Frequently Asked Questions
Sikka is a secure and reliable protocol solution for the stable asset SIKKA. Users can borrow SIKKA, using liquid staking tokens as collateral. Users can also supply pairs of assets to liquidity provider to yield-farm and earn rewards. The basic purpose of Sikka is to provide competitive yield in a sustainable way, enabling the majority of users to profit from the increased money velocity of crypto markets.
SIKKA is the stable asset minted by Sikka Protocol. SIKKA is always pegged to USD 1.00 and its circulation is backed by over collateralized assets.
Sikka is an overcollateralized, decentralised, permissionless protocol which uses high multiple digital yields. The yield sustainability of algorithmic stablecoins is low whereas Sikka is as good as a fiat-backed stable coin.
It has been proven that over-collateralized stable assets are the most sustainable. Until Sikka and SIKKA stable asset, there were no DeFi stable assets that were inclusive to users within the entire spectrum of capital power. Its non-algorithmic architecture protects peg and enables staking rewards and composability with other PoS protocols adding utility to SIKKA and Sikka as well as other DeFi protocols with low risk and sustainable yields.
Sikka Protocol faces two main liquidity challenges:
- Maintaining SIKKA stable asset liquidity; and
- Maintaining MATIC Liquid Staking liquidity.
Maintaining liquidity for both tokens is important to keep the peg of SIKKA stable asset to USD and the MATIC Liquid Staking peg to the MATIC token.
To ensure SIKKA liquidity, most of Sikka Revenue Pool will be made up of Sikka's borrowing interest collected from SIKKA borrowers. MATIC staking rewards from MATIC collateral will be redistributed to SIKKA liquidity providers, and in a second phase to SIKKA stakers. One of the main benefits of SIKKA is the ability to earn Sikka staking rewards from Sikka Revenue Pool, whereas the buying pressure will require a sufficient amount of liquidity to avoid SIKKA trading at a premium for a prolonged period of time.
To ensure MATIC collateral liquidation and collateral withdrawal, users will face an unbonding time of 3-4 days similar to MATIC liquid staking, or receive a MATIC Liquid Staking token immediately after the withdrawal and rely on MATIC liquid staking liquidity.
With MATIC liquid staking the unbonding period is 3-4 days, and the peg is expected to remain strong due to market makers' willingness to get MATIC liquid staking tokens at a discount and cash out their profits after the unbonding period. To contribute to maintaining the MATIC liquid staking liquidity, the Sikka team will upgrade cerosRouter to allow for deposited MATIC staking into MATIC Liquid Staking (e.g. 80% MATIC Liquid Staking / 20% MATIC). This will permit MATIC collateral withdrawals or liquidation in MATIC tokens. It might reduce the amount of revenues in Sikka Revenue Pool, but is expected to benefit the protocol in the long run by significantly increasing MATIC liquidity.
There are different ways to generate revenue using Sikka:
- Deposit MATIC and borrow SIKKA, then deposit SIKKA into a liquidity pool to earn from transaction fees.
- Farm the LP token received for depositing the borrowed SIKKA into a liquidity pool.
Sikka accumulates yield from 3 primary sources:
- Borrowing interest,
- Liquid staking rewards, and
- The swap fees from deposits into liquidity pools on DEXs.
This combination maximizes potential yields because it covers various use case scenarios. Interest and swap fees will be driven by protocol usage as well as the supply and demand balance. At the same time, Proof-of-Stake Liquid Staking rewards will be generated as a result of the economic activity on-chain. Such diversified activity ensures that network validators staking native tokens keep on generating yield as more transactions occur.
This sustainable yield generation mechanism creates a dynamic where Sikka produces stable and consistent risk-adjusted returns. When the yield is transferred to the borrower, upon the collateralized MATIC, the yield risk/reward ratio improves further. This creates a flywheel effect, increasing the interest and swap fees generated by Sikka Protocol.
It is a pool that contains 2 types of income:
- Liquid staking asset’s reward APY, and
- Sikka borrowing interest.
Sikka Revenue Pool is distributed back to the liquidity pool to incentivize users to become a liquidity provider.
Sikka is trying to achieve sustainable and competitive yield minimizing systemic risk by using:
Yield-bearing stable asset.
DeFi integrations to boost yield in a more sustainable way.
User has the ability to add their own leverage.
Integration with other lending platforms for leverage (collateralized VAI to borrow USDC).
Making MATIC more scarce via Liquid Staking.
To ensure SIKKA remains fully backed by MATIC collateral, pools that fall under the minimum collateral ratio of 130% will be closed (liquidated) and have the debt paid back externally or redistributed.
The debt of the pool is canceled and absorbed by the Stability Pool and its collateral is distributed among Stability Providers.
The owner of the pool still keeps the full amount of SIKKA borrowed but loses part of its value overall hence it is critical to always keep the ratio above 130%, ideally above 150%.
Anyone can liquidate a pool as soon as it drops below the minimum collateral ratio of 130%.
SIKKA is the USD-pegged stable asset used to pay out loans on Sikka Protocol. At any time it can be redeemed against the underlying MATIC collateral at face value.
GIKKA is the secondary token issued by Sikka. It captures the fee revenue that is generated by the system and incentivizes early adopters and SIKKA holders. GIKKA token is the Sikka Protocol's governance token, managing Sikka Revenue Pool distribution and GIKKA token rewards.
IKKA will fulfil various functions:
- GIKKA can be used to boost SIKKA rewards for liquidity pool staking.
- User can use GIKKA to vote for governance proposals on Sikka.
The founding team is natively Indian, "sikka" in Hindi means "coin", and has a historical significance with money. We wanted the project to resemble our core values and heritage that is why we chose this name.
Do you have plans to expand and venture into other ecosystems such as Solana, BNB Chain, or Ethereum?
We are going to stay with Polygon chain. Perhaps, at a later stage, Ethereum networks like Arbitrum.
We have already built the testnet and right now it’s live. Apart from that, we are collaborating very closely with partners to enable a Sikka sidechain where gas fees will be paid in SIKKA, enabling SIKKA stakers to earn an additional layer of reward by delegate-staking with Sikka sidechain’s validators.
We are positioning Sikka as a widely utilized decentralized stable asset protocol and trusted reference rate enabler in the crypto market with a combination of unique features and by capitalizing on Proof-of-Stake incentives from liquid-staking assets.
Development and release of new features and functions will be carried out in phases to continue.
We have attributed 55% of the token supply to borrower incentivization, 10% to SIKKA staking and LP rewards, 20% to community, 10% for the team, and 5% for marketing. We arrived at these metrics to sustainably run the network and provide incentives according to market situations.
Why Have You Chosen Stable Assets as the Crypto Lending Method for Sikka and What Benefits Will Polygon's Technology Provide?
Stable assets are the most money velocity product for any chain to drive the economy. Here a user mints the stable asset SIKKA by depositing MATIC tokens which are redeemable too and not stake fixed. It will help a lot for the Polygon ecosystem to bring the multiplier effect on TVL.