Following the successful rollout of Humanode EVM on Mainnet and the introduction of onchain biomapping, the Humanode team is gearing up to launch decentralized liquidity/LP staking, also known as liquidity mining, for the community. That's right: Staking is coming to Humanode. To be specific, to DeFi on Humanode EVM.
While fundamentally, Humanode is not anchored across Proof-of-Stake or Proof-of-Work, we're introducing staking to bootstrap decentralized liquidity on the Humanode chain, where assets are secured by 300+ equal validators. This initiative ensures that every HMND token holder, regardless of the size of their holding, contributes to the decentralized liquidity pool and earns a share of rewards.
As our consensus mechanism works based on Proof of Uniqueness and Proof of Existence and doesn’t require validators to stake HMND to increase their share of rewards, we will launch the staking of LP tokens. It will initially come with HMND tokens in combination with USDC and WETH. Like HMND/USDC or HMND/WETH.
The staking aims to give liquidity providers with small holdings a greater share of rewards. That is why we will not be implying traditional linear staking. Instead, Humanode chooses BioDeFi-based Nonlinear Liquidity staking. This staking model is designed to ensure decentralized reward distribution among liquidity providers in a way that rewards are not proportionate to the amount pooled. With its private bio-verification process, Humanode guarantees that every participant is unique, thereby eliminating any chances of gaming the system by creating duplicate accounts. This staking model will be the first to be solely secured by unique living human beings.
Confused? Let us dive deep into what Humanode’s biometric-enabled Nonlinear Liquidity Staking means.
Liquidity staking/mining and How Linear Staking or Nonlinear Staking Differ?
In Liquidity Staking, liquidity providers stake their LP tokens and earn additional returns. This process is similar to depositing money in a savings account and earning interest only that the liquidity pool is permissionless. By staking their LP assets in a designated staking contract, providers receive/mine rewards in new tokens, encouraging them to continue supplying liquidity.
For years, Liquidity mining has operated on a relatively straightforward principle: your rewards are proportionate to your stake. However, this system often favored large stakeholders or 'whales,' creating an uneven rewards landscape.
Enter Nonlinear Liquidity Staking, a system that rewards active participation without letting the whales get the majority of the rewards. Instead of linear rewards, where everyone gets the same percentage, this approach adjusts the rewards, allowing for a more balanced distribution and encouraging broader participation, especially from liquidity providers who can only contribute a small amount. I will explain how it works in a minute.
But first, we need to understand that this kind of staking isn't possible without Humanode’s innovations in crypto-biometrics. For Nonlinear Staking to operate effectively, it demands a Sybil-resistant foundation. Essentially, it requires a setup where each account correlates with a distinct identity guaranteeing no one can stake from multiple accounts. The primary goal is to curb wealth disparities and empower individual and lesser-endowed users to participate.
This is what Humanode brings to the table. Leveraging private crypto-biometrics, Humanode introduces Sybil resistance, which ensures each individual can stake LP tokens using only a single address. This unique method lets us adjust LP rewards based on the staked amount, offering higher returns for smallholders and reasonable rewards for whales. The aim isn't just to increase the total value locked (TVL) but also to entice a wide array of smaller liquidity providers.
How will Nonlinear Staking on Humanode work?
Let's talk about how Nonlinear liquidity staking will work on Humanode. In Nonlinear staking, the annual percentage rate (APR) of rewards depends on the size of the liquidity provider in the DEX pool. In other words, the APR decreases gradually with an increasing percentage of shares one holds in the Liquidity pool.
Here’s an illustration of reward distribution in a chart:
In the chart, you can see that in stable/linear staking, the total APY% remains the same (red line). In contrast, Nonlinear staking sees a decrease in APY% as the shares increase (blue line).
Let’s explore this further with an example:
(if you’re an Excel lover - you can go directly to the model here)
Imagine a liquidity pool totaling $400,000, split evenly with $200,000 in HMND and $200,000 in USDC. In our example, the pool’s APR is 50%. For now, the Humanode team is using the following formula to figure out each staker’s share of rewards: x^(3/4). Funny fact, since it is a Solidity smart contract, the actual formula looks like this: sqrt(sqrt(x * x * x)).
Why exactly this formula? Having considered a few options this one seems to cater to the needs of both small holders and whales alike, leaving the APR% gap between them at ~10x.
A story of a shrimp, a dolphin, and a whale:
|Name||Pooled $ (HMND/USDC)||Share in the pool||Yearly Rewards||APR%|
John is the smallest LP in the pool. He staked $10 in total, 5$ in HMND and 5$ in USDC. In simple linear staking, he would get 5$ for a year of staking if the pool’s parameters were unchanged.
In the context of Nonlinear reward sharing, the calculation takes a different route. With the pool’s APR of 50%, his earnings amount to $28.1, translating to 281% APR.
Mike is a regular degen who likes to bet one grand on a wide array of tokens. He’s also looking for a good passive income. For the likes of Mike whose share is 0.25% of the pool, the APR turns out to be 88%. Not bad.
Likewise, consider a scenario where a whale named Sam, who likes to reap most of the reward pool from the first date of the liquidity program, contributes $137k bringing his total share to a whopping 34%. With the current formula, his APR will be 26%. Not bad, taking into account how hard it is to find a lucrative yield having a lot of capital.
From this example, you can see that unlike in traditional LP staking where the rewards are linearly distributed depending on the size of the stake, in a Nonlinear scheme stakers with smaller holdings are rewarded more relative to their large-scale counterparts. In other words, the reward share keeps decreasing as the staked amount increases. It allows everyone to find their sweet spot in the liquidity pool by balancing the investment amount and the reward.
Could the curve be flattened or become even steeper? Sure. Could the same tech be applied with the inverse formula where the more you stake, the more APY you get? Ofc, but we were not developing Humanode for three years only to increase the wealth imbalances of the world.
Now, the million-dollar question. Wen staking? ;) Well, brace yourselves because it's on the horizon! We're currently testing the DEXes on the Humanode testnet as well as actively developing the nonlinear biostaking, which is our priority for October. Once we're completely confident in its flawless performance, we'll make the major announcement. So, keep your eyes peeled; it might be just around the corner!