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| − | == Staking & Voting Rewards ==
| + | This page’s content is now available here https://internetcomputer.org/docs/current/tokenomics/nns/nns-staking-voting-rewards |
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| − | Stakeholders can earn significant returns on their staked ICP tokens in
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| − | the form of voting rewards. The Internet Computer is a decentralized
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| − | platform whose evolution is decided by the voting power of its
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| − | stakeholders. This scheme ensures that those making decisions impacting
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| − | the future of the Internet Computer are personally vested in the
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| − | outcome. In return the Internet Computer gives out voting rewards.
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| − | Voters can vote actively, or they can use the liquid democracy on the
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| − | Internet Computer to automatically follow other voters.
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| − | | |
| − | == Key Concepts ==
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| − | | |
| − | === Neurons ===
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| − | In order to become vested and obtain voting power, ICP tokens must first
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| − | be staked, and then locked up for a length of time greater than 6
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| − | months, to at most 8 years.
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| − | | |
| − | Just as tokens are held in a user's account, stake is held in a special
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| − | account called a "neuron". Each neuron has its own identifier, and
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| − | several attributes relating to its stake. These include:
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| − | * the length of time it is locked for (the "dissolve delay");
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| − | * whether it is currently dissolving toward liquidity;
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| − | * and how much reward it has accrued as a result of voting on proposals (the "maturity").
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| − | Once a neuron is locked for more than six months, it gains the ability
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| − | both to submit proposals and to vote on them. Voting in turn generates
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| − | voting rewards, based on how active a neuron is in voting on proposals.
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| − | If you vote on every open proposal, you gain the maximum reward.
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| − | A neuron can also "follow" ather neurons, which causes it to
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| − | automatically vote the same as the majority ofr the neuron that it
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| − | follows. All new neurons by default follow neuron 27 held by the ICA, so
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| − | any newly staked neuron will generate voting rewards as soon as it is
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| − | locked for more than six months. The default following is applied to
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| − | most proposal topics, except for proposals with topic Governance, where
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| − | neuron holders have to explicitly vote to earn rewards.
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| − | | |
| − | === Voting Power ===
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| − | The voting power of a locked neuron is determined by several factors:
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| − | * Principally, by its stake. 1 ICP = the power of 1 vote.
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| − | * Next, by its lock up duration, or dissolve delay. 6 months grants a 1.06x voting power bonus, and 8 years grants 2x. All other durations scale linearly between.
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| − | * Lastly, by its age, or length of time spent locked up without dissolving. 4 years grants a 1.25x bonus, multiplicative with any other bonuses. All other durations between 0 seconds and 4 years scale linearly between.
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| − | This means that the maximum voting power, of 2.5 votes per ICP staked,
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| − | is only achievable by locking up your neuron for 8 years, and leaving it
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| − | in that locked up state for 4 years. At that time you will have the most
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| − | voting power for the stake committed.
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| − | | |
| − | === Maturity ===
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| − | Maturity represents the voting rewards accumulated in a neuron. Each day
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| − | the network rewards participants by allocating to every voting neuron a
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| − | portion of the total reward, based both on its voting power at the time
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| − | proposals were made, and the number of proposals it voted on.
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| − | Some look at maturity as similar to a "dividend" or "interest", but
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| − | please note that your tax authority may take a different view on the
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| − | subject. Please consult the appropriate professionals before deciding on
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| − | an interpretation of when maturity becomes income.
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| − | For those who wish to compound the gains in their neuron, the most
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| − | natural activity is to "merge maturity" at intervals, which has the
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| − | effect of minting the neuron's maturity and adding that minted amount
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| − | back into the neuron's stake. If you wish to harvest income from the
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| − | neuron, you would "spawn" maturity into a reward neuron, which mints the
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| − | parent neuron's, and moves this maturity into the stake of a new neuron.
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| − | It should be noted that if you do neither, and leave those gains in the
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| − | form of maturity, it will not add to the minted total of ICP, nor
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| − | contribute to your voting power.
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| − | | |
| − | == Why Staking Matters ==
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| − | To some, staking is seen as an income generator, a way to perform "yield
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| − | farming" by locking up ICP and enjoying the benefits of the accrued
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| − | maturity. However, staking is not intended solely as an income vehicle.
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| − | It is a way of allowing those who invest in the Internet Computer to
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| − | decide what happens next with the platform.
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| − | When the Internet Computer first launched, all proposals required a
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| − | majority vote to pass. Gradually, however, this is changing. After a
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| − | recent update it is now possible for proposals to pass with only a
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| − | majority among 3% of the total voting power, meaning that proposals
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| − | stand a chance even if large entities abstain and the majority of the
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| − | network does not vote.
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| − | | |
| − | == Staking Rewards ==
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| − | Even if you stake only for the purpose of voting on proposals, NNS
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| − | rewards are an important aspect of a voting neuron. At the very least,
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| − | such returns can be compounded to increase your total voting power. So
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| − | to better understand staking and reward, it may be helpful to look at
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| − | staking from two perspectives:
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| − | === Short-term: NNS rewards each day ===
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| − | Every day, rewards are granted by the network to each voting neuron. The
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| − | percentage of those rewards received by each neuron depend on the
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| − | following factors:
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| − | * Amount of ICP staked
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| − | * Length of dissolve delay
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| − | * "Age" of the neuron (time spent in a non-dissolving state)
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| − | * Number of eligible proposals the neuron has voted on
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| − | For example, if on a single day the NNS has generated 1000 ICP in total
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| − | rewards (see below for more on how this is computed), and there were 10
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| − | proposals submitted which only two neurons voted on, and:
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| − | * Neuron A has a voting power of 20, and voted on all 10 proposals
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| − | * Neuron B has a voting power of 80, and voted on all 10 proposals
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| − | Then the 1000 ICP would be divided between these two neurons by their
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| − | proportional voting power:
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| − | * Neuron A with voting power of 20, gets 20% of the total = 200 ICP
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| − | * Neuron B with voting power of 80, gets 80% of the total = 800 ICP
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| − | If either Neuron had only voted for X% of those 10 proposals, it's
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| − | reward would be decreased to X% of its maximum eligibility, with the
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| − | remainder distributed among the other neurons.
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| − | | |
| − | === Long-term: NNS rewards over years ===
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| − | As of December 2021, here is the long-term NNS rewards curve: https://dashboard.internetcomputer.org/circulation
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| − | In the first year, the NNS allocates 10% of the total supply to generate
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| − | NNS Rewards. Note the term "allocates" rather than "mints", because
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| − | rewards are not minted until they are spawn, merged or the neuron is
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| − | disbursed, so total supply is not automatically increased by rewards
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| − | alone. This allocation rate drops linearly until it reaches 5% by year
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| − | 8. Like all parameters in the NNS, the minting rate can be changed via
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| − | NNS proposals, but this is the current rate schedule.
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| − | Because the total supply of ICP is a dynamic system with deflation and
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| − | inflation, it is impossible to predict what NNS Rewards will be on any
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| − | given day or year in the future. It is relatively easy to predict what
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| − | the percentage allocation rate will be months from now, but it is much
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| − | harder to predict what the total supply will be both because of
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| − | potential changes to the rate, and how often stakeholders will mint
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| − | their maturity.
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| − | | |
| − | === Inflationary and Deflationary Mechanisms ===
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| − | Deflationary mechanisms for ICP:
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| − | * Minting cycles to pay for compute and storage burns ICP to create cycles
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| − | * Burning of transaction fees
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| − | * Burning of the 1 ICP deposit for failed proposals; note that this only happens at disbursement or merging of neurons, so accumulated fees can persist for a while before finally contributing to deflation.
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| − | Inflationary mechanisms for ICP:
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| − | * Node providers are paid by minting ICP
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| − | * NNS Rewards are paid by minting ICP, although this minting only happens at the moment rewards are spawned, maturity is merged, or the neuron is disbursed.
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| − | | |
| − | === Network Factors Affecting Annual Percentage Yield ===
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| − | When considering potential Annual Percentage Yield (APY) for ICP staked
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| − | in a voting neuron, in addition to the primary factors of the dissolve
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| − | delay, neuron age, and amount of stake, there are also network factors
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| − | that can affect potential yield. Chief among them are:
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| − | * The amount of supply allocated each year to pay rewards;
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| − | * The total voting power across all neurons, since rewards are divided equally among neurons according to their voting power;
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| − | * Inflationary and deflationary pressures: primarily, minting to pay node providers and spawn rewards, burning to fuel canister cycles, and the other factors mentioned in the previous section.
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| − | These factors can affect future returns significantly. Firstly, the
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| − | amount of supply began at 10% at genesis, but will fall to 5% after the
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| − | first eight years. Secondly, as staking becomes more common and there
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| − | are better user interfaces to do it, there will naturally be more
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| − | competition. If no one else were staking, returns would be astronomical;
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| − | but if nearly everyone is staking, returns will be lower.
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| − | Economics are always at play, however. If staking is very popular, it
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| − | means the amount of liquid supply would reduce, which would drive up
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| − | demand and hence prices. So although returns would drop significantly,
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| − | price appreciation should offset the loss in income. Conversely, if most
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| − | people dissolve their neurons to trade on the open market, price would
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| − | likely drop while returns increase. It is reasonable to assume that over
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| − | time an equilibrium will be established, where rates and prices
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| − | fluctuate in sympathy based on the macro factors driving demand for ICP
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| − | tokens.
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