How Staking Works in Papaya v1

Staking STX

When a user decides to stake STX tokens to Papaya, they’ll receive an equivalent amount of stSTX tokens, representing their staked STX. The platform collects all the staked tokens from users and stacks these funds together to participate in the Proof of Transfer (PoX) consensus mechanism, which generates rewards in the form of BTC. PoX Stacking cycles last approximately 2 weeks. When users stake with Papaya, the first stacking cycle for newly staked tokens depends on the ongoing reward cycle phase.

These BTC rewards are then sent to a Pay-to-Tap-Root (P2TR) address, which is designed to automatically handle the conversion of BTC into sBTC on behalf of the Papaya protocol. These sBTC rewards are then distributed to users proportionally based on the amount of STX they are staking.

Users can request a withdrawal of their staked STX tokens anytime. If they make a withdrawal request during a PoX Stacking cycle, the protocol will unlock the tokens at the cycle's end to complete outstanding withdrawals. To claim their STX, users must transfer the stSTX tokens to the protocol, which will be burned only after the STX transfer to the user is confirmed on the blockchain.

Independent Token Model

This is the model for staking STX to get rewards in sBTC. This model is part of v1, where Papaya allows stacking STX through the platform.

$S_A$: Total amount of Token A deposited $s_A$: Amount of Token A deposited by user $E_B$: The total amount of Token B held by the protocol $\Delta{E_B}$: Change in total supply of Token B during reward distribution

For illustrative purposes, Token A is STX and Token B is sBTC.

Since stSTX is minted 1:1 for each STX token staked within the protocol, a holder’s balance of stSTX is represent as:

$$H_A = s_A$$

During reward distribution sBTC rewards from PoX are deposited into the Liquid Stacking contract, the balance of sBTC redeemable by a holder is equal to that holder’s proportional stake of STX multiplied by the total amount of Token B held by the contract:

$$H_B = \frac{s_A}{S_A} \cdot E_B$$

During reward distribution the change in total supply of sBTC, $\Delta{E_B}$, would correspond to:

$$r_B = k \cdot \Delta E_B$$

Where $k$ is a constant between 0 and 1 that determines what proportion of the change in supply is used for the reward distribution. This gives Papaya the ability to collect a fee when $k < 1$ corresponding to:

$$r_{fee} = (1 - k) * \Delta E_B$$

The holder's new balance in Token B after reward distribution is: