SFT Protocol’s Filecoin and BSC solution

1.SFT Protocol’s Binance Smart Chain Solution

Definition

SFT Protocol’s decentralized DeFi product addresses the liquidity issue when staking FIL on BSC Chain mainnet.

The SFT token is a synthetic staking derivative that SFT Protocol issues when users stake FIL through the SFT DAPP. The SFT token is linked to the staked FIL assets and corresponding staking rewards. SFT tokens are transferable and tradable at any time.

The SFT DAPP is designed to address two major challenges FIL stakers face:

1. Typically, staked FIL assets are locked up for 540 days, making it difficult to access liquidity or protect against price fluctuations. However, with SFT DAPP, users can transfer, collateralize, and trade SFT assets at any time to mitigate these risks.

2. In order to maximize staking rewards, stakers must understand the complex Tendermint BFT consensus mechanism and staking reward calculation rules of BSC Chain. However, by using SFT DAPP, the process is simplified. Users only need to follow a few steps to deposit FIL into the SFT contract, and the SFT contract will automatically select the best validator to delegate based on the maximum reward strategy.

SFT/FIL Exchange Rate

When users deposit FIL into the SFT contract, the SFT Protocol calculates the number of SFT tokens to issue based on the current exchange rate between FIL and SFT, which is usually 1:1. When users stake SFT, the SFT Protocol calculates the amount of redeemable FIL based on real-time staking rewards.

The SFT exchange rate, denoted as Ci, increases with the increase of staking rewards. The calculation formula takes into account several factors, including the total locked FIL of the staking contract (Qstk), total redeemed FIL (Qred), staking reward quantity (Qrew), slash quantity (Qslh), commission rate (Rcom), total issued SFT (M), and total destroyed SFT (N).

Value Proposition of SFT Protocol Solution

Through SFT, SFT Protocol has resolved the following issues for FIL holders:

1. No longer will users have to concern themselves with the liquidity of their staked FIL. With SFT, they can trade it on Pancake or leverage it as collateral on lending protocols for future liquidity.

2. The SFT contract incorporates a strategy that maximizes staking rewards and automatically selects a group of Original Validators with the highest on-chain rewards for staking.

3. The SFT contract also automatically collects staking rewards for re-staking. This means that stakers will no longer have to manually withdraw their staking rewards and re-stake to generate compound interest, as is necessary with Compound staking.

SFT Protocol DAPP Participants

The SFT DAPP is designed to address the liquidity challenges associated with FIL staking. The key stakeholders in this initiative include:

Staking Strategy

SFT DAPP employs the following strategies, based on the Tendermint BFT consensus mechanism of BSC Chain, and factors that affect staking rewards:

1) Diversified Authorization

Users’ FIL tokens will be allocated to several (N) mini staking pools, with N determined by the deposit scale. Each staking pool will then delegate to several (M) validators, selected through a profit maximization strategy. This reduces the probability of penalties for individual nodes.

2) Strict Selection of Original Validator Candidates

SFT DAPP evaluates the performance data of Original Validator candidates based on online time, penalty records, self-bonding ratio, node identity, commission ratio, and other indicators. This ensures that excellent validators with relatively low commissions are selected.

3) Automatic Delegation Strategy for Maximizing Staking Rewards

This scheme monitors the on-chain data of OV in real-time, such as changes in commission ratio, ranking by commission amount, penalties, and drop-out rate. This ensures that the system will select the best OV for delegation in each epoch and reinvest profits.

4) Strategy for Minimizing Potential Losses

When the system detects that a node has been penalized or its online rate is lower than the standard, the SFT staking contract will automatically initiate a re-delegation and select other validators that meet the conditions for delegation.

Redemption

Users can redeem their staked FIL and corresponding rewards at any time through the SFT DAPP. Once the redemption request is received, the SFT contract automatically unbonds and withdraws FIL from the FIL staking contract deployed on BSC Chain. After approximately 14 days, FIL tokens will be sent to the user’s BSC address or the Filecoin address specified by the user.

Slashing

BSC Chain uses the Tendermint consensus engine for its PoS mechanism, so the same strategies for minimizing penalty risks apply here as they do for other PoS mechanisms.

Through SFT, SFT Protocol can help users avoid slashing in the following ways:

1. The Staking Contract favors validators who have a clean history of no slashing to become official OV.

2. Validators with a high self-bonding ratio will be prioritized by OV, incentivizing them to avoid slashing.

3. The Staking Contract will select several OVs for nomination each time, so even if an OV is penalized (which is unlikely), it will not have a significant impact on user funds or staking rewards.

4. When the delegation node detects slashing, the SFT contract will immediately initiate a re-delegation to that node to minimize loss.

Reward Collection

When utilizing the SFT DAPP, users are not required to claim staking rewards. The staking contract on the chain will automatically re-stake the rewards, in turn generating a higher APR.

SFT Charge

Mint SFT

When minting SFT, users should monitor real-time gas consumption during FIL sealing and pay the relevant fees. The cost of minting SFT can be calculated using the following formula: N * (SFT Protocol chain Gas Fee + FIL Staking Gas Fee), with payment made in SFT.

N is a flexible parameter that is initially set to less than 1 to reduce the total staking cost for FIL stakers.

Destroy SFT

When users wish to redeem staked assets, they can simply apply for redemption on the SFT Protocol’s staking backend. The redemption process is divided into two steps:

Step 1: Enter the number of SFT tokens, which must not exceed your SFT balance.

Step 2: Confirm and apply. The contract will then destroy the SFT tokens you applied for redemption, calculate the amount of redeemable FIL based on the exchange rate, deduct the handling fee, and send the balance to the user’s wallet address.

The handling fee (Feered) is determined by the redemption quantity (M), current SFT/FIL exchange rate (Rc), and redemption rate (Rr), which is currently set at 0.2%.

We’re excited to announce that the Filecoin solution for SFT Protocol has been updated and is currently being tested on the testnet. Once testing has been completed, it will launch on the mainnet. The process and business remain the same as SFT Protocol’s Binance Smart Chain Solution.

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