Staking and Debt Pool

On RWAOne, all liquidity for RWAOne products is created by staking. Staking is an integral part of the system and provides deep liquidity by locking collateral and maintaining a target collateralization ratio (c-ratio), which powers all of the products within the RWAOne protocol.

When users stake USDC and mint rUSD, they take on debt reflecting the amount of rUSD that must be burned to unstake their USDC. This debt, denominated in rUSD, increases and decreases in accordance with the supply of Synths and their exchange rates.

For example, if 100% of the Synthetic assets(or Synths) in the system were synthetic Gold (rXAU), which halved in price, the debt in the system would halve, and each staker’s debt would also halve. This means in another scenario, where only half the Synthetic assets across the system were rXAU, and Gold rises 50%, the system’s total debt—and each staker’s debt—would increase by 25%.

Stakers adjust their c-ratio by minting Synths if their ratio is above the target c-ratio or burning Synths if their ratio is below the target c-ratio. Maintaining the target c-ratio ensures the RWAOne protocol is backed by sufficient collateral to absorb large price shocks.

Benefits and Risks of Staking

Stakers earn weekly rewards for collateralizing the network. These rewards are paid from trading fees charged to traders.

While stakers earn rewards, they also take on risks associated with providing collateral for traders. If traders are profitable (net of fees), stakers' profits may decrease. Additionally, smart contract risks, oracle risks, and other risks are present when providing collateral and using RWAOne.

Debt Management and Pooled Counterparties

Stakers incur 'debt' when they mint Synths, which can increase or decrease independent of their original minted value based on the exchange rates and supply of Synths within the network.

Stakers act as a pooled counterparty to all RWAOne Network exchanges, taking on the risk of the overall debt in the system. They have the option of hedging this risk by taking positions external to the system, earning the right to fees generated by the system in exchange for incurring this risk.

Liquidation Risk

If a staker's c-ratio goes below the liquidation ratio, they are eligible to be flagged for liquidation. They will then have a set amount of time to raise their c-ratio back to the target c-ratio. If they fail to do so, they will be forced to liquidate with a penalty. If they raise their c-ratio above the target, their liquidation flag will be removed.

Stakers who experience liquidation will incur a penalty, with USDC in escrow and rUSD debt distributed to healthy stakers to ensure the system's long-term health. Users who flag stakers for liquidation are rewarded, incentivizing them to run bots that automatically flag stakers for liquidation.