Lately I’ve been considering various factors that contribute to the sustainability of the supply of $ICP - one of which is staking, and in turn the yield correlated to it.
The current APY Scale can be found below;
6 Months - 8.9%
1 Year - 9.4%
2 Years - 10.5%
3 Years - 11.5%
4 Years - 12.6%
5 Years - 13.6%
6 Years - 14.7%
7 Years - 15.7%
8 Years - 16.7%
Information provided can be cross referenced at:
This depicts that 6 Month Neurons are incentivized at 53% of the rate of 8 Year Neurons (8.9%/16.7%), while having the staking obligation of 6.25% of an 8 Year Neuron (6 months/96 months).
Additionally, a pattern that can be noticed within the staking reward scale, is that each additional year of staked time, results in about a 1% increase in rewards - however, the base layer of rewards, is 8.9% for only a 6 month timeframe.
This raises the question: should short term staking incentivization be reduced to create a more even playing field in correlation to long term staking?
I think providing committed, long term stakeholders a larger maturity distribution is probably warranted (even if it means reducing short term rewards). I did not hold this opinion the last few years; but, I don’t think we’re going to be attracting a bunch of retail anytime soon. It’s probably better to make sure we support the current community. Just my $.02 on the matter.
Pretty much from Genesis, 8 year stakers have been suggesting that their already disproportionately large rewards ought to get even more disproportionately large. I think Kyle Langham made an elaborate proposal along these lines back in 2021 or early 2022.
The entire tokenomics of long-term staking is built on a fallacious premise. Squeezing liquidity only results in easy market manipulation by whales and a loss of reputation based on that manipulation. Considering ICP faced exactly such manipulation at Genesis, I’m shocked people haven’t learned the lesson. ICP will rise rationally if network usage grows to a sufficient level, that is the only metric that matters for the price long-term. The rest is just stuff dreamed up by cryptographers who do not understand economics or markets.
I’ll take the heat for that one too since we were coauthors. That proposal served its purpose, which was to stimulate conversation about whether the tokenomics parameters were optimized to attract genesis neurons to increase their dissolve delay instead of dissolving. The discussion was actually very civilized back then and in the end we didn’t pursue the proposal based on community feedback. The proposal we submitted was actually to table (US version meaning to delay or set aside) the proposal. It passed, which means the community didn’t want changes at the time. I’m interested in seeing how this discussion develops today. I don’t think I would vote for it today simply because the 8YG can now greatly outvote the <4YG. Back then the genesis neurons had the vote advantage and could have stopped the proposal if they felt it wasn’t in their best interest.
How have you come to the conclusion an 8 Year neuron APY disproportionate in comparison to a 6 month neuron APY?
This article has depicted the exact opposite, showcasing 6 month neuron’s receive 53% of the reward rate at 6.25% of the risk. If anything, 6 month neuron rewards are largely disproportionate in comparison to 8 year stakes, with 16x less risk while still receiving half rewards.
It’s obvious that rewards are disproportionate for anyone with a working set of eyeballs and a brain.
Anyone who staked for 8 years has other reasons to do so - like forced hold (up to the point where IDgeek launched), potential for future SNS airdrops or other future NNS benefits.
The trajectory of rewards was crystal clear at Genesis. As for new stakers potentially finding 16.7% compounded too paltry, is that kind of interest is being handed out liberally in other sectors?
I thought the whole point do this was that we can change and do better. Based on the amount of holder I see around us what we are doing now isn’t working.
I went back to the article we shared when this idea was first raised in Nov 2021 to look at data back then. At the time, the 8YG was earning 30.3% APY and the 6MG was earning 16.5% APY. This was roughly the same ratio as today (6MG APY / 8YG APY = 54%). At the time, these were projected returns assuming all voting power in the NNS voted on all proposals. The Governance proposal topic was still included in All Topics at the time, so this data applied to all neurons due to genesis default following.
This 6MG / 8YG APY ratio will hold true indefinitely as long as the max dissolve delay bonus is 2x and the max age bonus is 1.25x.
It’s also not possible to set parameters where this APY ratio is equal to the dissolve delay ratio (6 mo / 8 yr = 6.25%). The dissolve delay bonus converges to infinity for this to work out, which of course is not realistic. There will always be an apparent disconnect between APY ratio and risk that is characterized by dissolve delay ratio. The parameters we chose to present at the time were max dissolve delay bonus of 8x and max age bonus of 2x, which we calculated would result in 43.9% APY for 8YG and 7.8% APY for 6MG, which is a 6MG APY / 8YG APY ratio of 17.7%.
Anyway, let me know if you think this data is not germane to the discussion and I will be happy to edit so it doesn’t create confusion.
We can argue about what the data means all day but in the end the reality is there is less and less stakers and holders every day.
I personally think staking should be fixed in opposite direction. We should just get rid of 8 year gang all together and move everyone to a max of 4 years.
Staking rewards should be lowered all around and min lock up should be a month.
The long term stakers mainly don’t sell their rewards, but rather restake them (as ICP or even directly as maturity). The short term ones are the « less » invested/involved ones in the protocol and by consequence don’t hesitate to sell a maximum of rewards.
Of course, I don’t condemn the will of selling, but basically (and one could say « caricaturally ») : the more rewards the short term stakers get, the more there is a selling pressure, and the more rewards the long term stakers get, the more icp are not even minted (because staked as maturity). For example, I personally did never sell any reward.
So the question is : « what kind of behavior do we wan’t to incentivize between staking and selling ? » Or to say it differently : « how much selling pressure do we want, (as we want some selling pressure because none selling pressure would be problematic of course) ? »
In a way, the long term stakers are like « burners » of ICP through their rewards, the short term stakers are rather minters. So, is the ratio burn/mint satisfying in the DAO’s opinion, and if not, what rhythm would be preferable and why ? (It worth noting that in some context, selling pressure would be preferable to staking, to increase the money’s velocity. If everybody indefinitely stake, we would face some struggling. It is just a question of context. I say this to tell that the question is not just about absolutely promoting staking rather than selling, since I could sound as a promoter of « everybody has to stake every icp forever »).
If less selling pressure is wanted, a possibility is : reduce the APY of the short term stakers to reach another 6MG APY / 8YG APY ratio. But maybe the ratio we currently have is already the best one to have for now.
Is the difference really 16x the risk? On the surface it seems that way but if ICP crashes and dies then there’s not much difference between a 4 year lock and an 8 year lock. Either way you’re most likely not going to get out in time. Hell, even a 6 month lock might not. Tokens have gone -99% in less than a week. Things are a lot more complex than a simple linear increase in “risk.” Therefore I don’t think it’s appropriate to use only linear time in your analysis. What other metrics could one include to get a more accurate picture of whether the reward is fair?
