Vega Staking Rewards & Inflation
Staking rewards on Vega are paid to all validators and to users who have delegated stake. There are changes coming to these rewards. #FreeTheMarkets
TL;DR
- Implementation of the emissions curve that reduces VEGA token rewards for staking to the proof of stake network has been delayed to support validators and stakers while they receive no fee revenue from trading due to the extended Restricted Mainnet phase.
- Further delays would put the network on an unsustainable footing and divert tokens from other uses such as trading rewards, so VEGA staking rewards will gradually reduce starting on 16th November 2022.
Update 12th April 2023
- We have reviewed the staking rewards schedule presented in this blog against the current progress towards trading and concluded an amendment is needed
- To allow sufficient time for growth and a rise in fee revenue before the reward curve begins to decline more sharply, the “Growth” phase will now be delayed until the 12th of June
- The graph below and the phase descriptions have been updated to reflect this change
Update 9th August 2023
- Updated graph and phase descriptions to reflect a further flattening of the decay curve to allow more time for infra-fee revenues to grow.
Background
The VEGA protocol rewards participants providing valuable services to the network in two key ways: from fees generated by the protocol (i.e. for trading and transfers), and from newly minted VEGA (inflation).
Since launch, most or all of these rewards have come from issuing VEGA at a rate that would not be sustainable for the long term, in order to provide a fair reward for early participants and to help bootstrap the network. An emission curve is defined for VEGA used for this purpose that reduces this issuance over time. Once the trading alpha is live, fee revenue will begin to take over from issuance as the primary source of rewards for validators, stakers, and other participants.
Up to now, the project team has modified the emission curve to maintain the initial reward level through the extended development timeline that has delayed the start of trading on the network.
What is changing?
This delay will soon come to an end, and the curve will begin to reduce the PoS rewards from 16th November 2022. VEGA emissions will reduce gradually from this date as described at the end of this post.
Why is it changing now?
This is happening now to prepare the network for the launch of trading and ensure the protocol’s economics are sustainable and optimised for supporting the launch and growth of the network in the long term.
VEGA is an ERC20 token with a built-in unbreakable “mint lock” that limits the supply of the token to 64,999,723 prior to the 1st of January 2024. This limit protects token holders and the overall economic stability of the network by placing an upper limit on issuance, but in doing so constrains the number of tokens that can be minted to provide inflationary rewards and requires the unissued tokens to be allocated carefully. This is a good thing. It forces us to be honest and disciplined as a project and protects the long-term viability of the protocol’s incentive mechanisms.
As a result of this, any additional issuance for validation comes at the expense of fewer tokens remaining for other purposes, such as rewarding early participants playing other important roles in the network. We are approaching the limit beyond which further delays to the emissions curve would potentially have a serious negative impact on the launch of trading and Vega’s probability of success.
Therefore, there will be no further delays to the emissions curve and VEGA minting for PoS rewards will begin to reduce from 16th November 2022.
What does the new curve look like?
Rather than simply apply the previous curve to a lower total of unissued tokens, the team have reworked the entire emissions curve taking into account the longer period of higher rewards, changes in overall market conditions and valuations, the latest launch plans, and updated modelling of rewards and VEGA inflation.
This is shown in the graph above and occurs in four phases:
- Alignment. VEGA staking rewards reduce to 57% of the current level by the 7th of December 2022 to put inflation on a path to sustainability and avoid a cliff-edge drop on the 16th November.
- Launch. Rewards are stabilised at this new level and drop slowly during early alpha mainnet, when fees paid to stakers are still expected to be too low to form the bulk of rewards. Overall staking rewards drop to 34% of today’s levels by 12th June 2023 (updated 12th April).
- Growth. After a small acceleration, the decay factor is stabilised again at 0.25% to provide a longer runway for fees to overtake VEGA inflation as the primary source of staking rewards.
- Long term. A low level of inflationary rewards remains to ensure token distribution tends towards active and useful participants in the network.
Note that this curve will be reviewed as the phases progress and may be adjusted if needed to ensure continuity of rewards, maintain a sustainable overall issuance curve, and adjust to changing community expectations and needs.
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About Vega Protocol
Vega is Web3’s native derivatives layer. The community is creating the building blocks for a new financial system. One that puts control of the markets, the products, and the fees in the community’s hands. Vega is a decentralised network that will support the creation of derivatives markets for a variety of crypto assets. #FreeTheMarkets
