens if a staker ends their stake early?
If a staker serves 50% of their stake and ends it, they will receive 50% of their principal and 50% of their ICSA rewards. This applies to all percentages, from 1-99%.
If a staker completes the minimum stake length, they do not have to end the stake if they do not wish to. They can allow the stake to continue for as long as they wish to keep earning ICSA based on the percentage of the pool they hold and will still get the bonus at the end of the stake whenever they choose to. The bonus will only be reset when the stake ends or more tokens are added to the stake.
What happens to all ICSA and HDRN collected in penalties from an emergency end stake? 50% of the HDRN collected is burnt out of existence whereas the other 50% of the HDRN is sent to be distributed into the ICSA staking pool. The ICSA from penalties is distributed evenly to all three pools - Hedron, Icosa and WAATSA. So, it is very important to understand that while you can add to your stake in the pool and the stake minimums are much shorter than what can be staked with HEX, you MUST serve the entire length without incurring penalties to your principal.
Obtaining ICOSA + Supply mechanics
Before we talk about the ICOSA staking pool, let's dive into how exactly you can get ICSA without staking HDRN.
The ICOSA platform has what is called, “HSI Buybacks”, where users can sell an HSI to the smart contract and in exchange receive a certain amount of ICSA. There is more to these buybacks, but for now we will only cover the function of minting ICSA. The amount of ICSA minted is based on this Formula:
Borrowable amount of HDRN/T-share rate
=ICSA output
This equation above means that the amount of advance-able HDRN the stake can mint is divided by the current T-share rate to give the number of ICSA you will receive. So, if you have a single T-share 5555 stake, the Borrowable HDRN would be 5,555,000 and would be divided by the current share rate of 22,903.
There is a catch though. In the program Solidity, which is used to write the code, the program does not read decimals, so the way solidity sees the T-share makes the share rate have an extra numeral in its number. Normally, the T-share is currently around 22,903.2 Hex. The Solidity program cannot see decimals, so it reads the share rate as 229032.
So, our new math looks like 5,555,000/229032= ICSA output. This would mean you would get 24 ICSA from that stake.
Once the user receives their ICSA, they can then place it into the ICSA staking pool if they wish to receive both HDRN and ICSA, but more on that later.
So, understanding that ICSA can only come into supply and will never be burnt, we know that its supply is inflationary. Over time, assuming both HDRNs price increases and the T-share rate climbs at least at the rate it is currently climbing, it will be both more difficult to stake a T-share and therefore more difficult to mint Hedron.
Because ICSA inflation is directly tied to the HDRN burnt per day/T-share for a total of 3 pools – which we will talk about shortly - the HSI’s sold to the contract, and HDRN’s ability to be minted should get exponentially more difficult over a long period, making ICSA inflation becoming more difficult to obtain over the long haul. There are many variables of course beyond the concepts here that we will touch on later, or in future videos or streams.
HSI Buybacks
Within the protocol and like we previously touched on, users have the option to sell their HSI stakes to the smart contract in exchange for ICSA tokens. What does the protocol do with the HSI once it has been sold to the contract though?
Once the HSI has been sold to the smart contract, the smart contract advances all available HDRN from the HSI. The HDRN advance is sent to the ICSA pool to be paid to ICSA stakers as yield and the HSI is left owing until it reaches the 90th day, where it will be liquidated. This pays HDRN to stakers who are locked up and cannot touch the HDRN until their stake has ended and forces HDRN to be burnt out of supply in the liquidation auction.
So, by converting your HSI to ICSA, you are gaining access to the ICSA pool immediately without staking or market buying, you are forcing HDRN to be burnt in 90 days and you are locking up the advances for a period via the stakers, and finally reducing sell pressure with the inflation.
Of course, this may not make sense forever. Over time, the cost of staking a T-share could rise dramatically, to the point where the value of an HSI would net you less ICSA in a buyback than it would if you used that same dollar value to buy ICSA on the open market. This is an arbitrage point that will allow ICSA to help pull HEX’s price upward.
The arbitrage cycle would go like this: If an HSI gets more ICSA than buying on the market for the same dollar value, it makes more sense to buy HEX, stake it and mint ICSA to sell for more Hex. You then continue this cycle until there is no more price difference between the ICSA from an HSI and the market price. If you can buy more ICSA on the market vs the same dollar value spent on an HSI, then it will make more sense to buy ICSA off the market rather than mint through HSI’s. This cycle ensures that ICSA will always pull the price of HEX up and will incentivize users to pull the price of ICSA up, which creates a positive feedback loop. Eventually there should be a rough equilibrium maintained roughly over time between the two in value per dollar spent.
This loop also effects HDRN. When more HSI’s are sent to auction, more HDRN is burnt out of supply to buy the liquidations. This reduces the amount of sell pressure on HDRN.
As you can see, this is a very complex system with many intricacies that create an immense amount of game theory that we’ll later dive into and we haven’t even covered the two remaining aspects to be introduced: The ICOSA staking pool & and the We Are All the Source Address NFT pool. In order to complete the understanding of the system at its base mechanics, we will continue our deep dive in part 3 of this series in the next video.
Before we go though, again I need to give an absolutely MASSIVE shoutout to the entire Icosa telegram chat. They are the sole reason I was able to understand everything in this and the coming videos so quickly, including Nomad, CryptoSloth, Alex, Enigma, Bloo and many others.
- CRYPTOGRFX
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