Initia is a network for interwoven rollups bringing rise to a new multi-chain world.
With the architecture and product stacks evolved and released already, the next piece of the puzzle is the economic frameworks that tie the various actors within the system together.
But why do economic systems matter?
A quick preface
Let’s briefly take a peek at 2 multi-chain worlds: Ethereum and Cosmos.
The Cosmos Hub, or ATOM, originally had the vision of being at the core of every Cosmos chain by being a security provider through ICS (Interchain Security) as well as being the canonical chain to route liquidity within the greater Cosmos ecosystem. However as the ecosystem expanded, the hub proved to provide little to no benefit to other Cosmos chains. With a lack of smart contracts on the chain, users and liquidity flew to chains like Osmosis, Neutron, Terra and assets were never routed through the Hub creating pair-wise IBC problems — but that’s a conversation for another time. Given the Hub’s lack of stewarding, ATOM was never thoroughly pushed into the applications across the rest of Cosmos. In fact, it ironically made the ecosystem more fragmented than before.
We don’t want to be like ATOM.
Now let’s take a look at Ethereum. Many many many L2s, although most are relatively boring EVM L2s with the same ecosystems and slight changes on their tech, all using ETH as the core asset. Despite having L2 tokens, each L2 uses ETH for gas fees and you often find lending markets and DEXs have ETH as the standard quote asset or the collateral with the deepest liquidity.
ETH became the default “money” of its multi-chain world.
We want to be like ETH. (Note: The token not the L2s xD).
This hardness of money is a major factor of why ETH accrues value.
A whole lotta blockspace.
Initia is in the business of building blockspace; we have literally near infinite blockspace as a system for creating fully customizable, flexible, and interwoven Layer 2s that supports any VM. Moreover, as DA costs asymptotically approach 0, we find ourselves in a world where gas fees and INIT token burns are likely insignificant to truly drive value.
Instead of obsessing on the supply side, we should shift focus towards shifting the demand curve to the right. That is to say, accrue value to the ecosystem by creating real utility and use cases. See ETH.
Our goal is then to create a framework that incentivizes INIT to become the underlying asset that unites various domains and applications within Initia’s multi-chain world. Drive INIT into the hands of as many people in the ecosystem as possible, nudge it into becoming the denominating asset across all L2s, and use it in a +EV way that helps Minitias win. In this way, we can create use-cases for INIT across every L2 and create supply sinks for the token itself.
What does alignment really mean?
In a system with thousands of interwoven rollups, it’s crucial to align the incentives of all participants. We want all the ducks walking in the same rough direction.
There’s 3 types of alignment on Initia.
- Architectural Alignment
- Each Minitia has the CosmosSDK underneath providing a shared thread of underlying infrastructure for communication
- Minitias use the Initia L1 as an orchestration layer for liquidity, security, and asset fungibility
2. Product Alignment
- The end user UI/UX across Minitias share components like how users connect to wallets or move around Minitias
- Initia organizes, controls, and abstracts away the complexities of modularity
3. Economic Alignment
- Create dominated convergence
- Give all ecosystem actors a reason to care about and integrate the INIT token
The Initia Vested Interest Program (VIP)
Initia VIP was designed to utilize Initia’s L1 architecture and native token, INIT, in order to tighten economic alignment and solve the principal-agent problem that arise between the users, developers, and L2s.
VIP programmatically parameterizes the distribution of INIT to create economic alignment that encourages all actors within the ecosystem to care about the success of INIT. VIP ensures that L2 economic activity accrues value to agents across Omnitia, applications and developers are incentivized to integrate the token and remain long-term aligned with the success of INIT, and lastly it allows L2s to amplify activity and maintain engagement.
VIP structurally changes the way the network of interwoven rollups expands. It creates a direct incentive for Minitias to care about growing the collective pie, integrate the token within their application, and care about the success of the L1 that provides direct economic support to L2s.
This is in stark contrast to the multi-chain systems of both Cosmos and Ethereum, where chains must fight alone.
So how does VIP work?
*numbers subject to change
At network genesis 10% of the INIT supply is set aside and allocated to VIP. These rewards will be distributed over several years, similar to staking rewards.
Part One: The Allocation
Every 2 weeks, a portion of VIP rewards is distributed to eligible Minitias and their users. These rewards are split into 2 buckets: the Balance Pool and the Weight Pool based on an L1 governance set ratio.
The Balance Pool: This pool of rewards aims to encourage Minitias to create use cases for the INIT token within their app-chains. This pool is allocated to Minitias proportionally to the amount of INIT tokens on each chain.
The Weight Pool: This pool of rewards is allocated to Minitias based on their weight set through an L1 gauge vote — similar to that of Curve, Convex, and others.
To confirm, the amount of rewards allocated to a given Minitia each epoch is based on 2 factors:
- The amount of INIT balances held on a Minitia determining its share of the Balance Pool
- A Minitias reward weight W determining its share of the Weight Pool
To determine the reward weight W of each Minitia, a Gauge Vote is conducted every 2 weeks on the Initia L1. During the voting period, L1 stakers may split up their voting power and assign weights to each Minitia as they see fit. The final weight given to each Minitia determines its share of this epochs Weight Pool rewards.
It’s important to note that validators may not vote on behalf of delegates in VIP Gauge Votes, ensuring that validators themselves may not be bribed to redirect their governance power.
However, protocols may be put in place to offer rewards directly to individual stakers that vote for a given in Minitia, similar to Votium and Hidden Hand.
We now have a Minitias epoch rewards calculated as the sum of its share of the Weight Pool and its share of the Balance Pool.
Part Two: The Distribution
The rewards allocated to a Minitia are distributed as quite the unique token: esINIT or Escrowed INIT.
esINIT is distributed to Minitia Operators and Users.
Operator Rewards
Operator rewards are simply a commission taken from the Minitias total epoch rewards. Operator’s may set a commission rate, similar to how validators set a commission rate on staking rewards.
Operator rewards enable teams to have a unique non-native token revenue stream that can be used to:
- fund themselves
- distributed back to users
- staked on the L1 and used in future Gauge Votes and Governance
Operator esINIT rewards are vested linearly over 26 bi-weekly epochs.
User Rewards
User esINIT is distributed directly to each user of a Minitia based on a VIP scoring system. This VIP Score is calculated based on one or many KPIs a Minitia wishes to incentivize. These KPIs can be any on-chain trackable feature such as:
- Number of transactions made during the epoch on the Minitia;
- Volume on a Perpetuals Minitia;
- Value of assets borrowed on a Lending market Minitia;
- Mints of an NFT;
- A combination of many
Many ecosystem grant programs often are subjectively determined and are distributed directly to teams. There have been plenty of cases where these grants never get back to users but rather are kept by teams or in a projects treasury. Distributing esINIT directly to users ensures this cannot happen and rather pushes teams to collect fees or sustainable revenue on the usage of their apps while using VIP to kickstart said usage.
Using an on-chain KPI system to calculate VIP Scores allows Minitias to distribute esINIT and incentivize the actions they find most meaningful.
Part Three: The Unlocking
User esINIT is non-transferable and must be unlocked into regular INIT before it can be used for other means.
User esINIT can be unlocked in 2 ways:
- Maintaining your VIP Score over multiple epochs;
- Zapping into a Locked Staked Enshrined Liquidity Position.
Let’s break these two options down.
- Maintaining a VIP Score over epochs
Users may unlock a portion of their esINIT rewards by simply maintaining their engagement and VIP Score with Minitias over time. This creates a long-form retention system for Minitias where they can continually encourage the actions they deem useful. As users maintain their engagement they unlock a portion of their rewards, and each epoch they earn more esINIT rewards. (omg a flywheel?)
More specifically, the esINIT rewards a user receives in epoch t can be unlocked over the following 26 bi-weekly epochs. In each epoch t+1 to t+26, a user may unlock 1/26th of the esINIT rewards allocated to them in epoch t if they maintain a percentage of the VIP Score they received in epoch t. If a user receives a lower VIP Score than the threshold in a given future epoch, they will simply unlock the proportional amount of rewards. The percentage of the score they need to maintain is a governance-decided parameter.
Let’s run a simple example. Say we have a Minitia that calculates its VIP Score based on trading volume. and that the percentage of the score that they need to maintain is 0.5.
Epoch t = 1
I, Jennie, trade a whole bunch and receive a VIP Score of 1000 and am distributed 100 esINIT in epoch 1.
Thus, for future epochs, I need to maintain a minimum score of 1000*0.5 = 500
Epoch t = 2
I, Jennie, keep trading a whole bunch more and receive a VIP Score of 2000 and am distributed 200 esINIT in epoch 2.
Since I maintained more than 500 minimum Score from epoch 1, I fully vest 1/26th of the esINIT I received in epoch 1, as in 1/26 * 100 esINIT = 3.84 INIT.
To fully vest my esINIT from epoch 2, I need to maintain a score of 2000*0.5=1000 for future epochs
Epoch t = 3
I, Jennie, keep trading a whole bunch more and receive a VIP Score of 1500 and am distributed 200 esINIT in epoch 3.
For this epoch, I:
- maintained more than 500 minimum Score from epoch 1
- maintained more than 1000 minimum Score from epoch 2
Thus, I vest 1/26 * 100 esINIT from epoch 1 + 1/26 * 200 esINIT from epoch 2 = 11.538 INIT.
To fully vest my esINIT from epoch 3, I need to maintain a score of 1500*0.5 = 750 for future epochs.
Epoch t = 4
I, Jennie, touch some grass this epoch so I only trade enough to receive a score of 700 and am distributed 100 esINIT in epoch 4.
For this epoch, I
- maintained more than 500 minimum Score from epoch 1
- failed to maintain more than 1000 minimum Score from epoch 2
- failed to maintain more than 750 minimum Score from epoc 3
Thus, I vest 1/26 * 100 esINIT from epoch 1 + 700/1000 * 1/26 * 200 esINIT * 1/2 from epoch 2 + 700/750 * 1/26 * 200 esINIT from epoch 3 = 13.71 INIT.
To fully vest my esINIT from epoch 3, I need to maintain a score of 700*0.5 = 350 for future epochs.
And so on.
2. Zapping into a Locked Staked Enshrined Liquidity Position
Maintaining engagement with a Minitia might not make sense for everyone. Perhaps I earned a boatload of esINIT trading on a perpetuals platform but realized I keep losing money while trading?
VIP allows users to immediately convert their esINIT into a 26 epoch locked, staked Enshrined Liquidity position on the Initia L1. A user can do this by providing the other side of the Staked LP pair. For example, a user could lock their esINIT into a Staked INIT:ETH LP position with Initia’s L1 validators by providing the ETH required to create the position.
By zapping, users receive both native staking rewards and swap fees for committing liquidity to Enshrined Liquidity and do not let their esINIT tokens go to waste.
Learn more about Enshrined Liquidity by clicking here.
Initia wins when Minitias win.
VIP does a few things particularly well.
Firstly, it creates a strong reason for all actors whether that be L1 users or L2 teams to care about L1 Governance and to ensure they have stake in the system. This should lead to heightened engagement and a larger amount of assets staked in Enshrined Liquidity. Further, for L1 stakers, their vote in bi-weekly Gauge Votes could turn into revenue and VIP ensures new INIT use cases are created that soft-lock tokens across L2 applications.
For L2 teams, VIP induces a monetization model for simply building kickass applications. It also creates a long form retention mechanism and on-chain programmatic grant system that distributes INIT. L2 users receive incidental incentives for simply using an application they would normally use!
VIP creates a virtuous cycle of momentum: incentivization → increased usage → increased incentivization….
Initia VIP is an entirely new multi-chain economic framework that will drive value to INIT holders by ensuring use cases are built for INIT across L2s, there’s collective growth and economic alignment of L2s with the L1, and emphasizing that INIT possesses the hardness of money, serving as the foundational asset for the network of interwoven rollups.
To read the full, in-depth, equations-inclusive docs of Initia VIP, click here.
