Skip to main content

flUSD Staking

Staking flUSD allows users to earn passive yield while supporting the stability of the Flower protocol. By staking flUSD, users receive sflUSD, a yield-bearing liquid staking token (LST) that represents their share in the staking pool. Over time, the exchange rate between sflUSD and flUSD increases as rewards are distributed, allowing stakers to earn more flUSD.

How flUSD Staking Works​

1. Staking flUSD​

  • Users can stake flUSD into the staking contract to receive sflUSD:
    • sflUSD: A token that represents your proportional share of the staking pool.
    • Exchange Rate Growth: While your sflUSD balance remains constant, its value in flUSD terms increases as the pool accumulates rewards.
  • Reward Mechanism: The staking pool earns the majority of the interest paid by borrowers, which is distributed across all sflUSD holders.

2. Earning Rewards​

  • Rewards are distributed by increasing the exchange rate between sflUSD and flUSD.
  • As the exchange rate rises, the value of your sflUSD in flUSD terms increases, reflecting your earned rewards.

3. Unstaking flUSD​

  • Users can unstake their sflUSD at any time to redeem their principal flUSD along with the accumulated rewards.
  • The amount of flUSD you receive depends on the current exchange rate between sflUSD and flUSD.
  • Withdraws are subject to a 7 day cooldown period to prevent users from circumventing the bad debt coverage mechanism.

Benefits of Staking flUSD​

1. Earn Passive Income​

  • Staking provides a steady yield, ideal for users seeking passive income.
  • Yield is derived from a diversified portfolio of loans, reducing risk exposure to individual collateral assets.

2. Protocol Stability​

  • By staking, users help stabilize the protocol by covering bad debt when it occurs.
  • This ensures the system remains solvent and flUSD maintains its backing.

3. USD-Denominated Yield​

  • sflUSD offers yield in flUSD terms, providing stable returns without requiring complex DeFi strategies.

Risks and Rewards​

Rewards​

  • Stakers earn the majority of interest paid by borrowers, reflected in the growing exchange rate.
  • Rewards are distributed proportionally based on the amount of sflUSD held.

Risks​

  • Bad Debt Coverage: Stakers serve as the primary risk absorbers for the protocol and will absorb any bad debt that occurs. While this risk is spread across the entire staking pool, stakers should be aware that they can lose part or all of their principal in cases of significant market events or protocol issues.

Example: Staking flUSD​

Scenario:​

  1. You stake 10,000 flUSD into the staking contract and receive 1,000 sflUSD, with an initial exchange rate of 10 flUSD per sflUSD.
  2. Over a month, the pool accrues interest, and the exchange rate increases to 11 flUSD per sflUSD.
  3. When you unstake your sflUSD:
    • Your 1,000 sflUSD is now worth 11,000 flUSD.
    • This reflects your initial principal plus 1,000 flUSD in rewards.

How flUSD Staking Supports the Protocol​

  1. Bad Debt Absorption:
    • When bad debt occurs, the staking pool absorbs the losses, protecting the protocol's solvency but potentially impacting stakers' principal.
  2. Staking Incentives:
    • Interest distribution incentivizes staking, aligning user benefits with protocol stability.
  3. Diversified Risk:
    • Stakers' exposure is spread across all active collateral pools, reducing the impact of individual market events.

Getting Started with Staking​

TODO EDIT THIS

Steps to Stake flUSD:​

  1. Navigate to the Flower dashboard.
  2. Select the Staking tab and connect your wallet.
  3. Deposit flUSD into the staking pool to receive sflUSD.
  4. Monitor the exchange rate growth over time to see your rewards.

Steps to Unstake:​

  1. Go to the Staking tab on the dashboard.
  2. Choose the amount of sflUSD you want to redeem.
  3. Confirm the transaction to receive your flUSD, adjusted by the current exchange rate.

Why Stake flUSD?​

Staking flUSD is ideal for users who:

  • Understand and accept the risks of bad debt absorption
  • Seek stable, passive yield in a USD-denominated product
  • Want to participate in a decentralized, automated protocol
  • Support the long-term stability of the Flower ecosystem

Explore more about Risk Management and how staking ties into Flower's security and stability.