GoodDollar Staking: Using DeFi for Good

How to earn rewards while supporting the inclusion of the next billion DeFi users?

The rise of decentralized finance (DeFi) has enabled innovators and developers to create a seemingly endless range of new financial products, services and now even crypto-powered socio-economic ecosystems.

We at GoodDollar have drawn on the dynamism of DeFi to construct a truly unique protocol that will offer an onramp to the decentralized economy for the more than one billion people now excluded from traditional financial systems.

That may sound ambitious, but with our DeFi-powered protocol, it is entirely achievable.

How does staking for good work?

The GoodDollar Trust is a set of smart contracts that integrates yield-generating DeFi protocols and apps into the GoodDollar Economy with the aim of generating a continuous value flow into our ecosystem. This value flow is what enables us to generate G$ crypto tokens for onward distribution to 250,000+ Claimers all over the globe. 

Supporters stake capital with these third-party protocols via the Trust. The interest generated by these deposits flows back to the GoodDollar Reserve, fueling the minting of new G$ tokens that are distributed each day to Claimers via the GoodDollar wallet dapp. Claimers must demonstrate they are real and unique before making their first G$ claim.

Since the creation of new supply is backed by the flow of funds into the GoodReserve, the G$ minted via this staking-to-UBI flow has zero impact on the token’s price.

GoodDollar takes special care when choosing which third-party protocols to integrate

While there are plenty of protocols in the DeFi space offering appealing yields, security from exploitation by hackers can vary widely. According to Cryptosec.com, more than US$1.5 billion has been lost through the hacking of unsecured DeFi apps to date. 

Given GoodDollar’s reliance on the dynamism of DeFi, we thought we would offer a recap of some DeFi basics to help existing and prospective members of the GoodDollar community understand the risks and rewards of this new financial system:

DeFi Basics:

• Lending & borrowing markets
  
  Lending and borrowing in decentralized finance (DeFi) are based on the same principles as lending and borrowing in traditional markets. In simple terms, one party provides capital or assets to another in exchange for interest payments. In DeFi, lending and borrowing are done either through centralized financial providers (e.g. BlockFi, Celsius, etc.) or through interest-bearing DeFi protocols such as Aave and Compound.
• Liquidity provision
  
  Liquidity is the measure of how efficiently an asset can be exchanged on a given market—that is, sold and bought without big price compromises by either buyer or seller. In traditional markets, if there are not enough buyers and/or sellers to keep markets functioning, human market-makers step in and facilitate trades from proprietary capital pools. Since the high degree of fragmentation in crypto markets tends to limit the number of actual buyers and sellers active at any given time, decentralized exchanges use technologies and strategies to ensure efficient deal-making, including an automated version of the old-school market maker.
  
  Here are a few:
  
  • Automated Market Makers & liquidity pools
    
    Automated market makers (AMM) keep DeFi markets moving by automatically taking up the other side of a trade, based on pre-set algorithms. AMMs draw upon liquidity pools provided by users who earn rewards by helping to facilitate trades.
  • Liquidity mining
    
    A liquidity miner is a user who commits assets to a liquidity pool (see above) in exchange for crypto rewards.
• Algorithmic yield strategies
  
  Many DeFi investment protocols employ a range of strategies based on mathematical algorithms to maximise yield for users. These strategies are carried out by bots, which make trades within pre-set parameters (e.g. price ranges, risk levels, market volatility).
• Staking
  
  Staking is the act of committing or locking in assets—either crypto or fiat—to support the security and functioning of a DeFi protocol. To compensate for the opportunity cost of locking up capital, stakers earn rewards in the form of cryptocurrency. Reward amounts are often influenced by factors such as the duration of commitment and the amount committed.
  
  In a GoodDollar context, capital staked to the Trust is deposited in interest-bearing protocols (currently Compound and Aave, although the GoodDAO may choose to add more in future). Any interest generated is then channelled into the GoodDollar Reserve, where it supports the generation of G$ crypto universal basic income (UBI) for claimers.

The relationship between GoodDollar and DeFi is a mutually beneficial one.

DeFi makes GoodDollar’s unique impact economy possible. And by offering a route that will allow millions of new users to join the decentralized economy, GoodDollar adds to the overall crypto-industry network effect, one of the most important factors governing the strength and health of the crypto realm. Since the inclusion of tens of millions of new members in the decentralized economy is in everyone’s interest, staking with GoodDollar is not only an act of altruistic behavior…

… it is a win-win for everyone! 

Even if the idea of helping the financially excluded while delivering long-term benefits to the decentralized economy is not compelling enough on its own, the dynamism of DeFi allows GoodDollar to reward those who support us in more immediate and tangible ways. 

Supporters earn rewards in the form of newly minted G$ equivalent to market rates of interest, along with non-transferrable GOOD tokens, which offer them a voice in protocol governance. Since reward tokens are minted only at the point a user makes a claim rather than at the point of entitlement, Supporters can choose to forgo them, and thus further bolster UBI creation. 

Those who do withdraw their G$ reward tokens have a number of options available to them.

They can exchange their G$ for other cryptocurrencies via the GoodDollar Reserve or on secondary markets (DEXes and CEXes), use them to buy or exchange goods and services with members of the GoodDollar community via any of the many GoodDollar marketplaces that have sprung up, or hold onto them for future use, thus entitling them to share in future distributions of GOOD governance tokens.

The staking reward structure will be governed by the GoodDAO and reward amounts will vary depending on which third-party protocol the Supporter chooses. Rewards will be prorated based on the amount of capital staked per block and calculated based on the formula set out here.

Simply put, users are rewarded in each block, according to the following calculation:

(User’s total stake/Total staked in contract) * (Reward per block). 

V2 will launch with two integrated staking contracts: Compound and Aave. Supporters can stake DAIs on the Compound contract and/or USDC on the Aave staking contract (N.B. The GoodDAO may choose to add further staking contracts in the future). Initial distribution is set as follows:

Compound DAI: 138.88 G$s per block = 291M G$s per year

AAVE USDC: 69.44 G$s per block  = 145.5M G$s per year

Supporters are also rewarded with influence. The GOOD tokens they receive will offer them a say in the governance of the GoodDollar ecosystem via a newly formed decentralized autonomous organization (DAO), the GoodDAO. GOOD tokens offer all holders the power to both propose changes to the protocol and to vote on the proposals of others. 

Social Rewards

Finally, GoodDollar rewards Supporters socially – setting out for them the exact impact their staked capital has on our decentralized impact economy via a measure unique to GoodDollar that we call Social APY (annual percentage return).

We believe that by offering such a wide spectrum of rewards – those that satisfy the wallet, the social conscience, the desire for influence, and the drive to support the decentralized economy – we have made GoodDollar a compelling financial and governance investment proposition for institutional and retail DeFi investors alike. 

(content reposted by a project enthousiast from gooddollar.org with permission of gooddollar.org)