Staking Illuvium ILV - Part 1: Staking Basics

By Deraji | ILVFi | 21 Aug 2021


Previously, I shared an in depth look at the tokenomics of ILV, the governance token associated with the upcoming launch of Illuvium.  If you’re completely new to the world of Illuvium, you can learn more about the basics here.  If you’ve already researched the project and want to get involved, you’re likely interested in staking.  Today, we’ll start a three part series on staking with Illuvium, the current rates of return (which are ridiculous), and some models of how much an investment today could be worth in the future.  Disclosure & disclaimer - I am long ILV, and this is for entertainment and educational purposes only, not financial advice.

Now that we’re done with that, you’ll next want to find your way over to Illuvium.io to check out the current options for staking and the associated rates.  If you’d prefer, below is a step-by-step video on how to stake put together by the moderators on the Illuvium Discord.  If you’d like to learn more about the benefits, risks, and potential value of staking, keep reading.

TL:DR To Staking Illuvium

  • Determine whether you want to stake ILV alone (current APY ~84%) or the Sushi LP (SLP) pair (current APY 660% as of 8/20/2021)
  • Get money on a cryptocurrency software wallet like Metamask
  • Go to Sushi.com
  • Buy ILV.  If you plan to stake the SLP, get equal dollar amounts of ETH and ILV
  • If staking SLP, add liquidity to the ETH/ILV pair on sushi.com
  • Go to Illuvium.io
  • Click on Staking, then Core, then click Stake next to either the ILV pool or SLP pool
  • Select Flexible or Locked (and select your locking time period), click next
  • Pay a bunch of gas fees on Ethereum
  • Enjoy watching your rewards increase on the Illuvium Dashboard waiting for the game to release

Staking Basics

If you’ve already researched the tokenomics of ILV, you know that 30% of the planned 10 million tokens are to be distributed to staked ILV holders as rewards over the next three years, with 1.8 million of these tokens to be distributed in the next year.  The number of rewards is fixed, and is shown in the graph below, with a 3% decrease in the amount of rewards issued every two week period for a total of three years.  We are currently in the fourth bar of the graph, with a little over 91,000 tokens issued during this period.  These tokens are divided with about 80% of them going to those staking in the Sushi Liquidity Pool (SLP), and about 20% of them going to those directly staking ILV tokens.  A small portion is also dedicated to “Flash” pools, where a token completely outside of Illuvium can be staked to earn ILV for a short period of time.  Previously, SNX and AXS had Flash pools, with an upcoming pool available for holders of XYZ.

ILV token distribution over time.  As of 8/20/2021, we are in the fourth period of distribution.

To ILV or SLP?

The first critical decision you need to make is which staking pool to join.  In the core pools, you have two options; ILV or Sushi LP.  The basics of the ILV pool are you buy ILV, stake it, and earn rewards. This is a more simple process, with lower gas fees.  Just go to sushi.com, swap funds on your software wallet for ILV, go back to Illuvium.io, and stake.  Due to the lower gas fees and complexity, this is the easiest route without higher risks and fees associated with liquidity pools.  

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For the Sushi LP, there are more steps, more complication, more risk, and of course, more reward.  This option starts the same as the ILV pool with acquiring ILV tokens, HOWEVER, first, you must determine how much you want to stake in the SLP, and get HALF of that value in ILV, and HALF in ETH.  The value is based on the current fiat (dollars in the US) value of each.  As of right now with ETH at about $3250 and ILV at $490, if you wanted to stake $5000 worth, you would need $2500 of ETH, or about 0.77 ETH, and $2500 of ILV, or about 5.1 ILV.  Also remember, you will need to keep ETH in your wallet to pay for gas fees.  Even at low gas fees (about 25 Gwei), expect all your associated fees to be at or above $100 in ETH for starting the staking process from scratch.  Trust me, life will suck if you put all your ETH into the SLP, then go to stake it, and lack the ETH to pay for gas.  The ILV pool is about half or less gas fees for your initial staking and future reward claims compared the Sushi LP.

Once you have your amounts of ILV and ETH, on Sushi.com, click on pool, select ETH and ILV as the pair, and click MAX next to ILV to pool all of your ILV.  Once you complete this transaction (and pay a lot of ETH in gas), you’ll receive a SLP token representing your share of the pool.  As part of pooling with Sushi, you will earn your share of the 0.25% fees that are added to the pool with every transaction.  This aspect is passive and requires literally no action on your part.  Now, take your SLP tokens, go to Illuvium.io, click on Staking, Select Core, then Stake next to the Sushi LP line.  Again, you will carry out a number of transactions/approvals on the Ethereum network, with associated gas, and in the end, you will be a proud staker of SLP on Illuvium.  

The APY is based on the value of ILV, and will change over time with the token price, the fortnightly decrease in rewards available, and also the number of people in each pool.  Remember, the higher rewards come with higher risk, with one of the biggest risks of the Sushi LP coming from impermanent loss (IL).  Below is a video to explain this complex concept in more detail, but in short, as the price of the two assets (ETH and ILV) move differently, e.g. one increases or decreases more than the other, the way the automated market maker works creates the opportunity for people to come in and buy an asset at a discount to the broader market, bringing it back to equilibrium.  This results in a loss for the SLP holder versus just holding the underlying assets without pooling them.  When you eventually cash out your SLP tokens, you will receive less of the token that had a greater increase in price.  For a rough example, presume the value of ILV goes up faster than ETH.  If you originally pooled 1 ETH and 7 ILV, when you sell your SLP, you will receive more ETH and fewer ILV, so say 1.3 ETH and 6 ILV.  You can calculate the impact of impermanent loss here.  In short though, the ludicrous APY being offered by Illuvium to incentivize this pool should in most cases greatly exceed your IL.  For investors of lower amounts of money, gas fees may take a significant chunk of your investment, so beware, particularly on how often you claim rewards.

  

Common Discord Question - How are my SLP rewards calculated?

I frequently see this question in the Discord chat - are my SLP rewards calculated on the total amount I put in the SLP, or just the ILV portion?  The answer is that when you stake in the SLP, your rewards are based on the total value you contributed, both ETH and ILV.  For example, if you staked $1000 in SLP ($500 ETH and $500 ILV), your rewards would currently be generated at a rate of 600% of the full $1000, not just the ILV portion.  

Flexible or Locked?

There are two options in staking both the ILV or SLP pools - flexible or locked.  In the flexible option, you stake your tokens without a lock up period, and are free to unstake them at any time.  With this flexibility, you’ll receive half of the rewards stated above, currently about 40% APY on the ILV, and 300% APY on the SLP.  You may also opt to lock your tokens in the staking protocol from 1 to 52 weeks.  Doing this will increase your rewards up to the potential 85% (ILV) or 600% (SLP) locking for a full year, and the rates increase linearly from the flexible rate up to the full year lock up rate.  For some examples, let’s take just the ILV pool, and assume rates of 40% and 80% for flexible and locked for 1 year, respectively.  If you lock for 6 months, you would initially be receiving 60% APY.  If you lock for 3 months, you initially receive 50% APY.  For each week you lock, you receive an additional initial APY of ~0.76%.  This increase of rewards is actually called “increasing your weight in the pool,” where you essentially count for having more ILV staked than you actually contributed.  At the Flexible option, you have a weight of 1, which means each ILV counts as one ILV.  If you lock all the way to 52 weeks, your weight increases to 2, which means each ILV counts as 2 ILV in the pool.  This is why rewards double, but there is also a second key reason to increase your staked weight, which we’ll get to in Part 2 tomorrow.

Remember, these rates do change over time, decreasing the rewards issued by 3% every two weeks, and decreasing as more people stake in the protocol.  Don't expect to just multiply your investment by today's APY to calculate your results.  In Part 3, I'll share some calculators to better predict where your ILV stake may end up over time.

That’s it!  You’re staking ILV and supporting a very exciting upcoming blockchain P2E game.  Enjoy watching your Illuvium.io dashboard and watching those rewards add up.  Tomorrow, I’ll share a further look at the rewards gained for staking with Illuvium.

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Deraji
Deraji

Crypto curious thinker, amateur economist, geriatric millennial gamer passionate about Illuvium. Happy to share my economic and financial assessment of this unique blockchain NFT Play-to-Earn project. patreon.com/ilvfi


ILVFi
ILVFi

ILVFI focuses on the upcoming P2E game, Illuvium, the first proposed AAA-quality video game based on blockchain technology and NFT ownership. We'll focus on both the game play, as well as the in-game and ILV governance token economics.

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