stkATOM and stkXPRT Reward Rate Adjustment Proposal

Dear pSTAKE-supporters,

This is a draft proposal gathering feedback for adjusting the reward rate for stkATOM and stkXPRT to align with the current staking rewards of the Cosmos Hub and the Persistence Core-1 chain respectively. Once receiving sufficient feedback from the community, a proposal will be created on the pSTAKE Snapshot space requesting PSTAKE token holders to vote on the proposal.

Context and Background

The pSTAKE Protocol follows a ‘set reward rate’ mechanism. This set reward rate determines how many pASSETs (reward tokens) are issued to the holders of stkASSETs. For example, if 100.000 stkASSETs are in circulation, and the reward rate is 10%, then 10.000 pASSETs would be minted and distributed to the stkASSETs holders over the course of one year. In the back-end, these pASSETs are backed by -and exchangeable by- the real rewards that the protocol earns from the network on-chain based on the network staking rewards, after taking into account the validator commissions. The spread between the amount of issued pASSETS, and the ASSETs that are actually earned determines the protocol fee. As of now (28th April, 2022), the reward for staking ATOM and XPRT via pSTAKE are 12% and 32% respectively, while the on-chain rewards are 15.9% and 29.66% respectively.

Ideally, the ‘set reward rate’ is set in a way that the staking rewards (ASSETs) generated on chain are higher than the issued pASSETs, otherwise the protocol would become insolvent. Since the launch of the protocol, the rates have been set taking into account the average validator commissions of the pSTAKE safelisted validator set, and the on-chain staking rewards, leaving a small margin to ensure protocol revenue. Since the commission of validators, as well as on-chain staking rewards is prone to fluctuation, the protocol has to review the set reward rates from time to time.

Proposed Reward Rate Adjustments

Based on the latest actuals (28th April, 2022), the pSTAKE team proposes to adjust the protocol’s set rewards rate in order to

  1. Ensure the users get the best possible rewards and
  2. Ensure continued sustainability and growth of the protocol

The proposed changes are as follows:

  1. For stkATOM: increase the reward rate from 12.02% to 13.5%
  2. For stkXPRT: reduce the reward rate from 32.02% to 27.31%

The main drivers behind this proposed change are:

  1. For stkATOM, the staking rewards of the Cosmos Hub have increased due to a reduction in the staking ratio of the Hub
  2. For stkXPRT, the staking rewards of the Persistence Chain have decreased due to an increase in the staking ratio of the Persistence Chain. To absorb this decrease in staking rewards for our stakers, the protocol forgoes its margin, which would hereby be set at 0% if the proposal passes.

Detailed calculations regarding this reward rate adjustment can be found here.

We request the community to provide their feedback on this draft proposal which is expected to go live for voting on the pSTAKE Snapshot space by 2nd May 2022.

Update: Taking community feedback into account, the newly proposed parameter for Reward Rate for stkXPRT is now 24.63% (9.05% fees charged by pSTAKE protocol which is the same as stkATOM fees charged by pSTAKE). The calculation sheet above has also been updated to the new numbers.

2 Likes

My question here is why should pSTAKE not charge any fees on staking XPRT? In my opinion, this is something that does not add value to PSTAKE token holders. As a PSTAKE token holder who isn’t staking XPRT with the app (as I am sure there would be many more such people), it doesn’t add any value to me or the application. And if I am understanding the problem accurately, if the staking rewards on XPRT drop again, the reward rate would again have to be updated to keep the protocol solvent. This is not ideal and leads to unnecessary proposals in the future to again reduce the reward rate.

My counter-proposal would be to have pSTAKE charge the same percentage of fees as that charged on ATOM staking (9.05% as per the sheet shared above). This would help keep the protocol solvent even if the staking rewards on XPRT reduce further. I am open to discuss more on this but this makes more sense to me rather than giving a huge discount to XPRT stakers and not adding value for PSTAKE token holders.

Yes, I agree with you. If protocol forges it’s margin and some major fluctuations happens it’s gonna create problems again.
If ATOM Stakers pay fees, it’ll be fair enough for XPRT Stakers also to pay the fees despite of the staking rewards dropping or not.
Maybe in this way the protocol would be solvent for betterment of all it’s users.

I think, it really makes sense and we should go ahead with it

Hey there,

Thanks for this feedback and what you are proposing makes a lot of sense. We have discussed this internally within the team and we are in alignment with the proposed feedback to charge a 9.05% protocol staking fee to ensure the long-term sustainability of the protocol while minimizing the frequency of governance-related back and forth to keep adjusting the Reward Rate.

The post will be updated shortly taking this feedback into account.

Have been following you guys since starting and i think this is a very good step considering the market fluctuations.

PS: Waiting for more chains to be integrated on pstake