StaFi Protocol Will Integrate Chainlink Oracles to Price Staking Derivatives Tokens
We are excited to announce our upcoming integration with Chainlink’s market-leading oracle solution to provide dynamic exchange rates for rTokens as part of StaFi Protocol’s new staking derivatives solution. Chainlink’s price oracles are critical to ensuring that stakers creating, trading, and redeeming staking derivatives via the StaFi Protocol always receive the fair market price on those assets.
Understanding The Value of rTokens
The StaFi protocol uses smart contracts to create Staking Derivatives (rTokens) — a synthetic token representing a claim on a staked token currently locked up in its original chain. By doing so, stakers have more trading options for how to hedge and manage their staked assets while still maintaining long exposure and collecting staking fees for securing the network. Currently, it’s difficult for stakers to respond to price fluctuations because there is a long unstaking period for most PoS chains and/or they must give up their long exposure if they wish to access their staked tokens.
With the advent of Staking Derivatives, Stakers will have increased trading options for managing their Staked Assets through the minting of rTokens, which are collateralized by the underlying Staked Assets. Users can then trade their rTokens on Dex and Cex, opening up a variety of hedging and investment strategies for dealing with price volatility.
A key part of our rToken exchange is having secure and reliable exchange rates between rTokens and with their underlying assets during the minting and redeeming process. This is where Chainlink comes into play as a means of providing stable and secure exchange rates, allowing users to enjoy a worry-free trading experience.
Why StaFi Protocol Needs Chainlink Price Feeds in rToken Exchange
The exchange rate between rTokens and their underlying staked assets will be pegged to a 1:1 ratio (or at a dynamic exchange rate). For example, a user with 100 DOT tokens locked up in the staking smart contract on Polkadot will get 100 rDOT tokens in return. If the current market price for DOT is $5, then theoretically, rDOT will also be priced at $5.
However, there are many factors that may affect the price relationship between the two. For example, rTokens may come with additional rewards during positive market conditions, since the token is earning an interest via staking fees and/or inflation, in addition to its underlying value. In theory, the rToken should have a higher value than the original Token. To estimate the price difference between the two assets, we must take into consideration the annual inflation rate of many native tokens, as well as the Staking rates of different projects. Moreover, the leverage effect of Staking rewards may affect the price of the original token, which makes the 1:1 coupling slightly incorrect.
In the above example, although 100 rDOT corresponds to the ownership of 100DOT, its market price may not always be the same. If you only consider the leverage effect brought about by staking rewards, the price of rTokens will be higher than the original tokens in a bullish market, and vice versa in a bearish one. However, this is a simplified model and the final price still needs to be determined by the market dynamics. We will further discuss these price relations between the original tokens and its corresponding rToken in future articles.
In order to provide exchange rates between rTokens and the underlying Staked Tokens in a fully decentralized manner, StaFi Protocol will leverage Chainlink’s decentralized oracle network. Chainlink is not only the market leader in providing exchange rates to the DeFi market, it’s also integrating directly into Polkadot/Substrate. Since StaFi is also built on Substrate and an important member of the Polkadot community, it makes for an extremely natural and beneficial integration for both parties.
By integrating Chainlink, we can provide strong guarantees to rToken users when it comes to accurate valuations, secure and reliable updates, and transparent processes that can be fully audited on-chain. Through Chainlink’s external adapters, Chainlink oracles can connect with any API, enabling us to access market data about rTokens from a multitude of different sources. This data can be constantly updated on-chain using a decentralized network of secure node operators, which users can monitor using transparent on-chain visualizations that show the real time performance of the oracle and it’s individual nodes.
Young Liam, StaFi CEO and Co-Founder expressed his excitement about the integration, stating
“We’re excited to integrate Chainlink’s market-leading oracle solution to bring accurate, decentralized exchange rates to the creation, trading, and redeeming of rTokens. By providing a secure and reliable trading experience, stakers receive the benefits of both maintaining long exposure to their staked assets while still being able to adapt to market volatility. We’re confident that with the help of Chainlink, StaFi can quickly scale to support additional PoS networks and free up staked liquidity across Polkadot and other DeFi ecosystem.”
Daniel Kochis, Head of Chainlink Business Development also commented, saying
“We’re excited to empower StaFi Protocol as they open up liquidity for staked assets by providing them with secure and reliable oracles for minting, trading, and redeeming rTokens. With Chainlink oracles securing StaFi’s innovative staking derivatives protocol, users will be able to receive staking rewards and hedge the risk of the underlying assets, while knowing they’re receiving a fair market price when interacting with these new financial primitives.”
As staking becomes more ingrained in the security and collateralization of smart contract applications, there becomes a pressing need to improve the user experience as it pertains to managing those assets during different market conditions. Both teams are optimistic about the future of rTokens as a powerful new primitive for DeFi and the wider staking market.
Chainlink is the most widely used and secure way to power universal smart contracts. With Chainlink, developers can connect any blockchain with high quality data sources from other blockchains as well as real world data. Managed by a global, decentralized community of hundreds of thousands people, Chainlink is introducing a fairer model for contracts. Its network currently secures billions of dollars in value for smart contracts across the decentralized finance (DeFi), insurance and gaming ecosystems, among others.
About StaFi Protocol
StaFi is the first DeFi protocol unlocking liquidity of staked assets. Users can stake PoS tokens through StaFi and receive rTokens in return, which are available for trading, while still earning staking rewards. FIS is the native token on StaFi Chain. FIS is required to provide security to the network by staking, pay for transaction fees on the StaFi chain, and mint & redeem rTokens.