ICON’s Reward rate (r_rep), Global Commission rate (i_rep) , Inflation — The 3 key ICON Token economics concepts
There is a special attraction at the end, especially for the 90’s kids 😉 😉 😉
We’ll be honest- it took us a while to get our heads around the 3 key concepts of the ICON token economics and how they interlink to influence growth. This is our attempt to make it simple (it is NOT!) to you lot. Tell us what you think.
The Reward Rate (r_rep)
In simple terms, this is what determines how much $ICX will each staked (and voted) $ICX earn you in the form of ‘rewards’ at an annual rate, the r_rep.
How does this work?
Superman (our favourite super hero obviously!) bought 100 $ICX tokens last week. He read up on our resources and realised the best thing to do now is to stake all 100 tokens. Why though! He figured the staked tokens can earn him ‘rewards’ in form of more $ICX and therefore he will be making a gain. He then tries to figure out how much can he potentially gain in rewards from staking the 100 tokens. Here it goes-
The %age of potential gain is fully dependent on the amount of $ICX tokens staked overall against the total number of $ICX in supply. The minimum being 6%, so Superman would at least make a gain of 6% (in number of $ICX) each year unless he decides to unstake the 100 tokens.
With our Math professor hat on, this is what it could look like-
Assume there are 10,000 $ICX tokens in total supply just now, of which Superman has 100. Out of the 10,000 tokens, 2,000 are staked overall including Superman’s tokens. Therefore our beloved hero is eligible for a yearly reward of 21.3% (21.3 $ICX tokens). These 21.3 tokens will be freshly minted and added to the circulation.
21.3% is determined by the graph below, which is the guideline based on ICON’s Governance Model.
As with the laws of economics for everything else, the intrinsic value of tokens (NOT dollar value) in the ICON ecosystem depends on demand and supply and thus has direct connection to Inflation. This is discussed later in this article.
The Global Commission Rate (i_rep)
This is our favourite and you will soon know why.
i_rep (Global Commission Rate) is the determinant figure based on which eventually incentives are derived, that P-Reps like us receive as a reward for contributing in various ways to the ICON ecosystem, depending on the number of votes received. There are various conditions that need to be fulfilled for us to be eligible for P-REP rewards, the key one being the rank (should be within the top 100 as prescribed by the ICON foundation/ICON Governance).
Let’s have 2 P-Reps for our example. Who better than Thor and Loki!?!
Thor ranks at number 11 on the P-Rep list whilst Loki is number 50. Both are therefore eligible for earning $ICX tokens on a daily basis against all the efforts they have been putting in to make the ICON network stronger. However, the rate at which both are rewarded is different. Let’s see why and how.
In this example, Thor is considered a Main P-Rep as he ranks significantly higher within the top 22 bracket. This means Thor has more votes than Loki and has more decision making abilities. He is also a legit validator node, therefore more responsibilities in general. One of Thor’s superpowers includes him being able to determine the %age of the rewards that the top 100 P-Reps should receive, he does this in conjunction with the other top 21 P-Reps and the figure is essentially the average (of i_rep values submitted by each of the 22 Main P-Reps). Loki in this instance can only provide his views as a guidance but cannot impact it directly.
Let’s assume the top 22 P-Reps have come up with an average of 20,000 towards i_rep.
In Loki’s (a Sub P-Rep as ranked outside the top 22) case, he will earn rewards proportionate to 20,000 (i_rep), irrespective of his proposed rate. It is important to note that Loki can always propose a lower rate than what the top 22 P Reps have agreed, in an attempt to influence the top 22 so the inflation is lowered. We will talk about Inflation in our next segment.
Now, coming to the rewards for P-Reps and how the i_rep influences this, Thor and Loki will both be eligible as both are in the top 100 list, however Thor will have some extra privileges (he wins in the end, as always ☺ ) with some extra responsibility.
Here’s how it works (Maths prof hat back on!)-
Say, i_rep stands at 20,000 (as determined by Thor and his other friends in the top 22 list). Thor along with his other top 21 friends will individually earn an additional monthly $ICX amount (leveraging his power of being in the top 22 list!) compared to Loki, which is equivalent to i_rep/2 (let’s call this B1 : The additional amount of $ICX rewards each Main P-REPS gets for being in the top 22 rank), which is 10,000 $ICX. The other half of i_rep is then used to proportion the $ICX rewards in the ratio of the percentage of votes received by the top 100 P-Reps, let’s call this B2 (The amount of $ICX rewards each of the Main P-REPS and Sub P-REPS gets against each 1% votes they receive, for being in the top 100 rank). In this example, rewards will be calculated as -
Inflation - Bringing it all together
So finally, let’s talk about the elephant in the room. Inflation refers to the rate at which new $ICX is minted each year, which may impact its intrinsic value. New $ICX is minted each year to cater to the reward system in place for both voters and P-Reps, thus affecting the rate of inflation. In our examples above, our superheroes are all receiving rewards and this shows the various components impacting inflation for $ICX- this is IISS 2.0. Let’s look at an example and crunch some numbers.
AND Remember… (for the 90’s kids 😇 😇 😇)
The ICON ECOSYSTEM has given five magic rings to five special elements:
$ICX , P-REPS, ICON FOUNDATION, ICON NETWORK and VOTERS.
With the five powers combined we summon earth’s greatest champion — CAPTAIN ICON! 😃 😃 😃
Hope you liked it !! 😄 😄 😄
That’s all folks!
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