Buyback Deep Dive: Minterest’s Reward Mechanism Explained
Minterest is setting a new standard in DeFi lending and borrowing by redistributing 100% of its fee value to users!
The model used by Minterest ties the protocol’s success directly to its users’ benefits — as protocol TVL increases, users reap greater rewards.
At the core of this process lies Minterest’s Buyback system, which is designed to ensure an equitable distribution of rewards.
What is the Buyback System?
The Buyback system functions by converting fee value into $MINTY, Minterest’s governance token, which is then awarded to users participating in governance. This design enables Minterest to offer unparalleled utility, directly benefiting the protocol’s primary value creators.
This article delves into the Buyback system and explores how $MINTY token holders can engage with it. The focus is on understanding the process, from staking $MINTY tokens to receiving rewards, and how this system aligns with the overall financial performance of the protocol.
Participating in the Buyback System
The Buyback system is inclusive, catering to a diverse range of users:
1. Early Supporters: Institutional investors and early participants have their tokens staked following specific unlock schedules.
2. Liquidity Providers: Users earning emission rewards from supplying liquidity and borrowing can opt to auto-stake their rewards.
3. HODLers: Post-launch in Q1 2024, $MINTY holders can manually stake their tokens on the Minterest platform.
Once users stake $MINTY tokens, they become eligible for a portion of the distributed rewards.
To oversee this process, Minterest has integrated a smart contract, the Dripper contract, which is responsible for transferring $MINTY to the Buyback contract.
Once transferred, these tokens are allocated to participants based on their $MINTY stake and loyalty bonuses.
Note: Loyalty bonuses will be covered in a future article.
The Dripper Contract and Periodic Distribution
As mentioned, the Dripper contract plays a crucial role in determining the amount of $MINTY to be distributed.
At the commencement of each ‘period’, it calculates the available $MINTY and sets an hourly distribution rate. An off-chain worker is then activated periodically to call the drip() function and ensure consistent distribution.
Note: Minterest defines a period as a length of time that the current set of $MINTY rewards will be distributed over. These rewards are based on the income accumulated by the protocol during the previous period.
Users can manually refresh their share to include newly earned $MINTY. On Ethereum, the Buyback rewards earned by a user go through the Delay logic.
Dripper and periods
The Dripper contract adheres to the formula, with rewards distributed at the end of each period:
R = X*Y
- Amount of fees accumulated in a period = X
- A predetermined percentage of this amount is allocated for distribution in the next period = Y
- The drip amount is determined using the formula: A=D∗(R/H), where A is the $MINTY amount sent to the Buyback contract, D is the number of hourly portions, and H is the number of hours in the period.
Example: The starting setup is 30 days, ending on October 1st. On September 15th, the period length is adjusted to 60 days.
The $MINTY stash is 100 tokens with an 80% distribution rate (Y). On October 1st, a new period is initiated with 80 tokens to be distributed over 60 days at a rate of 0.055 tokens per hour.
Buyback Calculations Details
Rewards within the Buyback system reflect each account’s weighted contribution, considering vested $MINTY, unclaimed rewards, and additional stakes.
For instance, an account with a combined weight of 15 units (from vested and emission rewards) stakes an additional 5 MINTY, increasing their weight and share in the reward pool.
Loyalty bonuses further enhance the weight, amplifying the user’s rewards. The system updates each user’s Buyback weight with every Minterest interaction, such as staking new $MINTY rewards, thereby compounding future rewards.
Consider a 25% loyalty bonus on a 20-unit weight. This would boost the total weight and the user’s share of rewards to 25 units.
Desclamer: The Buyback weight continues to update every time the user performs an operation on Minterest (i.e. supplying).
New $MINTY rewards are staked, updating the Buyback weight of the user, and compounding rewards as the next distribution of rewards from the Buyback incorporates the updated weight.
The distribution of rewards is determined through a lazy indexing mechanism, used to track $MINTY accumulation per unit of weight.
The reward for each user is calculated by multiplying the delta (the change in index state since the last interaction) by the user’s weight.
Minterest’s Buyback system, a central feature of its reward distribution strategy, stands out in the DeFi space by prioritising user incentives over protocol benefits. It combines user participation with calculated rewards based on the protocol’s performance.
By factoring in loyalty bonuses and a transparent distribution methodology, the system ensures a fair and dynamic allocation of earnings, aligning the benefits of the protocol’s growth with its user base.
15, November 2023