Early Redemption Fee

2024-11-14

An early redemption fee for staking is a penalty charged to users who withdraw their staked assets before the agreed-upon lock-up or staking period ends. This fee is designed to discourage premature withdrawals and protect the staking protocol’s integrity by maintaining liquidity or network stability.

Overview

The fee is calculated based on the portion of the total deposit that can be withdrawn during the convertible bond’s maturity period.

It’s important to note that this calculation assumes users can withdraw only 10% of their deposit before the bond reaches its maturity date.

Why is only 10% available for immediate withdrawal?

Most platforms do not allow withdrawals during the locked staking period because the staked funds are used to generate interest income. However, Gyrowin recognizes that users may need access to emergency funds, so it allows withdrawals of up to 10% of the staked amount even during the staking period.

The 10% withdrawal limit for staked assets is a strategic safety feature that ensures protocol stability and protects all stakers. Here's why:

Protection Against Mass Unstaking:

• Prevents sudden large-scale withdrawals that could destabilize staking rewards

• Maintains consistent reward distribution for all stakers

• Protects the protocol's ability to generate sustainable yields

Emergency Response Capability:

• Provides buffer funds if emergency migration is needed

Staker Security:

• Ensures fair distribution of withdrawal opportunities

• Protects smaller stakers from being impacted by large stakers' actions

• Maintains stable APY rates by preventing sudden TVL fluctuations

This conservative approach helps maintain a healthy staking ecosystem while balancing accessibility with security for all participants.

How is the early redemption fee calculated?

• D: Deposited amount by the individual

• T: Total deposit amount (sum of all deposits)

• R: Base fee rate (percentage or fraction of the amount)

• t: Time elapsed since deposit start

• Td: Total deposit period (maturity period)

• W: Amount that can be withdrawn by the individual (calculated based on the individual's deposit and total withdrawable amount)

• Wtotal: Total withdrawable amount (10% of the total deposit amount)

1. Total Withdrawable Amount:

$$W_{total} = 0.10 * T$$

1. Individual's Proportion of the Total Withdrawable Amount:

$$W = \bigg(\frac{D}{T}\bigg) \times W_{total} = \bigg(\frac{D}{T}\bigg) \times T = 0.10 \times D$$

1. Base Fee:

$$F_{base} = D \times R$$

1. Proportional Fee Adjustment:

$$F_{prop} = F_{base} \times \bigg(\frac{D}{T}\bigg)$$

1. Time Factor:

$$F_t = 1 - \bigg(\frac{t}{T_d} \bigg)$$

1. Combined Formula:

$$F = D \times R \times \bigg(\frac{D}{T}\bigg) \times \bigg(1 - \frac{t}{T_d}\bigg)$$

Example:

• D: Deposited amount = $1,000

• T: Total deposit amount = $50,000

• R: Base fee rate = 10% (0.1)

• t: Time elapsed since the deposit started = 6 months (can also be expressed in seconds)

• Td: Total deposit duration = 12 months (can also be expressed in seconds)

Plugging these values into the formula:

1. Withdrawable Amounts:

$$W_{\text{total}} = 0.10 \times 50,000 = 5,000\newline W = 0.10 \times 1,000 = 100$$

1. Base Fee:

$$F_{\text{base}} = 1,000 \times 0.1 = 100$$

1. Proportional Fee Adjustment:

$$F_{\text{prop}} = 100 \times \left(\frac{1,000}{50,000}\right) = 100 \times 0.02 = 2$$

1. Time Factor:

$$F_t = 1 - \frac{6}{12} = 1 - 0.5 = 0.5$$

1. Combined Fee:

$$F = 2 \times 0.5 = 1$$

The total fee, F , is calculated as:

$$F = 1,000 \times 0.1 \times \frac{1,000}{50,000} \times \left(1 - \frac{6}{12}\right) = 1,000 \times 0.1 \times 0.02 \times 0.5 = 1$$

Thus, the total fee F is $1.

Conclusion

This formula correctly accounts for the fact that 10% of the total deposited amount from all users can be withdrawn. It ensures that the fee is based on the individual's deposit amount, the total deposit amount, the time elapsed, and the proportion of the individual's deposit relative to the total deposits, making it fair and proportional.