White Paper

Sceptre: Flare Liquid Staking Analysis and Profitability

May 1, 2024

‍Exploring the Advantages of Sceptre's Liquid Staking Strategy

In the fast-evolving world of decentralized finance (DeFi), liquid staking strategies have become highly sought-after for maximizing staking yields. While popular on Ethereum, these solutions are now being introduced to emerging EVMs like the Flare blockchain. Enter Sceptre, a pioneering liquid staking solution for Flare's C & P chains. Let's explore the unique benefits of Sceptre and compare its performance to other staking strategies.

Understanding Liquid Staking

Liquid staking is a modern solution in decentralized finance (DeFi) that enables cryptocurrency holders to participate in staking while retaining liquidity over their staked assets. Traditionally, staking tokens to support blockchain security means locking them up, making them unusable until the staking period ends. Liquid staking changes this by issuing a derivative token that represents the staked assets. This derivative can be freely traded or used across the DeFi ecosystem, offering continuous utility and additional yield.

Benefits of Liquid Staking:

  1. Liquidity Access:
    With liquid staking, users can maintain liquidity while earning rewards by receiving derivative tokens. This flexibility allows them to sell, trade, or use these tokens as collateral without having to wait for the staking lock-up period to end.
  2. Maximized Capital Efficiency:
    Staked assets no longer remain idle. Instead, they can be leveraged for other investments or DeFi activities like lending and borrowing. This maximizes the earning potential and capital efficiency of each asset.
  3. Diversified Yield Generation:
    Liquid staking allows users to earn both staking rewards and additional yield from other DeFi platforms, providing multiple streams of income.
  4. Compounding Rewards:
    Some liquid staking platforms automatically reinvest rewards, which enhances returns over time by harnessing the power of compound interest.
  5. Reduced Risk of Unstaking Delays:
    Unstaking traditionally involves a lengthy waiting period before accessing the initial tokens. Liquid staking provides immediate liquidity through derivative tokens, helping users quickly access their value.
  6. Democratization of Staking:
    Small-scale investors can participate in staking through liquid staking platforms without being restricted by high minimum staking requirements. This makes staking accessible to a wider user base.

Specific Advantages of Sceptre's Liquid Staking

  1. Flexibility & Utility:
    By staking FLR tokens through Sceptre, users can earn validator rewards while maintaining the freedom to trade their assets or use them as collateral. This flexibility is transformative, empowering users to maximize the utility of their FLR across the ecosystem.
  2. Seamless Compounding:
    Sceptre's automated compounding ensures rewards won't expire and are continuously reinvested. This approach enables holders to amplify returns effortlessly, taking advantage of compounding's exponential growth over time.
  3. Small-Scale Delegation:
    Delegating to validators is possible even with small amounts of FLR, democratizing the staking process and encouraging broader participation.
  4. No Additional Lock-up:
    Users enjoy the same lock-up period as traditional delegation, ensuring they retain control and access to their assets when needed.
  5. Diversified Risk:

Sceptre delegates to multiple nodes which diversify beyond the traditional 3 max per wallet. Reducing reward slashing risk.

Comparative Analysis: Sceptre vs. Manual Staking

When staking FLR or WFLR on the C or P chains, users can choose between two main manual staking strategies and two base strategies using Sceptre. Let's walk through the strategies we outlined for simulating user returns over time.

Simulation Assumptions:

  • Annualized validator staking APY: 20.8%
  • Annualized lending APY: 20% for sFLR
  • FlareDrop rate: 0.039 FLR per FLR staked
  • Initial stake: 10,000 WFLR
  • Strategies run for one year
  • Sceptre charges a 10% fee on rewards

Manual Staking Strategies:

  1. Control Strategy I:
    • FLR tokens are delegated manually to validators to earn staking rewards.
    • The user manages the delegation process, choosing validators and manually reinvesting rewards every 90 days.
    • Annualized return:some text
      • During FlareDrops: 85.15%
      • Post FlareDrops: 21.55%
  2. Control Strategy II:
    • Similar to Strategy I, this involves manually delegating FLR to validators.
    • Rewards are claimed every 90 days but not reinvested.
    • Annualized return:some text
      • During FlareDrops: 76.28%
      • Post FlareDrops: 20.00%

Sceptre Staking Strategies:

  1. Base Sceptre Strategy:
    • FLR tokens are staked via Sceptre, providing users with derivative sFLR tokens.
    • Automated claiming and compounding of rewards.
    • Annualized return:some text
      • During FlareDrops: 76.12%
      • Post FlareDrops: 20.51%
  2. Sceptre & Lend Strategy:
    • Combines the Base Sceptre strategy with lending protocols to generate additional yield.
    • Users stake FLR via Sceptre, receive sFLR tokens, and then lend or use those tokens in other protocols.
    • Annualized return:some text
      • During FlareDrops: 83.78%
      • Post FlareDrops: 26.73%

Key Comparisons

  • Manual strategies require active management and reinvestment to maximize returns.
  • Sceptre strategies automate the process, providing consistent and compounded rewards with less user intervention.
  • The Sceptre & Lend strategy particularly stands out, offering superior returns post-FlareDrops due to its integrated approach of staking and lending.

Comparing Strategies

Control Strategies I and II can offer solid returns but rely heavily on manual oversight. Sceptre’s automated compounding and liquid staking derivatives allow for continuous earning and utility, ultimately providing a flexible and efficient way to maximize DeFi returns.

The base Sceptre strategy yields a return of 76.12%, which is on par or slightly lower than the control strategies—underperforming Control I by 9.03% and Control II by 0.16%. However, the Sceptre + Lending strategy achieves a return of 83.78%, underperforming Control I by only 1.37%.

By employing a two-sample KS test for our analysis, we can assert with 99% confidence that the return profile of the Sceptre & Lend strategy statistically differs from those of the base and control strategies examined.

Strategy Performances During FlareDrops

Strategy Performance Post FlareDrops

Future Potential & Conclusion

Overall, Sceptre's liquid staking demonstrates compelling potential, significantly outperforming manual strategies post-FlareDrops. Its automated, streamlined process and the ability to stake sFLR for additional yield across DeFi platforms make Sceptre a preferred choice for users seeking to enhance returns while maintaining liquidity and contributing to the network security of Flare.

Looking ahead, the adaptability and scalability of Sceptre's liquid staking solutions position it as a key player in the evolving DeFi landscape. As the ecosystem grows and more users adopt liquid staking, the advantages of flexible asset utility and compounding returns will become even more pronounced. This positions Sceptre not just as a tool for individual users, but as a critical component in the broader DeFi infrastructure, driving innovation and financial inclusion on the Flare blockchain.

By continuously evolving and integrating with other DeFi protocols, Sceptre is set to unlock new opportunities for yield generation and capital efficiency, making it an indispensable asset for both retail and institutional participants in the DeFi space.

‍