A staker deposits USDC into Sherlock's staking pool for a fixed term (6 months, 12 months etc.) and receives a market-leading APY in exchange for the risk of funds being used (up to 50%) to pay out a bug bounty submission or exploit at a covered protocol.

The APY for a staker is made up of 2 streams:

  1. Premiums from protocol customers

  2. Incentive rewards paid in SHER (Sherlock’s governance token)

In return for these streams, a staker’s funds are at risk of being partially liquidated (up to 50%) if a covered bug bounty payout or exploit payout occurs at a protocol covered by Sherlock (or possibly a protocol that the covered protocol depends on). Despite the risk, stakers are incentivized to stake because:

  1. They are paid a substantial APY for the risk

  2. They see the quality and incentive alignment of the audit process

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