LP Staking Reward Pool

Implementation

Design Phase

Our staking mechanism is currently in the design phase. We share our current thinking here to solicit feedback from the community but want to clarify that the final design may look different.

This document describes a dynamic reward pool designed to:

1. Provide higher rewards during the early stages of ecosystem growth (to encourage adoption).
2. Gradually increase fees as more participants enter and the reward pool diminishes, mitigating risks of centralization over time.

In early stages, we believe it’s beneficial to incentivize adoption with generous rewards. However, as more users join and the pool of rewards shrinks, unchecked generosity could lead to unsustainable centralization and rapid depletion of resources. By implementing a fee structure that evolves over time, we can:

• Attract early adopters with initially lower fees (hence relatively higher net rewards).
• Gradually introduce stronger deterrents against large concentration of holdings.
• Conserve the reward pool by increasing fees as it diminishes, ensuring long-term ecosystem health and fairness.

Variables and Definitions

• Total rDFA Minted ($T$):
  The total supply of rDFA tokens currently minted.

• User’s rDFA Holdings Percentage ($P$):
  The percentage of total rDFA supply owned by a given user:

  $P = \frac{\text{User's rDFA Holdings}}{T}$

• DFA Tokens Left in Reward Pool ($R$):
  The remaining supply of DFA tokens in the reward pool.

• Time/Adoption Factor ($t$):
  Represents the stage of ecosystem development. This can be a function of elapsed time, total minted tokens, or number of participants. Early phases ($t \approx t_0$) represent bootstrapping; later phases represent maturity.

Incentive Function

$$F(P, T, R, t) = \max\left(\biggl[\alpha(t) \cdot \biggl(\frac{P}{T}\biggr)^{\gamma} + \beta(t) \cdot \biggl(\frac{1}{R}\biggr)^{\delta}\biggr] \times \theta(t), F_{\text{min}}\right)$$

Parameters

• $\alpha(t)$: Weighting factor for the proportion of total rDFA owned, potentially increasing over time.
• $\beta(t)$: Weighting factor for the reward pool scarcity. Starts lower and increases as the ecosystem matures.
• $\gamma$: Exponent for penalizing large holders. Initially close to 1 for mild penalties, increasing over time for stronger disincentives.
• $\delta$: Exponent for emphasizing scarcity of the reward pool.
• $\theta(t)$: "Phase Factor" that scales fees over time. Starts less than 1 to encourage early adoption and approaches or exceeds 1 as the ecosystem matures.
• $F_{\text{min}}$: Minimum base fee ensuring contributions even in favorable conditions.

Example Parameter Dynamics

Phase	$\alpha(t)$	$\beta(t)$	$\gamma$	$\delta$	$\theta(t)$
Early (Bootstrapping)	0.005	0.01	≈ 1	1.5 (fixed)	0.8 (20% fee reduction)
Later (Maturity)	≈ 0.02	≈ 0.05	> 1 (e.g., 2)	1.5 (fixed)	approaches 1 or higher

Process Flow