PCV is the Protocol Controlled Value. As HunnyDAO controls the funds in its treasuries, LOVE can only be minted or burned by the protocol. This also ensures that the protocol can at least be able to back 1 LOVE with 1 BUSD. You can easily define the risk of your investment because you can be confident that the protocol will buy LOVE below 1 BUSD with the treasuries assets until no one is left to sell.
As HunnyDAO accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer-term because more funds are available in the treasuries.
This is one of the main reasons why having a secondary treasury like in HunnyDAO is crucial for the sustainability of the protocol.
Why is POL important?
HunnyDAO owns most of its liquidity thanks to its bond mechanism. This has several benefits:
HunnyDAO does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity.
HunnyDAO guarantees the market that liquidity is always there to facilitate sell or buy transactions.
By being the largest LP (liquidity provider), it earns most of the LP fees which represents another source of income to the treasury.
All POL can be used to back LOVE. The LP tokens are marked down to their risk-free value for this purpose.
What is a rebase?
Rebase is a mechanism by which your staked LOVE balance increases automatically. When new LOVE is minted by HunnyDAO, a large portion of it goes to the stakers. Because stakers only see staked LOVE balance instead of LOVE tokens, the protocol utilizes the rebase mechanism to increase the staked LOVE balance so that 1 staked LOVE is always redeemable for 1 LOVE token.
What is reward yield?
Reward yield is the percentage by which your staked LOVE balance increases on the next interlude. It is also known as rebase rate.
What is APY?
APY stands for Annual Percentage Yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of HunnyDAO, your staked LOVE represents your principal, and the compound interest is added periodically on every interlude (around 8 hours) thanks to the rebase mechanism.
How is the APY calculated?
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of LOVE distributed to the staking contract is calculated from LOVE total supply using the following equation:
Note that the reward rate is subject to change by the DAO.
What will be LOVE's intrinsic value in the future?
There is no clear answer for this, but the intrinsic value (IV) can be determined by the treasuries performance. Noting that unique for HunnyDAO, there is a secondary treasury whereby a portion of the monthly revenue from the products in Hunny Ecosystem will be contributed here.
Given this, if the treasuries could guarantee to back every LOVE with 100 BUSD, the intrinsic value will be 100 BUSD. It can also be decided by the DAO. For example, if the DAO decides to raise the price floor of LOVE, its intrinsic value will rise accordingly.
How does the protocol manage to maintain the high staking APY?
Let’s say HunnyDAO targets an APY range of 1,000% to 10,000%, this would translate to a minimum reward yield of about 0.2105%, or a daily growth of about 0.6328%. You can refer to the equation above to learn how APY is calculated from the reward yield.
If there are 100,000 LOVE tokens staked right now, HunnyDAO would need to mint an additional 632.8 LOVE to achieve this daily growth. This is achievable if HunnyDAO can bring in at least $632.80 of daily revenue from bond sales.
Even in the worst-case scenario whereby HunnyDAO doesn't bring in that much revenue, it can still sustain 1,000% APY for a considerable amount of time due to the excess reserve in the treasuries. This is the reason why HunnyDAO secondary treasury will play an important role here.
Do I have to unstake and stake LOVE on every interlude to get my rebase rewards?
No. Once you have staked LOVE with HunnyDAO, your staked LOVE balance will auto-compound on every interlude. That increase in balance represents your rebase rewards.