Matic will be allocating 12% of its total supply of 10 billion tokens to fund the staking rewards. This is to ensure that the network is seeded well enough until transaction fees gain traction. These rewards are primarily meant to jump-start the network. While the protocol, in the long run, is intended to sustain itself on the basis of transaction fees.
Validator Rewards = Staking Rewards + Transaction Fees
This is allocated in a way to ensure gradual decoupling of staking rewards from being the dominant component of the validator rewards.
Below is a sample snapshot of the expected annual rewards for the first 5 years considering staked supply ranging from 5% to 40% at 5% interval
Who all can avail this?
Stakers running validator nodes and stakers delegating their tokens toward a validator that they prefer. Validators will have an option to charge a commission on the reward earned by delegators.
It is important to note that funds belonging to all stakers will be locked in a contract deployed on the Ethereum main-chain. Also, no validator holds custody over the delegator’s tokens.
Staking Rewards
The first year reward at around 312 million Matic tokens is to be considered absolute which means irrespective of the overall stake in the network, the said amount will be given out as a reward to stakers in chunks at every checkpoint. There are two ways to distribute this reward; a simpler one would be to give it in entirety to the proposer. However, a fairer one would be to share it among all signers. This solves various purposes, incentivizing signers for their validation work, not giving reasons to delegators to bond their tokens with a large validator, disbursing rewards at short intervals to all participants of the network.
What we need before settling on our reward sharing mechanism is to simulate how different options function, here so because of interoperation between the two chains. Wanting to keep all funds secured on the main-chain, making claiming rewards easy for all, considering its transaction cost and so on.
Why are we distributing the reward in entirety and not keeping a cap on the maximum rewards?
Let’s first understand the additional cost of committing checkpoints on the main-chain. There are different ways to approach this. Depending on a validator’s ratio in the overall stake, is its probability to be the proposer and commit checkpoints. Let’s say, its 5% for some validator at a given point in time. Along with the following assumptions:
- Checkpoint interval is 15 minutes which makes 2928 checkpoints monthly
- Gas needed per checkpoint at the higher end to be around 1,500,000
- Eth at $300 and the average gas price at 30 Gwei, cost of committing checkpoints for this validator with 5% probability of becoming proposer is around $1,976.40
Depending on all these external factors, one may even be able to proportionate the checkpoint cost value from the reward. Someone else might invest in Eth in advance to be used to commit checkpoints and thereby making the reward even more profitable in the longer run.
The incentive scheme is designed to make sure that running a validator as a service on Layer 2 is profitable irrespective of the total amount staked or a number of validators in the network or individual’s proposer probability.
Transaction Fees
Each block producer at the BOR layer (the block producer layer) will be given a certain percentage of the transaction fees collected in each block. The selection of producers for any given span is also dependent on the individual’s ratio in the overall stake. The remaining of the transaction fees flows through the same funnel as do incentives which get shared among all validators working at the Heimdall layer. What exact percentage of transaction fees will be shared with every block producer will be decided at a later point in time taking into consideration the overall statistics of a live network. Until then, the bundle flows through the same funnel disbursing everything collected among all validators.
The validator has an option to charge a commission percentage from its pool’s reward earning. The remaining will be shared among all stakers proportional to their stake in that pool. The following can be considered while deciding its commission percentage.
- As they are also responsible for committing the checkpoint transaction on the main-chain, a certain portion from the reward could be factored into the cut percentage. Though, this would vary from one validator to another depending on their approach to take care of checkpoint transactions.
- A certain percentage might be charged from delegations in exchange for one’s node running service.