Exchange Rate

Exchange Rate of milkTIA and TIA

In the MilkyWay protocol, it is important to maintain an accurate milkTIA: TIA exchange rate. Exchange rate is based on the following formula:

$$ExchangeRate = \frac {Total NativeToken + TotalRewards} {TotalLiquidStakedToken}$$

TotalNativeToken = Staked TIA + accrued staking rewards. TotalLiquidStakedToken = milkTIA minted

It will initially start at a 1:1 ratio and will be dynamically updated based on the accrued staking rewards. To understand how this works, let’s consider an example:

Alice is MilkyWay’s first user and she stakes 100 TIA, she then receives 100 milkTIA in return.

$$ExchangeRate = \frac {100} {100} = 1.0$$

Let’s assume that time has passed and 10 rewards were accrued. Now, the new exchange rate would be:

$$ExchangeRate = \frac {100} {100+10} = 0.91$$

If Alice decides to withdraw her TIA, she receives 110 TIA for 100 milkTIA based on the new exchange rate.

Please note that this is an illustrative example of how the exchange rate works and did not account for the validator’s commission and the MilkyWay DAO fee.