Proof of Liquidity

An overview of the Ursa Proof of Liquidity Flywheel.

Ursa's proof of liquidity flywheel makes use of Bera, Honey and Ursa to create a maximally aligned system where every stakeholder; Ursa, Berachain, The validator and Users are benefiting from the participation from each other. Ursa's users are particularly advantages as they can stack the same underlying liquidity at various levels within the flywheel and earn yield from all of them simultaneously.

This all starts in the Ursa Lending markets; when lenders for Bera and Honey deposit their tokens into the dapp, they recieve uBera and uHoney receipt tokens representing their underlying deposit in the markets. This is the first yield opportunity of the larger flywheel. The utokens appreciate at the rate of supply side interest denominated in the underlying token. So if the supply APY of Honey is 5% then uHoney is appreciating relative to Honey at 5%. When a user exchanges their uHoney for Honey, they will receive more Honey then they originally deposited based on the aggregate APY they experienced over the length of the deposit.

The next layer comes in the form of Ursa's token LP pools. Ursa has 3 major liquidity pairs, Ursa/Bera, uHoney/Ursa and uBera/Ursa. Ursa lending market depositors can take their receipt tokens and pair them with Ursa to LP offering another level of the flywheel to earn yield in the form of trading fee without giving up the rewards they were already earning from the natural appreciation of the utokens. The only thing users cannot do is simultaneously use the utokens as collateral on the app while LPing the utokens. This aspect of the flywheel is very beneficial to the protocol which now gets to use supplied Honey and Bera in the markets as liquidity for Ursa as well.

Next is the staking layer which is currently under audit and will not be available at launch. In the staking module on Ursa, users can earn yield in the form of wBera which comes from protocol fees earned the previous week being distributed to stakers linearly during the week. In order to be eligible for this yield, users must stake 1 of 4 tokens; esUrsa, Ursa, uHoney/Ursa LP tokens or uBera/Ursa LP tokens. Once deposited into the staking module all 4 tokens are abstracted into a derivative token called stUrsa. The balance of stUrsa a user would have is based on a combination of factors such as the types of tokens they staked and the lock times. esUrsa cannot be removed once staked in the staking module and converts linearly to Ursa over a period of 1 year. Every time claim rewards is called in the staking module esUrsa and Ursa balances are updated within the staking contract to account for this. For the other 3 tokens you can choose to stake the tokens with no lock time, 3 months or 6 months lock time. The longer the lock the larger the boost in stUrsa. This is another aspect of the flywheel that benefits the protocol as well, when users choose to lock their LP tokens for boosted yield, this results in stickier and more predictable liquidity for the Ursa token.

A users stUrsa balance is essentially an abstracted value that represents their underlying esUrsa, Ursa, and LP tokens staked. stUrsa is also what governance power in the weekly emissions gauge is determined by. Everyones governance power is proportional to their share of the total stUrsa supply. There is an optional way to earn yield via the weekly gauge by participating in the bribe markets built on top by hidden hand. Anyone can offer bribes through this market to entices votes to boost the emissions allocated to certain lending and borrowing markets the following week. Should the user choose to be bribed for their governance power, they will receive additional yield in the form of the tokens used to bribe users, proportional to their share of the total voting power used to vote on that asset.

Finally the last layer of the system involves the reward vaults that sit between Ursa and our validator partners. Ursa will seek governance approval to get stUrsa approved for the native reward vaults that can be used in the proof of liquidity consensus. Upon approval users will be able to stake their stUrsa in the reward vault to earn BGT emissions from the validators while supplying the validators with liquidity for consensus. This provides a unique way for Ursa to wrap the native Bera and Honey tokens together with our native token Ursa into 1 derivative token that represents them all. Berachain has in interest in this system as it locks Bera and Honey into the contracts and ultimately uses partially the native tokens of the chain for the proof of liquidity consensus mechanism, the protocol benefits similarly by having Ursa indirectly used for chain consensus, the validators benefit by increasing their total liquidity to better compete in the market for validating transactions and finally the user benefits immensely by being able to use the exact same liquidity they deposited at in the first layer to earn interest in Ursa's lending markets, trading fees from the LP, protocol fees from staking module, optional yield from taking bribes in the weekly gauge system and finally BGT emissions from native reward vaults.