In this article we take a look at one of the more unique characteristics of the Yield Guild Games (YGG) DAO. We introduce crypto newcomers to the concept of staking and walkthrough an example of how the YGG vault will provide token holders with a high degree of flexibility when investing in the future of YGG.
What is staking?
A central component of most decentralized finance (DeFi) platforms is its staking system, whereby participants “stake” certain tokens by sending them to an address controlled by a smart contract. These tokens are still owned by the participant but are lent to the platform for a specific use.
The reason why people stake coins is because they can earn interest which is often considerably above normal market rates. Sometimes this interest comes in the form of the token being staked, and sometimes, it comes in the form of multiple token rewards. Some smart contracts lock tokens for set periods of time and others do not.
Ultimately, staking provides a way for token holders to earn money on the side, deriving value from assets that would otherwise be underutilized.
How is staking in YGG DAO different?
Yield Guild intends to take the concept of staking one step further than most DeFi platforms with the introduction of the YGG vault.
Instead of offering fixed interest rates like those in traditional DeFi platforms, YGG vaults give YGG token holders the opportunity to invest in the success of specific components of the guild’s revenue stream. As stated in the YGG whitepaper, each vault at YGG will represent a token rewards program for specific activities that YGG engages in.
For example, YGG token holders who want exposure to revenue from the DAO’s Axie breeding program can stake their tokens in a vault created specifically for that purpose. Revenue from this activity will be distributed back to the accounts of those who have staked tokens, proportional to the amount of tokens staked by each account.
Another example will be a vault dedicated to earnings from the guild’s NFT rental program, which is currently under development. There are also plans to develop a vault that represents a collection of all yield-generating activities — or a YGG “super index” vault. This will include returns in the form of rewards from:
- treasury performances, and
- an index of subDAOs.
How do YGG vaults work?
Let’s say an investor has 1000 YGG tokens. While tokens can be used for other DAO-related purposes, maybe they want to put them to work and stake them for the time being. If the investor sees a lot of potential in one particular guild activity, it would be prudent of them to stake 700 tokens in the vault for that activity, and the remaining 300 tokens in the “super index” vault.
After the staking period has expired, the investor is entitled to withdraw their tokens from the respective vaults, along with additional rewards collected during the staking process. These rewards have the potential to come in many forms — from extra YGG tokens to Ethereum or stablecoins — all depending on how the vault is constructed.
As with the DAO itself, YGG vault functions and rules will be programmed into the Ethereum blockchain using smart contracts. Such rules include the length of time that tokens sent to the vault will be locked up, what type of rewards are to be distributed, and in what amounts. Additionally, smart contracts will guide vault-related escrow issues and vesting requirements when appropriate.
By distributing and tracking rewards through the blockchain, all YGG DAO functions are transparent, voted upon by the members and enacted through non-corruptible smart contracts. YGG vaults are thus the logical extension of DeFi principles regarding financial flexibility and ability to fine-tune the makeup of one’s own portfolio of tokens, NFTs and other gaming assets.