BTC Proxy
The tokenomics of PRXY token is one of the most common questions we are faced with from newcomers to BTC Proxy. The main question being is how sustainable the compounding yield rate is, how is the yield generated or who is paying for it. We are referring to the APY rate of the compound staking pool. These are all legitimate concerns but requires the newcomer to step out of the box and open themselves up to a new paradigm. Traditional finance understands that banks pay interest to savers but then utilizes those funds to lend at a higher rate of interest earning the difference of the two interest rates. The main difference is that these banks and traditional finance are a part of a larger currency and economic system (USD) whereas PRXY is the genesis of a new (currency) token system with its own set of rules and economics. PRXY was modelled from the tokenomics of Bitcoin but within the context of Decentralized Finance. I will try to demonstrate the similarities and the differences between the two.
Bitcoin and PRXY both have a Max Supply of 21 million. However, the two differ in the mechanism of how new supply is introduced into circulation. In the case of Bitcoin, new coins are mined by hardware miners using the Proof of Work protocol by supplying their hash rate to solve computational tasks which are rewarded with the issuance of new Bitcoin. Bitcoin is close to 90-95% fully mined and the complexity of that computational task gets incrementally more difficult as it nears the end of its Max Supply. In the case of PRXY we are at its genesis, being only a few months old as of writing with a current circulating supply of less than 1.5 million, we are less than 10% of the Max Supply but unlike Bitcoin where hardware Miners are used, PRXY utilizes the Proof of Stake method where stakers in certain contracts are rewarded with newly minted PRXY bringing forth increased circulation supply.
The main compound staking contract utilizes a yield rate which rewards the pool approximately 3x per day. The reward rate will vary and fluctuate depending on the rate of staking and unstaking within the pool and the APY will decrease with time as we near 21M just as the Bitcoin hash rate gets more difficult. Individual stakers are rewarded based on their % ownership of the staking pool.
PRXY is the unstaked token and sPRXY is the staked token. sPRXY is a rebase token that will increase 3x per day in your wallet when new rewards are added to the pool and grow in proportion to the owners stake of PRXY in the pool.
In the early days of Bitcoin the hash rate was low and the mining of BTC was much easier than it is now allowing for the mining of many new coins. PRXY which is still in its early days utilizes a high staking reward rate to also bring in new tokens into circulation. This high staking reward rate will decrease over time similarly to how Bitcoin has been programmed to halve its reward rates to miners.
Therefore, unlike the banking analogy where banks earn an interest rate spread within an existing USD framework, PRXY uses a method of Liquidity Mining through staking in order to grow its circulation base at an accelerated rate in the beginning which will taper over time. This liquidity mining will grow the protocol circulation wider with new holders but also has the effect of diluting the value of the token if there is no new demand. However, BTC Proxy does have mechanisms to balance this dilution with growth by capturing the value locked in the protocol. Value growth in PRXY is directly related to the TVL (Total Value Locked) of BTCpx token and the BTC Proxy DeFi ecosystem. The value in the Bitcoin network is dependent upon supply and demand of the Bitcoin itself but PRXY token is more complex involving the supply/demand and the TVL of both PRXY and BTCpx tokens. The amount of Bitcoin locked in custody is the number of tokenized Bitcoin aka BTCpx in circulation. This relationship between the value captured and the value locked in the protocol can be visualized by the MCAP/TVL ratio which is a very important metric in DeFi. As the amount of Bitcoin grows in custody as well as increase in TVL within the BTC Proxy DeFI ecosystem the higher the value capture and price of PRXY.
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