What Is the Purpose of the SOV Token?
Sovryn is building a full-stack financial operating system on top of Bitcoin. The Sovryn protocol resides on the RSK sidechain, which uses RBTC as the native currency. RBTC’s value is pegged 1:1 with Bitcoin. BTC can be locked up on the Bitcoin mainchain and unlocked as RBTC on RSK. RBTC is then unleashed to function as the equivalent of BTC on the RSK sidechain. Users of the Sovryn protocol carry out transactions on the RSK blockchain and pay gas fees in RBTC.
Sovryn has launched its own protocol token, SOV. The SOV token is not a currency, nor is it necessary to hold SOV tokens to interact with the Sovryn protocol. The SOV token has been designed to be a representation of a stake in Sovryn’s future.
SOV has a number of uses that require a token distinct from the native coin of the sidechain:
- Governance: SOV is designed to provide a mechanism for governance of the protocol by those who choose to stake SOV. Staking SOV gives a user voting power that depends on the amount of SOV and the staking period.
- Censorship resistance: Sovryn governance is game theoretically designed to make the protocol as censorship-resistant as possible from a governance attack. Voting power (VP) increases with staking length and makes a governance attack very difficult. The more voting power you have, the more influence you have over the project. With more voting power you also receive a greater share of the protocol revenue rewards to incentivize good governance. If government regulators want to force KYC on Sovryn users, they would need to obtain 1% of the VP by buying a lot of SOV tokens and staking them for a long period to qualify to propose a SIP. Since the early SOV stakers have the majority of the VP of the protocol, the vote would never reach consensus from the staked Sovryn community.
- Growth/development: SOV helps fund development and the ecosystem. Contributors and developers are offered SOV incentives so that success of the protocol translates to rewards for those who contribute. Payment in vesting SOV tokens incentivizes developers to grow the ecosystem for the long term.
Equity: SOV acts as tokenized equity in the protocol. SOV stakers receive revenue from the protocol in the form of RBTC fees. The better governance they provide, the more revenue the protocol generates. Furthermore, the fundamental value of SOV is driven by the health and profitability of the protocol, allowing SOV holders to gain from appreciation of the SOV token.
SOV is not a competing cryptocurrency. Sovryns are bitcoiners at heart and understand the importance of bitcoin for the future of the economy. The SOV token gives investors access to a tokenized equity share in the protocol without the need to go through KYC. Traditional equities such as Microstrategy, Square, Marathon, and Riot are tradable on the regulated KYC-compliant stock market as dividend-earning bitcoin stocks. SOV allows bitcoiners to invest in a share of the Sovryn protocol to drive Bitcoin utility and adoption while also receiving fees and gaining exposure to price appreciation of the protocol.
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Protocol Revenue from Fees