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

Here's a *very* simple example:

1. At the beginning the Vault contains 0 MON (totalPooled = 0) and there are 0 sMON outstanding (totalShares = 0)

2. A user deposits (stakes) 10 MON. The Vault mints 10 sMON and transfers them to the user.

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

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

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

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

5. Now, the user redeems all 10 of their sMON for MON. They receive 11 MON 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 MON inflation, and Kintsu helped the user access it easily.

Composable Yield

Kintsu's sMON 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 sMON 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.