Yield Accrual Mechanism
Overview
PBTC accrues yield through a floating exchange rate for BTC, similar to non-rebase token models implemented by Rocketpool's rETH, Coinbase's cbETH, and Mantle's mETH. This floating exchange rate accounts for minting/redeeming activities, rewards, and fees.
The total supply of PBTC always equals the total amount of BTC principal deposited or staked into the protocol. Unlike rebase tokens, PBTC does not automatically increase the balance but updates its exchange rate based on the total controlled BTC divided by the total PBTC supply.
Photon Labs ensures a "true" exchange rate, reflecting each user's share of the PBTC value. Users can realize their accrued yield through redemption or unloading.
Underlying Collateral
PBTC is a yield-bearing asset with a soft peg to BTC, backed by deposited BTC. Users have four primary operations:
Minting PBTC: Deposit BTC into Photon Labs' contracts to receive PBTC.
Redeeming PBTC: Redeem PBTC from Photon Labs' contracts to receive an amount of BTC corresponding to the principal plus any accrued yield.
Acquiring PBTC: Swap other assets for PBTC via third-party liquidity pools (LPs).
Unloading PBTC: Swap PBTC for other assets via third-party LPs.
Exchange Rate
Primary variables in the exchange rate equation are:
Conversion rate = Total controlled BTC / Total PBTC Supply
Total controlled BTC = BTC principal deposited - BTC principal redeemed + Net rewards
Total PBTC Supply = PBTC issued - PBTC redeemed
Net Rewards = (Bitcoin staking rewards + PnL from positions + Other rewards) x (1 - Net Fee Rate)
Minting PBTC
Redeeming PBTC
Worked Examples
Example 1: Minting PBTC
Total Controlled BTC
Exchange Rate
Using the Minting Formula
Total PBTC Minted
≈ 1.905 PBTC
Example 2: Redeeming PBTC
Using the Redeeming Formula
Total BTC Withdrawn
3.15 BTC
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