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