Hello Sovryns,
welcome to part 7 of "A Sovryn's Journal".
We are in a bear market, things look ugly everywhere. But Sovryn is delivering great tech. ZERO Beta launched and after first tests I can already say that ZERO is absolutely amazing. Besides that, Perps just kicked off the mainnet launch with the trading competition. There was also a Perps white-paper released which looks brilliant.
Through my involvement with the Circle of Tokens I have come into contact with the Sovryn devs from time to time and I am more convinced than ever that Sovryn is not just another crypto project. Sovryn is Bitcoin Defi, done right. It's different. Zero is about to change the way I invest in bitcoin, how I use bitcoin and how I think about it. I think it helps bitcoin reach its full potential.
Bitcoin is very good as an investment over a longer period of time, but not yet as money. It is not used enough for that. With Zero, we finally have a way to activate bitcoin's purchasing power without sacrificing long-term appreciation.
Zero is to Bitcoin what mortgages are to the housing market. But fortunately, Zero is overcollateralized and has 0% interest.
The following points will be discussed:
-Staking statistics
-Some talk around SOV tokenomics
-Identifying selling pressure from an early Funder
Nothing written down here is investment advice. Read this with healthy suspicion, I may be wrong.
Staking statistics
A lot happened since the last update and it is reflected in the staking charts. Both, voluntarily staked SOV and voluntarily staked Voting Power skyrocketed recently. The main reason for that is simple: SIP-24 liquid SOV rewards for stakers ended, as proposed by the Circle of Tokens. There was a time window between announcement and execution, so users still had the opportunity to secure SIP-24 rewards with additional staking positions before SIP-24 was removed for new stakes. And they did use it. More than 1 million SOV were staked during this time window. Voting power went up by 10 million, staked SOV went from 4 million to above 5 million SOV. Average staking duration also increased with the staking duration indicator flashing 7.3 out of 10 which is pretty amazing.
But there’s also a downside. More voluntary voting power means that each point of voluntary voting power gets a smaller share of the protocol revenue. Weekly sats/VP payout fell far below 1 sat/VP and although protocol revenue is showing increasing numbers recently, the sheer amount of new VP makes this chart go down. This is why it is so important to be careful with the overall circulating supply. Staked SOV and VP should be in a healthy proportion with the protocol revenue, as this provides a floor for the price of the SOV token due to staking revenue and APY calculations. We are on it. We are on the right track, but not there yet. By the end of this year, the amount of new SOV supply hitting the open market will be further reduced. It will hopefully be at sustainable levels so that Sovryn is fit for the next cycle and has some years of runway with regard to liquidity mining incentives / adoption incentives.
What to expect after SIP-24? In the short-medium term I can see the Staking duration indicator go down because there are not much incentives to keep extending the stake. I expect the voluntary staked SOV and voting power to remain constant or fall a bit. But the staked SOV seems to be held by long-term thinkers and believers, so I can see it staying on a relatively high level. It really depends on protocol revenue. If TVL in Zero goes up, there may be interesting times ahead. It has the potential to attract a lot of BTC, let’s hope that more people will see and use it.
Current status of tokenomics
I think one of the biggest problems with Sovryn is the lack of clarity about tokenomics. They are complicated, opaque, and not easy to follow. I would like to work with the Circle of Tokens to make this information simpler and more accessible. Here are some thoughts.
Let's first take a look at the public tokenomics chart.
The SOV token has a max. supply of 100 million SOV. The link above shows into which funds these 100 million SOV are divided. All 100 million SOV already exist, but a large part is in vesting contracts. This means that they will only be released over time. The chart curve shows exactly that: at what point in time how much SOV becomes liquid in these vesting contracts.
But that is only half the truth. Just because some tokens become liquid in the vesting contract does not mean that they are available on the market. The Development fund, Adoption fund and Ecosystem fund are governed by the bitocracy and originally had a total supply of about 53 million SOV.
In order for these tokens to be sold/available, SIPs are needed. This has been done in the past, for example with the SIP's for the Exchequer budget. SOV were transferred to the Exchequer Committee. The Exchequer Committee uses them to pay for expenses, the liquidity mining rewards, SIP-24 rewards and VC deals like with GC recently.
If you think about this information, it should quickly become clear that there is a huge difference between the tokenomics chart and the actual liquid supply.
So what is really interesting is: how many tokens are held by bitocracy, how many tokens are staked and how many tokens actually belong to individuals and sit liquid in wallets. Let’s have a look at the funds.
Adoption fund: https://explorer.rsk.co/address/0x0f31cfd6aab4d378668ad74defa89d3f4db26633?__tab=tokens
The adoption fund currently holds 27,296,309 SOV. These can only be moved via SIP approval. This has happened once on 2021/10/28 related to the exchequer budget SIP.
Development fund:
https://explorer.rsk.co/address/0x617866cc4a089c3653ddc31a618b078291839aeb?__tab=tokens
The Development fund currently holds 6,136,971 SOV. Initially, it held 8,368,597 SOV which is less than stated in the official tokenomics chart. As with the adoption fund, some funds were moved on 2021/10/28 to the exchequer wallet.
Ecosystem fund:
Unfortunately, I could not find any address related to this fund.
Exchequer wallet:
The exchequer held 6,091,793 SOV when I checked for this journal. I’d consider these SOV liquid because part of it pays out the various outstanding SOV rewards and other expenses.
Founder’s Fund: These tokens belong to the individual founders and have a vesting duration of 36 months. These funds belong to individuals that could be considered strong hodlers for the most part.
Early Funders: VC’s, BCW whales, High-net worth individuals, strategic partners. Some of these wallets are behind the recent selling pressure. Initially, they held around 15 million SOV. They sold about 4 million SOV (this extensive analysis requires a separate post). I’d consider this highly liquid supply because all of it will be liquid by 01/23.
Early sales: 8 million SOV: This SOV finished vesting and is held, sold or staked by individuals.
Staked SOV: 5 million SOV is currently voluntarily staked. 2 million additional SOV will be distributed to stakers due to SIP-24 over the next 3 years.
Summary: Stakers control 7 million SOV by themselves and in addition to that, more than 33 million SOV via bitocracy. That’s 40% of the total supply. Founders control another large part of the tokens (20-25 million) and these have little history of selling SOV. Some are sold, but most of this supply is still not withdrawn from their vesting contracts. So, that’s 65% of supply already. Then we have the GC SOV which is likely to be held at least 3 years. Roughly 70% of total supply that’s unlikely to be sold soon. With reduced liquidity mining rewards, it will become increasingly difficult to grab larger amounts of SOV.
If the protocol gains traction and starts to generate serious revenue through Zero and Perps, SOV stakers might be in for a good time because they and the founders control most of the SOV that may become liquid over the next years, through their SIP24 rewards and bitocracy controlled funds.
I don't know about you, but I'm looking forward to the first 7-digit zero credit line.
Identifying selling pressure from an early Funder
I have already reported on this topic several times via telegram. Since there were some questions, I would like to briefly present a part of my analysis here.
First, I looked for the early funder addresses. I can track these through info's around the vesting contracts. Most relevant early funder contracts have a duration of 24 months and a cliff that is between 1 and 6 months. If we then consider the creation period of these vesting contracts, we can find some addresses that fit this pattern.
Then I look at when these addresses have retrieved liquid tokens from the vesting contract. In the image shown, you can see that the address shown here had recently (Unixtimestamp) withdrawn many liquid SOV from the vesting contract.
After that, you can track the SOV tokens:
https://explorer.rsk.co/address/0xbc74bff40f67a4fc0d33cdb83a182366eb04d4ba?__tab=tokens%20transfers
They were sent to
https://explorer.rsk.co/address/0xc190667f3506bf7d933f0ca62c9a48ea88ee6277
and then to
https://explorer.rsk.co/address/0xf80992ec61505b92ba1da88473247faefc20945f?__tab=tokens%20transfers
and then to
https://explorer.rsk.co/address/0x8be2e5fe4348ea38777a7c175abb89050770e854
From there, a large part of the tokens was sent to the following two addresses:
0x6210b83CE8CF85FA0e025E98253CbeB97D7fC63D
0x61375D2F1d7bf83cd05165BaeEF6B243c3018499
And these two addresses account for a lot of the selling pressure in recent months.
I have also traced this again, see the following picture. This selling was done over several weeks.
There were also other addresses that sold many SOV. My personal favorite:
0x21e1aacb6aadf9c6f28896329ef9423ae5c67416
with a market dump of 280,000 SOV in one transaction. They probably knew something.
I leave the interpretation of this analysis to everyone, of course one can speculate a lot.
That's it from me for now, until next time!
Stay Sovryn!
Sacro