Staking the Fusion Way

By: John Liu

As the crypto retail market becomes increasingly educated about how protocols function, token holders are looking beyond just trading a token for its value, and recognizing staking rewards as part of tokens’ value that are rightfully theirs. It’s no surprise that the market has evolved to fill this recognition, in the form of staking pools, wallet deposits, and exchange deposits. This is a healthy development for the industry, but the rapid evolution of staking services has highlighted areas where token value can be better realized for token holders.

This article describes how Fusion’s ticketed proof of stake consensus (TPOS) uses Time Lock to more efficiently monetize and exchange token value for the staking industry.

We made a video version of this article too, feel free to check it out!

What’s Time Value Again?

Before we dive into staking, we need to review the concept of Time Value. Time value represents the value of an asset over its lifetime. For example, a house could have a life-time value of 50 years, before it collapses (absent any maintenance). Or, the subscription of a software license for one year has a life-time value of one year. The price you pay for your asset today, is theoretically the sum of that asset’s value over its lifetime.

Staking the Normal Way

Now, let’s apply this time value principal and see how most staking protocols utilize time value of tokens. Typically, a holder chooses to deposit their tokens for a period of time with a miner or other staking service, and they earn a reward over this period of time. Let’s assume a holder wants to stake for 3 months. By depositing their entire token for the 3 months of rewards, they have put their entire token’s time value into the 3 month time period.

What are the downsides? First, the full coin’s value has been committed to what is a slice-of-time utilization. Second, the holder is also risking their entire token should their staking counter party prove to be a bad actor.

Staking the Fusion Way

Now let’s look at this same example, but using Fusion’s TPOS consensus. The first step is to slice the asset across time, creating a front-end time slice corresponding to the deposit, which is 3 months. This time slice is then used to purchase staking tickets, which can be thought of as a lottery ticket that gives winners right to earn a staking reward. To emphasize: only the front-end value of the token is utilized and risked in return for staking rewards. Through this mechanism, there is now a one-to-one correlation between time utilization and time value.

What about that Back-End?

There’s even better news. We haven’t yet talked about the back-end time slice of the token and the benefits having access to a back-end value brings to a token holder.

In our example the back-end time slice is the value of the token after 3 months, that is from month 4 and onwards. As time passes, this back-end time value gets closer and closer to the full value of a token. After 3 months, the token automatically becomes a “full” or “spot” token. No coding is nor extra holder action is required for this to happen. The holder has automatically received this full-token value, with no risk, simply by waiting.

Sounds good, but certainly, we can do better. The holder doesn’t have to wait 3 months to monetize this value — this back-end time slice can be exchanged today. The value is traded in traditional and crypto financial markets today, through an instrument known as futures or forwards and the values are easily calculated as the token value today plus the cost of carry. In other words, the back-end time slice gives the token holder instant liquidity at a known value in an industry that is always looking for future supply.

As market sophistication increases, it is only a matter time before we see value exchange in future staking tickets, in the form of future time locks, further helping the industry efficiently unlock token value.

The Fusion Advantage

To recap, the advantages of Fusion’s time-lock staking are 3 fold:

1) Efficiently using only the time-value needed for staking

2) Protecting the token holder by risking only the front-end value

3) Granting liquidity and value exchange for the non-staked portion of the token’s time value.

We are excited to lead the industry on extracting time value and will be extending time lock to other tokens using our interoperability protocol.