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Transparency and Risks

We at Thunderhead are committed to being fully transparent and honest with our users.

Introduction

The crypto industry as a whole is riddled with opaque mechanisms that hide the risk-level, source of rewards, and fund management/custody practices. At StakedFLIP, you can be assured that you can get a complete understanding of how the system works, along with the risks and how they are mitigated.

System Overview

At a high level, users stake FLIP into a smart contract that transfers them back stFLIP. This FLIP is then staked onto Chainflip network validators. These Chainflip validators validate blocks for the network and earn rewards from doing so. These rewards (minus a fee, currently at 22%) accrue to users by their stFLIP balances increasing. At any time, stFLIP is backed 1:1 by native FLIP and can be redeemed after waiting through the protocol unbonding period. Both the unbonding period and rewards are determined by the decentralized Chainflip network. stFLIP holders have veto rights over the Thunderhead team multi-sig. Any proposal created by this multi-sig can be vetoed by stFLIP holders. This makes stFLIP non-custodial (FLIP can only go to validators or back to users).

Protocol Constraints

Rewards

The rewards users earn are determined by the Chainflip protocol. The Chainflip network emits 7% of its 90m total supply annually. Validators earn a pro-rata share of this depending on how many blocks they produce; all validators will essentially earn all the same rewards. Thunderhead charges 22% of the rewards to fund development of the protocol and the validator infrastructure. stFLIP rewards come solely from protocol issued rewards - there is no lending or trading involved.

Unstake Time

stFLIP is a liquid staking token, so you can transfer it or sell it whenever. stFLIP is always backed 1:1 by native FLIP, so at anytime you can submit an unstake request to the Burner contract. FLIP is eligible to be unstaked at the end of an epoch. Validators can redeem funds in the first half of the epoch and bid for validator slots in the second half of the epoch. Thus, unstake requests will take 1/2 to 3/2 of an epoch to fulfill. Each epoch is currently 24 hours and will be 72 hours after swapping goes live.

Validator Redemptions

StakedFLIP validators have bound their redemption and executor addresses to the Output smart contract. This ensures that StakedFLIP deposits staked onto validators can only be returned to the stFLIP smart contracts

Risks

Smart Contract Risk

There is a risk that stFLIP contracts contains a vulnerability. However, the code is open-sourced, audited, well-tested, and heavily internally reviewed. While we do our very best to ensure safety for our users, we cannot guarantee that there is no risk of fund loss. In the highly unlikely scenario that there is a smart contract exploit, the funds in the liquidity pool and the output contract would be at risk, which is a portion of the total amount staked. The remainder would be staked onto the validators, which are not subject to smart contract risk until unstaked.

Slashing Risk

Chainflip is a Proof-of-Stake network. This means that validators can be slashed if they underperform, go offline, or misbehave. If a validator goes offline for 24-36 hours+, they are eligible to be slashed for 0.10% of its bond. We have a high-quality validator setup, but is never possible to fully eliminate this risk.

stFLIP Discount Risk

Due to the inherent nature of liquid staking, liquid staking representative tokens can trade at a discount due to the underlying asset being staked and thus illiquid. It is possible that the FLIP/stFLIP price could decline significantly due to market conditions. Users can always redeem their stFLIP for FLIP via an unstake and redeem their full underlying balance.