Chapter 4 - Where do SOURCE staking rewards come from?

Chapter 4 - Where do SOURCE staking rewards come from?

Mutual Credit
In the previous chapter to this series we discussed how decentralized underwriting works on ReSource, and have shown how Underwriters lock SOURCE deposits in order to secure credit lines. In return, Underwriters earn a portion of transaction fees generated by ReSource users.
However, this doesn’t mean that you need to become a ReSource Underwriter in order to stake SOURCE and earn rewards. Underwriters on the ReSource network are whitelisted entities with proven underwriting proficiencies. Most SOURCE holders won’t fall into this category, but still play an important role in securing the ReSource Network against credit risk.

Delegated Staking

To participate in staking, SOURCE holders can delegate their SOURCE to an Underwriter of their choice, much like CELO holders can delegate their CELO to a validator, without running a full node themselves.
The chosen Underwriter can then use the delegated funds to underwrite credit lines. Holders of these credit lines pay transaction fees whenever they overdraft their account. These fees flow to their Underwriters who then share them with delegators.
To ensure that Underwriters always have “skin in the game”, and are not tempted to under price risk or otherwise use funds delegated to them irresponsibly, Underwriters are required to fund at least 50% of each individual stake themselves.

The Winterproof Model

In contrast to staking rewards on PoS chains such as CELO (and allegedly on Ethereum in the near future), ReSource staking rewards are not solely exposed to crypto markets.
Staking rewards on PoS chains stem from transactions on these ledgers - the more transactions, the more rewards. This is fair enough at times when the crypto market booms, NFTs change hands, contracts are deployed and remittances flow. But as soon as the crypto market enters “Winter”, these rewards tend to contract dramatically, while staked assets remain locked, often for long periods of time.
SOURCE staking rewards, on the other hand, are not directly exposed to the crypto market. While they too stem from transaction fees, these fees are not necessarily paid by crypto-users, but rather by a diverse array of real-world businesses, most of them completely unexposed to crypto.
ReSource credit lines serve brick-and-mortar shops, small and medium sized businesses, freelancers and retailers world-wide. For some of which ReSource may be their first point of contact with the blockchain industry. As long as these businesses access credit on ReSource, staking rewards will flow, regardless of how well Bitcoin and Ether perform.

Remain Exposed to Staked Assets

Another important difference between staking on ReSource and staking on PoS chains such as CELO is the degree to which stakers remain exposed to their staked assets.
Locking an asset such as CELO or ETH in a staking contract deprives their owner from the ability to exploit market movements. If one of these assets suddenly shoots “to the moon” or other celestial bodies, stakers can’t take profits or de-risk their positions.
In contrast, SOURCE stakers remain exposed to the SOURCE price and can freely de-risk if it skyrockets. This doesn’t mean that SOURCE stakes can be unlocked whenever the staker wishes to do so - this would undermine the whole logic of staking, but it’s almost as good.
SOURCE staking rewards increase if the price of SOURCE rises (full disclosure, they also decrease if SOURCE price drops). This is so since ReSource credit lines are secured by a SOURCE stake that amounts to 20% of the underwritten credit line. These credit lines, and consequently the stake securing them, are denominated in RSD, the network’s unit of account, which tracks the behaviour of the US Dollar.
Consequently, if the SOURCE price rises in relation to the US Dollar and the locked SOURCE stake exceeds the required 20%, surplus SOURCE is paid out to stakers as staking rewards. Similarly, if the price of SOURCE drops significantly, staking rewards will be withheld and locked within the staking contract until the accumulated SOURCE equals 20% again.
This leaves SOURCE stakers exposed to the price of SOURCE, even while their assets are locked. Additionally, this mechanism also creates a sort of “monetary buffer”, auto-regulating the circulating SOURCE supply: staking contracts constantly counter-adjust their SOURCE emissions in response to SOURCE price, contracting the circulating supply if prices drop sharply .
For more information on how and where to stake SOURCE, Join us on Discord, Telegram  Follow us on Twitter. If you’re more into farming check out our SOURCE farms on Ubeswap and Uniswap and earn healthy incentives.
Your friends at ReSource.