Staking XSAT. Risks and vulnerabilities and their solutions
How did XSAT Staking develop?
The first XSAT Staking model, Big Black Airdrop, was launched by the Saturn Black team in April 2019 and successfully worked as planned for a year, as a profitable Deposit on a personal Ethereum wallet. The Deposit yield was up to 100% in XSAT tokens with an annual freeze period. The investment of tokens, without the need to trust them to a third party, was positively evaluated by the community, although the payment of rewards after the expiration of the Stakes was centralized in the hands of our team.
Tokens were frozen on personal wallets and were completely at the disposal of the owners, which excluded the possibility of their loss at the freezing stage, but there was a risk of possible non-payment of rewards.
The second model of Staking XSAT, was launched in February 2020 and works to this day, based on the Telegram bot Way to Saturn, as well as in the format of a profitable Deposit on the account of the profile cabinet in the bot. At the stage of launching Staking in the bot, the yield was up to 13.3% per month, and at the moment it has decreased to ~2.5% per month. This model has become more centralized compared to the Big Black Airdrop staking and requires sending tokens to the centralized storage of the bot service.
Potential problems and vulnerabilities of Staking
A common drawback for the two Staking models was the placement of tokens in a centralized storage and centralized payment of rewards. Although we perform both the custody and remuneration functions in good faith, there is a potential risk of loss of deposits for staking account holders, due to possible force-majeure circumstances.
The second disadvantage of the experimental Staking models – is the threat of inflation in the XSAT token market, since the payment of XSAT bonus tokens is currently made from the Saturn Black Bounty Fund. On the one hand, this allowed us to increase the number of our community and real XSAT holders. On the other hand, this has created a volume of tokens, putting potential pressure on the price of XSAT. In other words, the increasing number of cheap or free tokens does not contribute to the growth of the asset price.
Thus, there are two potential vulnerabilities in the existing XSAT Staking model:
• full or partial centralization;
• inflation, caused by the actual futility of freezing, which reduces the value of the asset.
Security and ways to fix vulnerabilities
Centralization and control of deposits of crypto assets, by any team, pose a threat to the asset’s economic system. The solution to this problem can only be the decentralization of token storage and an automated system for calculating remuneration payments. Storing tokens on a personal wallet is the best option for freezing an asset.
The second problem is inflation, which is created by the entry into the market of an additional amount of the asset, paid in the form of remuneration and, as a result, the possible depreciation of the asset. A potential solution to this problem can only be the creation of additional asset value, provided by a sustainable economic model and market demand.
How does Saturn Black solve these problems?
Centralizing the storage of a significant amount of assets hides the risk of default. Decentralization – the original idea, behind the concept of cryptocurrency, implies the absence of a controlling censorship center, that has the authority to block the owners accounts. On this basis, cryptocurrency is close to cash, in contrast to money in Bank accounts. Cash belongs to you, as long as it is in your hands.
Decentralized storage of deposits participating in Staking is an ideal way to freeze tokens, both in the opinion of the community and our team. If XSAT is stored on a personal wallet, the token owner and our team do not need to trust each other. At the same time, everyone can easily make sure, that the Deposit is actually placed and frozen, and the token owner has the ability to unfreeze the tokens at any time.
Our team sees the only way to solve the problem of centralized management of token storage and distribution of Staking rewards – is to transfer the Staking algorithm to Autonomous operation, through the deployment of a blockchain smart contract.
At the same time, potential errors in the smart contract code is also pose a risk of loss of funds, as well as centralized management. Therefore, running DeFi smart contracts requires extensive testing to be considered secure.
Solving the problem of inflation
If the way to solve the problem of centralization is quite obvious, then the issue of inflation is more complex and, in addition to modeling hypotheses, requires the creation of real economic and technical tools, that support the balance of two-way demand in the asset market in the long term. It’s even harder to make these tools autonomous and secure. However, difficult doesn’t mean impossible.
Recently, we published an article about emerging industries: Decentralized Finance – DeFi and Decentralized Autonomous Organizations – DAO. Read the article…
The media is already calling DeFi a new economic phenomenon, although it is impossible to predict, how stable these models are in the long term. Tokens of DeFi projects are currently showing a phenomenal increase in prices, which gives hope for the growth of the crypto market as a whole.
A feature of DeFi projects is their autonomy or, in most cases, partial autonomy from Central management. Variants of economic models of Decentralized Finance are enough for a separate large article. In General, these models rely on real asset security, which makes them quite economically sustainable.
Our team’s experience in creating economic models based on blockchain, called DeFi today, dates back to 2018. In the Saturn Black White Paper, we proposed a new, at that time, economic model of liquidity, which today we call the Reverse Liquidity Model.
In the following publications, we will describe the proposed tokenomics model in more detail and try to explain in simple language, how the reverse liquidity model of Saturn Black will work in the near future.