Blog: Hxro Staking and Liquidity Incentives Pt 1. 15/2/2022
This week, the Network will begin sharing its plans for v1 network staking and liquidity incentives. A considerable amount of thought has been given to the critical elements of Network economics. These elements are as vital to the success of the Network as the protocol technology itself.
Posts will be released on this topic in a 3-part series. Today’s post gives an overview of Hxro’s staking contract and its general attributes. Part 2 will discuss liquidity incentives and Part 3 will discuss how staking and incentives work together to create a robust token ecosystem in which active participants will accrue Network value.
(Please note: The staking contract is complete and is currently undergoing testing on Solana Devnet. Mainnet staking will launch when Hxro Network trading protocols are live on mainnet.)
Staking Overview and General Attributes
In order to create the optimal alignment between the Network and its participants, a symbiotic relationship must exist between the value the network creates and its token. In a token-based ecosystem, a strong and scalable foundation contains a mechanism whereby token holders who are willing to stake their tokens to the network accrue a share of network transaction value. In Hxro, staking rewards will initially be derived from network transaction fees.
As discussed in previous posts, 100% of network economic value (transaction fees generated by the Network) will accrue back to staked tokens and to other participants within the network who are providing critical functions, including:
- Network Treasury;
- Insurance Fund;
- Liquidity Pool Providers, and;
- Volatility (THEO) and Probability (SAMM) Surface Providers
At the outset, staked tokens will receive a pro-rata share of 50% of all network transaction fees. Fees will derive from transactions made within the network on all parimutuel, perpetual and expiring futures, and options markets. As mentioned above, the remaining 50% will be split between network treasury, insurance fund, LP rewards (for THEO and SAMM AMM pools) and THEO and SAMM Surface Provider rewards. Weightings for the remaining 50% have not yet been finalized.
Token Locking, Stake Weight, Rewards and Governance
Network staking requires a user to lock their tokens in the Hxro staking contract. Tokens can be locked at intervals between a minimum of 7 days (1 week) and a maximum of 1095 days (156 weeks or 3 years). The Network recognizes that there is a large disparity in the minimum and maximum staking periods. While all stakers will be rewarded for their participation in the staking protocol, the Network will give greater stake weight (via a stake weight multiplier) to wallets that are willing to lock tokens in the network for a longer term.
This is for two reasons:
- 1.Long-term staking carries much greater market and network value risk (since tokens are locked and cannot be unlocked) and therefore should be compensated for this risk;
- 2.The Network encourages long-term staking for wallets who are willing to align with and participate in the long-term objectives of the Network with more stake weight.
In exchange for longer term staking commitments, the Network rewards staking in two ways:
Stake Weight Multiplier
First, the staking contract includes a stake weight multiplier. This will apply on a linear scale to all staked tokens that lock for greater than 1 year (1.x multiplier) out to the maximum staking period of 3 years (3x multiplier). An example of the effect of these multipliers can be shown below:
Could not load image
The simple example above shows the effect longer lock periods have on staking, governance weight and rewards. (Please note: This is not financial advice. This table is making assumptions on token price and Reward Pool values strictly for informational purposes. Values may not accurately reflect current or future value).
Secondly, an inverse relationship exists between the amount of time a wallet locks its staked tokens and the time a wallet’s earned rewards will be unlocked and claimable. Rewards are paid in the denomination in which they are received by the Network. This will be USDC for derivatives and either HXRO or USDC for parimutuel markets. It is important to note that Locked Rewards are non-transferrable. If tokens are staked for the minimum period of 7 days (1 week), earned rewards will become claimable by the wallet in 365 days (1 year) from the date they were earned. Conversely, if the tokens are staked for the max period of 3 years, earned rewards will become claimable on the day they are received. A linear scale for reward locking will apply based on the number of days a wallet chooses to lock its staked HXRO tokens.
Linear scaling for Hxro Network Rewards unlock
These are just the basic economics of HXRO’s staking v1. Obviously there are many other inputs that will determine the overall success and robustness of this model. Furthermore, Network liquidity incentives will play a major role in how wallets can grow their stakes through active participation in various Network functions. This will be discussed in our next post.