The current yearly inflation for the Astar ecosystem is set to 10% at a block production of 12 seconds. 10% is in best case scenario. At the moment, inflation is divided in static proportions.
- 10% of this goes to collators
- 40% to the treasury
- 50% to dapps staking (divided between Stakers and dApps)
With the current scheme, we saw its flaws and pain points.
First, the staking interest needs to be positive after adding total inflation into the equation. The APR of the users can’t drop below the inflation of the chain.
Secondly, the staking interest needs to be attractive in order to get more stakers, in order to get more usage of our dApp staking mechanism.
The third pain point is that since rewards for stakers are fixed, the more people stake, the fewer rewards everyone gets since the same pot is distributed between more stakers.
As a fourth pain point, we saw that the dApps rewards are limited - a higher number of dApps means each dApp gets lower rewards.
Last, on this list, the treasury receives too much and the active set of collators receives too much.
There is no silver bullet solution to our problem but it can be addressed.
The main idea is to have a part of inflation that is dynamically distributed between stakers or treasury. The higher the dapps staking TVL is, the more of this dynamic part we allocate towards stakers instead of the treasury. This eliminates the zero-sum-game problem we have with the legacy system.
To summarize - the more stakers stake, the more we allocate towards staker rewards! This is true up to a certain degree after which the rewards will become saturated.
The rewards for treasury and collators will be decreased, in favor of stakers. For now, dapps will receive a fixed portion of the inflation. This will be addressed and improved in the future.
For easier understanding, here is the list of variables and constants used in the model.
The following graph illustrates the proposed scenario. Please consult the above description of parameters to better understand what each line and value represents.
Feel free to play around in the graph to see how it works:
It is very important to note that aiming for a high TVL at which staker inflation saturates will result in a very low-interest rate (which is unacceptable). We cannot achieve APR comparable to e.g. Polkadot or Kusama because we have inflation components like dApps staking and minimal treasury inflation. They on the other hand can allocate entire inflation towards rewards.
However, by carefully choosing parameters, we can achieve a fairly attractive APR while also providing dApps with rewards. In order to provide some deflationary force, we should keep the 80% fee burn concept. The remaining 20% will go towards the treasury instead of collators. But this depends on how we decide to tweak treasury and collator inflation.
Interesting document: https://research.web3.foundation/en/latest/polkadot/overview/2-token-economics.html