It’s time to take a more strategic and thoughtful approach to allocating rewards between our two user groups: nICP holders and WTN stakers. Initially, the plan was to use all the ICP raised through SNS swaps to bootstrap yields for nICP, making it attractive to early stakers. While this made sense as a starting point, we need to reassess this approach in the context of our long-term scaling goals and the optimal use of incentives.
When we first designed the model, our focus was primarily on how to bootstrap nICP yields. However, we didn’t fully consider what the ideal size of WaterNeuron should be for the health and sustainability of the broader network.
Additionally, concerns have been raised about WaterNeuron’s growing voting power, which could pose a risk to the decentralization of the NNS. Community feedback suggests that no single group, including WaterNeuron, should control more than 10% of total NNS voting power. This aligns with decentralization standards outlined in research (e.g., ETH Zurich report on decentralized governance) and helps prevent ICP from falling into the same category as projects like Compound or Uniswap, where power is overly concentrated.
Considering the 8y neuron with 1M ICP staked (long-term goal after the 3 SNS swaps), it would require 40M ICP staked in the 6m neuron to reach 10% of the voting power on the NNS. To address this, we propose dynamically adjusting the share of 8-year neuron rewards distributed to nICP holders, ensuring WaterNeuron’s voting power remains within safe bounds. We aim to economically disincentivize WaterNeuron from surpassing this threshold. One effective way to achieve this is through a diminishing returns model, which can be naturally implemented using sublinear scaling.
Considered constants:
- TVLmin = 2m ICP
- TVLmax = 40m ICP
- Cmin = 0.1
- Cmax = 1
The impact on the nICP yield is described below:
