Earning Yield

How Kintsu facilitates yield back to stakers.

Each Era, there is a certain fixed amount of yield generated by the network in the form of newly generated Gas Tokens. The rate of yield is set by the network.

The yield accrues to the Validators, which must return it back to the Vault. This part is enforced by a mixture of Kintsu's smart contracts and blockchain-native mechanisms.

However, while the number of Gas Tokens staked with the Vault increase, the number of outstanding sTokens does not. Remember, sTokens represent a share of the Total Pool of Gas Tokens (totalPooled) controlled by the Vault. So, when the user redeems their sTokens for Gas Tokens, they will receive more Gas Tokens than they originally deposited.

Here's a *very* simple example:

1. At the beginning the Vault contains 0 Gas Tokens (totalPooled = 0) and there are 0 sTokens outstanding (totalShares = 0)

2. A user deposits (stakes) 10 Gas Tokens. The Vault mints 10 sTokens and transfers them to the user.

3. Now, the user waits. Over a period of time, the staked Gas Tokens accrue yield in the form of additional Gas Tokens.

   1. Let's say for simplicity that the tokens accrued a 10% yield over that time.

   2. Let's also say for simplicity's sake that no other users deposit any Gas Tokens for staking, and of course no other user redeems any tokens.

4. At this point, the totalShares still = 10 sTokens. However, due to the 10% yield accrued, the totalPooled now equals 11 Gas Tokens.

5. Now, the user redeems all 10 of their sTokens for Gas Tokens. They receive 11 Gas Tokens in return.

   1. Note that after this step, the Vault's totalShares = 0 again and totalPooled = 0 again as well.

This was a very simplified example. It doesn't account for any Protocol fees, and it doesn't account for other users staking and unstaking their tokens over time. However, it illustrates well the mechanism by which Kintsu helps users generate yield on their tokens. The example shows how yield came from the network's natural rate of Gas Token inflation, and Kintsu helped the user access it easily.

Composable Yield

Kintsu's sTokens are fungible, and therefore allow users to participate in other network activities, such as DeFi. Many DeFi products allow users to earn additional yield through processes of lending, trading, and more. So, users who use sTokens to earn yield in DeFi can also take advantage of the network's natural staking yield at the same time. This is what we call composable yield.