Unlike many DeFi tokens, ENCTR is inherently inflationary. This means that as time goes on, the Protocol will increase the supply of ENCTR that can be held by our community members and used as part of our future modules. This is in contrast to tokens that attempt to deflate the supply over time in hopes of increasing the value of each token.
With a deflationary token, the main strategy for value accrual is passively hold onto as many tokens as you can and wait until supply is scarce before selling. This has the potential to create a problem of misaligned incentives.
All of the tokens must be minted at once and distributed fairly quickly, resulting in a small number of Users who own such a large amount of the token that they can dominate the market and force large price movements unilaterally. These Users are called Whales and they’re not particularly helpful for community driven projects like ENCTR.
In contrast, inflationary tokens like ENCTR will slowly grow their supply by a mechanism called rebasing. A rebase is a programmed change in token supply. This allows many different Users to have a fair shot at participating in the Protocol. However, there is a problem: if you hold onto 1 ENCTR, every time the supply increases you are theoretically holding less and less value. For instance, if the total number of existing ENCTR was 4 and you hold 1 ENCTR you would own 25% of the total supply at the time. After a particular rebase occurs, there might now be 5 ENCTR while you still hold only 1 ENCTR. You would now own only 20% of the total supply and not 25%. Of course, these numbers have been chosen for a simple example but reflect a potential problem when trying to acquire value through an inflationary token.
Fortunately, the solution to this problem is Staking.
Staking is the main way that value and rewards are generated for the ENCTR ecosystem. Users can stake their ENCTR tokens on the app to earn rebase rewards. These rewards are then minted every 8 hours as long as there is 1 DAI in the Treasury to back it up. This makes sure that all the rewards that are given out are backed by actual money.
When you stake your ENCTR, this means that you "lock" it away and in turn, receive an equal amount of sENCTR. Your sENCTR balance rebases at the end of each 8 hour period.
You are allowed to stake/unstake your ENCTR tokens at any time. If you unstake your ENCTR, you will no longer receive any rewards.
To be part of the ENCTR community and utilize any of the ENCTR modules, you will need to stake your ENCTR tokens. Staking your tokens gives you an APY% on your tokens so that it scales with the overall growth of the ecosystem.
The amount of rewards holders receive is based on the reward rate (built into the protocol). The reward rate can fluctuate and change based on a couple factors:
- 1.Amount of Revenue the protocol is generating (the more money ENCTR generates through its modules, the more rewards)
- 2.The amount of people staking (the more people stake the reward decreases)
ENCTR displays the reward yield as an APY percentage. Since rebase rewards are distributed every 8 hours, we can consider that an APY interest on your tokens.
When a User stakes their ENCTR, they trade it with the Protocol for an equal amount of sENCTR. The ENCTR that a User trades is considered to be “locked” until the sENCTR is unstaked by trading the sENCTR for an equal amount of ENCTR. All holders of sENCTR at the time of rebase will be given a share of a total rebase reward. This reward is based on the number of circulating ENCTR tokens, the number of staked ENCTR tokens, and a reward rate that is set by the ENCTR team (see the equation below).
Rewards will only be generated when a rebase occurs, which can only occur when there exists at least one stablecoin in the treasury to create a new ENCTR token.
Because rewards are generated approximately every 8 hours, the estimated annual percentage yield (APY) can be calculated as follows:
This is an estimated APY because it assumes that the reward yield will remain constant for 1095 rebases (on every 8 hours for 365 days).