Hex: End Staking vs Good Accounting

Table Of Contents

In this article, we follow on from Lank’s excellent introduction to the HEX product here. For those unfamiliar with the foundations of HEX, we recommend you read that article first.

Today, we focus on two of the most unique and interesting aspects of the HEX contract; end staking and “Good Accounting.” We will explain and contracts these functions so as to empower you to understand and use HEX in the ways it was intended.

A Quick Recap on Staking

Staking appears from the outside to function very much like a “certificate of deposit” or “bond” – you buy your HEX tokens and lock them up for a pre-determined period of time. Once your stake has ended (which is normally at the end of the period) you receive your principal back plus a yield. In essence, you get rewarded for your patience.

This is one of the most brilliant things about the HEX product – it has a built-in philosophy that promotes patience and delayed gratification. When you think about it, these two qualities are diametrically opposed to the high risk, high leverage, get-rich-quick mindset that influencers push on vulnerable crypto investors. HEX is, at root, about buying and holding, and removing the stress of being glued to charts every day. That’s not to say the trading mentality doesn’t permeate the staker’s mindset at certain times. But it would be a mistake not to notice how HEX goes against the grain.

As readers of this website will recall, HEX offers holders the ability to lock up their HEX tokens in a trustless manner. In return for locking up their HEX from anywhere from one day to 5555 days, they receive a yield denominated in HEX. We refer to this as a “payout.” At the end of a stake, the staker will receive the principal amount of HEX they staked plus payouts (minus any penalties, if applicable).

The size of the payout is a subject for another article. It depends mainly on how long the staker locks up their HEX for; how large the stake is; and what proportion of the total locked HEX the given stake represents.

When a user locks up – or “stakes” – their HEX, that HEX is technically burned; it no longer forms part of the Circulating Supply until the stake is ended. At the conclusion of the stage, this HEX and any bonus HEX all get re-minted. The staker does not own HEX at this point; they own “shares” of the stakes pool. Think of the payout pool as a bucket of water that fills up a little bit every day. If you stake HEX, you are entitled to a proportion of the water in that bucket when you end your stake.

What is End Staking?

End Staking When A Stake is Mature

Let’s say you stake some HEX for 1,000 days. Once your staking period has expired, we refer to your stake as being “mature.” If you end your stake once it is mature, you will incur no penalties, which is great.

To end a stake on time, go to the front end and click the end stake button. At the moment your stake has “matured” you have a 14-day grace period when you can properly end your stake without penalty. Note that you will need to pay a gas fee for end staking, which increases in direct proportion to the amount of days you have staked for, as well as the gwei cost. A longer stake will generally attract a higher end stake gas fee (but it will also attract a higher yield than a short stake, all things being equal).

Early Unstaking

The HEX contract does, however, enable stakers to end their stakes early. We refer to this as “Emergency End Staking” or “Early Unstaking” or “EES.” As the name suggests, this is an emergency procedure that you can activate before the committed time has elapsed. 

As a general guide, please note that if you unstake prior to 50% of the committed days being served (or a minimum of 90 days, whichever is more), then you will incur an end stake penalty. The penalty is often quite sever and could even be such that you could lose most or even all of your principal, as well as all payouts. You could lose all of your HEX and receive nothing in return at all! We strongly encourage all stakers never to EES. For more information on this and details of how the penalty is calculated, please see the HEX layman’s guide: https://hexicans.info/documentation/contract-guide/#Staking

Late Unstaking

The HEX contract wants you to end your stake on time, i.e., when it matures. However, it offers participants a grace period of 14 days without incurring penalty. After 14 days fromr the end stake date, the staker’s return will be reduced 0.143% per day (or 1% per week) until the stake is properly ended or the stake bleeds out completely. After 100 weeks, the stake will have bled out to 0 and the staker would have lost all his principle plus any bonuses that were accrued. 

What is Good Accounting?

A stake can only be properly ended in the normal way by the staker him/herself. When s/he ends their stake, the contract pays out the principle HEX plus all the accrued bonus HEX. Upon end staking, the contract actually re-mints all the HEX (principle and bonuses); however, there are instances where an individual ay want to postpone their minting of these bonuses for Tax reasons/implications. This can be done by using an alternative to the normal end staking called Good Accounting.

Good Accounting merely ends the stake and removes all the “SHARES” from the stakes pool; however, it does not re-mint HEX. At this point, the stake no longer receives any more daily payouts, but equally, it does not experience the 1%/week bleed. Once the individual is ready, s/he can run the end stake function against the Good Accounted stake and receive their HEX plus HEX bonus payouts. At this point, all the HEX is re-minted and provided to the individual. 

Please note that Good Accounting does require an ETH gas fee to be paid. You should also bear in mind that you would need to pay an additional gas fee later to “end” the stake properly. So, you should carefully calculate whether running this function is in your best interests.

Why Should I use the Good Accounting Function?

Firstly, as the name suggests, there is a potential accountancy reason for this function. It is important to note that Good Accounting does not mint any HEX. This might be important because in some jurisdictions the minting of coins may be subject to taxation. By running Good Accounting, you are arguably deferring that minting until a subsequent tax date or taxation year.

You should only use the Good Accounting function for this purpose if you have a very good reason to do so, and if you have been appropriately advised about your tax situation by a registered professional adviser.

But there’s a second reason for the Good Accounting function. Anyone can run the function in relation to matured stakes. Therefore, if the stake owner can’t get hold of his keys in time, he could have a friend run it for him, or he could do it himself from another account, so as to stop the 1% bleed out. He can then look for his keys, or wait until he’s ready to end stake, and avoid penalties.

The third and final use of Good Accounting is as a way of collecting late end stake penalties from expired stakes. As mentioned above, Good Accounting pulls the “SHARES” from the stake pool. It effectively releases the bleed-out penalties that attach to that stake as a bonus. 50% of this penalty bonus is allocated to the Original Address (“O.A.”) and 50% goes to the stake pool. This means that when you run Good Accounting on a penalised stake, you would actually increase the daily payout for that day to all current stakers. So, as a staker, you would want other people to accrue some penalties from late end staking and then to either end their stake or run Good Accounting. However, since Good Accounting entails paying a gas fee, this play is only likely to be worthwhile if you are a shark or whale and you have a stake that is approaching maturity.  We do not recommend it for the average user.

Nothing in this article or website is financial or taxation advice. For advice on these matters, please contact a registered professional adviser.

Nothing in this article or website is financial or taxation advice. For advice on these matters, please contact a registered professional adviser.

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