In our whitepaper and previous blog posts, we describe the governance and staking mechanics of UNN, including the roles and behaviors of pUNN and uUNN tokens. In public testing for the last few weeks, below we introduce rUNN, our reserve share token for users who stake their UNN.
But first, let’s cover a brief recap of the mechanism design of the UNION protocol and how rUNN fits into the picture.
UNION Coverage, pUNN, uUNN, & C-OP
UNION’s full-stack protection platform offers diverse avenues for users to buy protection using a pooled liquidity model. The platform’s capital model relies on Solvency Capital Requirement (SCR) calibrations to maintain risk parity between the liquidity pools’ coverage amount, maintaining adequate assurances of solvency while diverting excess yield to low-risk yield generating opportunities.
Coverage sourced from these liquidity pools can range from smart contract coverage (e.g., contract hacks, economic exploits, etc.) to UNION’s C-OP product, a structure that behaves like a derivative for reducing the over-collateralization ratios of borrowing positions on money markets. The mechanics of purchasing and LP’ing coverage on UNION follows two primary users:
- pUNN Holders
- uUNN Holders
pUNN holders are protection writers, meaning that they provide liquidity to an explicit pool in return for a portion of the total protection premiums for that specific pool proportional to the size of the pool.
uUNN holders are protection buyers who decide that they want a specific pool’s protection and pay a premium to receive uUNN tokens, representing a claim on their underlying position on a covered protocol.
UNION’s pricing model calibrates to dynamic adjustments in capital inflows and outflows to specific pools. From the whitepaper:
- As demand increases and supply decreases, the premium rate increases.
- As correlation and concentration risk to the pool increases (even from protection written in other pools), the premium rate increases.
- As overall relevant macro risks — such as private volatility — increase, the premium rate increases.
Provisioning liquidity to coverage pools carries the risk of paying out protection claims should an exploit, or some other covered claim assessments pass the tiered governance process, executing claims payout. As a result, it’s necessary to inject additional incentives for pUNN stakers (e.g., liquidity providers), to maintain healthy levels of pool coverage at premiums attractive to protection buyers.
UNION accomplishes this via bolstered incentives where pUNN holders (LPs) can re-stake their tokens representing protection coverage to the platform to earn more UNN tokens. For example, let’s look at C-OP.
Today, C-OP protection purchasers pay a premium for the derivative product’s ability to ratchet down their Over Collateralization (OC) ratios for borrowing ETH, concurrently reducing their downside liquidation risk during excessive volatility and augmenting borrowing capacity in healthy market conditions. Premiums are passed to pUNN holders for C-OP, who are providing liquidity for coverage to the claims in the pool.
LPs can add USDC liquidity to the C-OP ETH pool, earning pUNN tokens in return, which can then be re-staked into the UNN Geyser to earn augmented UNN rewards accrued every block.
Bolstering the Incentive Design — rUNN
Premiums paid by protection buyers on UNION (e.g., C-OP) are passed on to LPs (pUNN holders) as compensation for their risk-adjusted liquidity provision to a specific pool as cashflows relative to the size of the pool.
However, 10% of the premiums from the protection bought across UNION’s pools are diverted to the UNION Foundation Reserves. The reserve operates as a backstop for the system’s solvency amid volatility and source of excess yield generation during positive market momentum and capital inflows.
The Foundation Reserves disperses excess yield to UNN stakers, including governance-locked UNN, but also allocates a percentage of the 10% premiums from the UNION protection pools to the rUNN Rewards Pool based on the rUNN rewards schedule. The rUNN rewards pool enables idle UNN to be staked to the pool, accruing even further UNN cashflows to stakers.
On the back-end, the rUNN pool uses the excess 10% of protection premiums across the pools to buy back UNN on the open market and allocate it to rUNN holders proportional to the amount staked. When users stake UNN in the pool, new rUNN are minted. Fresh UNN is added via the Foundation Reserve; however, adding UNN doesn’t increase the amount of rUNN, thereby increasing the price of rUNN relative to UNN deposited. the ratio of UNN:rUNN is greater than 1:1.
By design, when you cash in your rUNN, you receive more than 1 UNN back. The calculation is as follows:
1 UNN <= 1 rUNN
Assume a) a single user holds 1 UNN and b)UNION’s back-end adds 1 UNN via purchases funded by the C-OP premiums. Technically, 1 rUNN entitles you to 2 UNN, as 1 rUNN is 0.5 UNN relative to the total supply. So, you should be entitled to:
1 rUNN = 1 / 0.5 = 2 UNN (which is the correct withdrawal amount).
To stake UNN from MetaMask and accrue rUNN, a yield-bearing asset denominated in UNN, you simply follow the instructions below:
- Go to the link https://runn.unn.finance/
2. You will be prompted to connect your MetaMask wallet. Once connected, enter the amount of UNN you would like to stake in the prompt at the bottom of the page.
3. Click the “Approve” button and confirm your transaction on MetaMask. You will now receive rUNN tokens proportional to your deposited UNN, displayed in the top-right corner of the web page.
The amount of rUNN received is proportional to the overall staked amount of UNN in the rUNN rewards pool, reflected by the “Staking APR” on the web page. At an APR of 2%, this means that 100 staked UNN will receive approximately 2 UNN per annum when the UNN is unstaked, and the rUNN is redeemed for the original UNN amount plus accrued interest.
Overall, staking UNN to the rUNN pool allows users to share in the revenue generated by the premiums paid from protection pools on UNION, where open market UNN buybacks are dispersed to rUNN stakers. At a high level, the design of the rUNN rewards pool also enables the protocol to scale linearly to AUM since a portion of the overall premiums (currently only C-OP) are used to reward long-term UNN holders by reducing the liquid supply of UNN — furnishing it to UNN holders invested in the network and providing consistent buy pressure on the open market, such as on Uniswap.
More broadly, the rUNN rewards pool is a revenue-sharing pool for the cash flows generated from UNION. Eventually, its APR will be bolstered by premiums paid for upcoming UNION products like smart contract protection and C-OP for BTC and DOGE.
As the protocol revenue to the Foundation Reserves increases, so will the APR to rUNN stakers, assuming that the protocol revenue outstrips capital inflows to the rUNN pool in the long run.
Internet-native protocols are powerful mediums of incentive coordination. The launch of more UNION products currently in the pipeline should make UNN staking for rUNN much more enticing for both community members and yield-conscious investors in DeFi.
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Telegram ANN: https://t.me/UNNFinanceANN
1) This announcement is for informational purposes only and is not an offer to participate. Never send virtual assets to a smart contract you cannot afford to lose. This announcement does not constitute financial advice.
2) UNION is not an insurance company and UNION does not sell policies of insurance.
3) UNION is not an issuer of CDOs.
4) We are in a rapid development phase, and the screens may or may not look like these in the final product. Some of the numbers shown are placeholders.