Staking & Exit Mechanism

Introduction to Staking & Exit Mechanism in Bug Finance

While researching existing implementations of the ve(3,3) model, we identified that over 90% of users lock their tokens for the maximum amount of time to gain the highest voting power. To improve the user experience and benefit the protocol, we decided to eliminate the lock periods altogether and introduce a uniform exit mechanism system across all types of staking, including LP Boosted Staking, veBUG, and Single-Sided Staking for veBUG.

Why We Implemented the Exit Mechanism

We observed that on Solidly forks, veNFT positions were exitable through secondary markets or liquid wrappers, but these methods did not benefit the protocol. Our exit mechanism system aims to address this issue by benefiting the protocol through:

1. 40% of the exit fee is going to bribes for the exited pool, distributed over 4 weeks to maintain a steady APR.

2. 40% allocated to a lock bonus for the exited pool, offering a 2% bonus on LP and veBUG tokens for users who stake their tokens, as long as the supply lasts.

3. 20% directed to Protocol Owned Liquidity, forever locked in the LP, strengthening the protocol over time.

This creates a system where someone exiting increases Protocol owned Liquidity (which makes the protocol forever stronger), increases yields for people voting in that pool and thus liquidity providers, and incentivizes new people to jump into the pool for the bonus. And if they decide they want to exit, everybody benefits again.

How Exit Mechanism Works

1. LP Boosted Staking: LP Boosted Staking: Stake your normal LP (no $BUG in the pair) to receive a 2x boost on your emissions. There is an exit fee that is calculated based on the pool APR you're staking in that decreases over time. The exit fee is set so that if you exit <4 weeks, you will exit at a net loss. If you exit at 8 weeks, Between 4-8 weeks, you can exit at a profit, but regular staking would have been more profitable. From 8 weeks onwards, boosted staking will be more profitable than regular staking. And from 52 weeks onwards the exit fee is zero, thus boosted staking will produce double the yield.

1. BUG LP Staking for veBUG: Stake your BUG LP (any whitelisted LP paired with $BUG, such as BUG/MATIC, BUG/USDC, BUG/fBOMB) to receive voting power. With dual incentives (emissions from the LP + bribes & fees), the exit fee goes from 20% to 2.5% over 1 year. Your voting power is dynamic and recalculated weekly based on the amount of $BUG in your LP.

2. Single-Sided Staking: Acquire more veBUG by staking $BUG, receiving 50% of the voting power compared to staking BUG LP. There is no direct option to exit here, you do however have the option to upgrade your position to a 100% veBUG position. This means you have the option to add any whitelisted token for BUG LP (such as MATIC, USDC, fBOMB) and upgrade your position to a 100% veBUG position that is exitable via the mechanism described above.

By implementing the exit mechanism system, Bug Finance ensures that users can exit their veBUG positions while benefiting the protocol and maintaining a strong and sustainable ecosystem.