Incognito Mining
What is Incognito Mining?
The design for Incognito Mining is inspired by Tornado Cash’s anonymity mining. Unlike the traditional format of liquidity mining, this two-step incognito liquidity mining system would not reveal how much time the deposit spends in a Sacred Box.
As mentioned in our Anonymity Set section, mixers rely on the volume of transactions for each Sacred Box for the level of privacy. To increase the level of privacy, the Sacred DAO will be allocating and rewarding the individuals who deposit into the Sacred Box.
If you deposit into a Sacred Box that offers Incognito Credits (IC), you will be awarded “x” IC per block, depending on the period your deposit is in the Sacred Box. The IC can be exchanged for SACRED tokens once the Incognito Credits are claimed in our Sacred Automated Market Maker (SAMM). TL:DR if you happen to be a visual learner...
V1 Policy Incognito Mining
Users of Sacred are awarded Incognito Credits (IC) which they can redeem for SACRED by converting IC into SACRED (after the principal has been withdrawn).
The amount of SACRED that can be redeemed for IC depends on the total SACRED available to be redeemed from the contract.
This policy has two key considerations:
Making sure Incognito miners are properly incentivized to participate and
Keeping SACRED inflation to a minimal
Although these considerations seem to be opposing at first look, they actually work together when used properly. Controlling inflation serves to maintain the value of the token which users are rewarded with.
Incognito Rewards
When a user deposits tokens into the mixer, Sacred places them in an underlying pool so that the tokens gain interest while mixing. At the same time, SACRED is also rewarded to the user (incognito mining). The amount of SACRED awarded to the user should be large enough that the user is incentivized to invest using Sacred instead of just using the pool underneath.
The size of this incentive is governed by an interest multiplier that determines how much extra APY to award to pool users who invest using SACRED. This can be thought of as a permanent booster to a pool’s rewards.
The community can vote on the size of the interest multiplier per pool.
Incognito Credits
Although there may be several pools in one blockchain, all the redeeming happens from one contract. The amount of IC rewarded in each pool should be controlled by a community vote. Ideally the IC should be linearly proportional to the deposit size.
E.g. if a pool of 0.1 ETH receives 1 IC per block, a pool of 1 ETH should receive 10 IC per block. This prevents farming whales from breaking up a large deposit into smaller tiers and gaming the reward system.
Redeeming Incognito Credits
Incognito Credits can be redeemed with the formula below:
Where:
SACRED — Total SACRED received for IC deposited
Svirt — Virtual SACRED balance
W — AMM exchange weight constant
The balance of Svirt will determine the amount of SACRED redeemed for each IC, with a higher balance resulting in a lower redemption price.
As an analogy you can imagine SACRED tokens are being trickled into a bucket. The SACRED becomes cheaper as the bucket holds more tokens. However, a lot of users redeeming their IC for SACRED will reduce the amount in the bucket, causing the price to increase. As time passes, more SACRED is dripped into the bucket, lowering the price. In a way, it works like an auction where the price of SACRED starts at a higher price and slowly drops until there are takers.
Virtual Sacred Balance (v1)
In v1, the virtual balance in the AMM will work as follows:
Where:
Svirt — Virtual SACRED balance
S — SACRED allocated for the mining program per the inflation schedule
Swithdrawn — Amount of SACRED already withdrawn by users
Over a long time, as users redeem their IC, the virtual balance in the contract will curve to zero with the redemption rate becoming more expensive.
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