Multichain goes DeFi

A very simple, yet complex, staking algorithm

This post is a continuation of our latest announcement, in which various important dates were unveiled. Here we will explore the user requirements to establish a staked balance in the upcoming staking protocol, the reward structure, and will delve into the mechanics of the algorithm that is used to compute distributions.

First…a Minor Update

The Multichain Ventures team has agreed to a request by Probit to accommodate a one-day delay in our listing date to recognize a Korean national holiday. All exchanges will be delayed as a result to coordinate launch times.

New Listing Date: August 18, 2020

Staking Smart Contract

Upon launch of staking, the funds allocated to the reward pool will be locked in a waves-ride smart contract for the duration of the program, which will last two years. The smart contract and wallet address will both be made publicly available for transparency.

Staking Activation

September 14, 2020, midnight UTC, marks the inception of the staking rewards deFi system, ~4 weeks following our launch date across exchanges. From that date forward, wallet balances will become automatically eligible for stake pool rewards.

Staking within the Multichain Ventures ecosystem is simple. Tokes holders simply need to maintain their balance in non-custodial, off-exchange wallets. The Waves.Exchange DEX is not included in the blacklist, as it also serves as a local wallet. In fact, any decentralized exchange listing TKS will remain eligible, as the users maintain their own private keys.

And that’s it!

The Reward Pool

Reward Pool: 100,000,000 TKS

Proportion of Total Supply: 10%

Distribution Schedule: 4,166,667 TKS per month for 24 months

Staking rewards will be distributed proportional to a participant’s eligible balance, relative to total eligible circulating supply. Circulating supply is computed based on all wallet addresses with a balance, less exchange wallets holding tokes in custody and all balances held in the Multichain treasury (blacklisted addresses).

Initial circulating supply is approximately 20% of total supply. Please refer to our Tokenomics paper for a specific breakdown of Treasury wallets following exchange launches.

Understanding the Algorithm

While enabling staking is easy for participants, the underlying algorithm has a moderate degree of complexity, incorporating governance and fairness into the distribution process, which is worth exploring. As the tokes network exists in a state of early adoption, the objectives are to ensure early participants are rewarded for assisting with the growth of the network, but also to ensure that future adopters maintain an opportunity to participate in this program.

The tools utilized to accomplish our objectives include:

1. Rolling 90 day vesting windows
2. Average balance computation
3. A cap on the return rate on a balance
4. A dual pool system for base distributions and carry-over balances to be used in future distributions
5. Carry over pool triggers

Rolling Vesting and Average Balance

The initial vesting period consists of a 90 day window, beginning September 14th, 2020. Following the first 90 day epoch, a staking distribution will occur, with each subsequent distribution occurring every 30 days. However, the periodic distributions will continue to be based on a trailing average balance computed by determining daily balance of each address over the previous 90 days.

For example:

If we consider every 30 days to be a mini-epoch, then the first distribution occurs at the end of mini-epoch 3, and consists of an average balance from mini-epochs 1, 2, and 3. Moving toward the second distribution, at the end of mini-epoch 4, the computation will factor an average balance for mini-epochs 2, 3, and 4. This is computed for every eligible address containing a balance of TKS.

The total potential individual proportional distribution follows a X=(N/90) formula, with ’N’ being the total number of days out of a possible 90 that a user maintained a balance.

This process will smooth out distributions to those participants engaged in long-term network staking. An outcome of this method is that participants will continue to receive staking distributions up to 90 days following the official end of staking, as those trailing balances roll forward. Additionally, it is possible to continue receiving distributions after spending a balance from a wallet, though the total proportional share will be reduced by number of days, ’N’, that a participant no longer had a balance.

Staking Rate Cap

To protect the sustainability of the program and encourage future staking, wallet balances will be limited to a total 1.7038% return per mini-epoch (30 days) from the “base” rewards pool— more on this in the following section.

After factoring compounding, the end result of the program is a potential 50% increase in a balance staked, assuming no movement of underlying assets for the duration of the program. However, the possibility of receiving less than the 1.7038% cap also exists.

Analyzing the math, we can determine that 4,166,666.67 (mini-epoch reward) divided by the 1.7038% return cap results in a value of ~244,551,395 TKS. This equation implies that the maximum number of tokes staked before the 1.7038% cap will naturally be hit by all wallets collectively is equivalent to ~244.5M TKS. Beyond this amount, an individual’s balance is unlikely to reach the 1.7038% cap. In other words, as more users stake their tokens, the effective return rate on each unit declines naturally. For this reason, it is beneficial to stake coins early to maximize early returns.

However, it will also be possible to earn greater than the 1.7038% cap rate in future epochs, as the staking pool grows over time. This dynamic exists as a result of the final feature for discussion today, our Carry Over Balance pool.

Dual Pools and Carry Over Balance Triggers

While the rate cap prevents any one user from receiving a disproportionately large share of the 4,166,666.67 TKS each mini-epoch, the dual pool system allows for the capture of that value in later periods, after the staking network sees heightened adoption and wider distribution — again, with the intent of fairly distributing the staking rewards.

In each period that the entirety of the 4,166,666.67 TKS balance is not distributed in rewards, due to all users hitting the 1.7038% rate cap, the balance of those rewards flows into a secondary pool, which we call a “carry over balance pool.” The units in this secondary pool accumulate until various metrics related to network adoption are hit.

We utilize two separate triggers to determine eligibility of carry over balance distributions:

1. Staking Absolute Threshold: 160,000,000 TKS

2. Staking Percentage Threshold: 40%

The first trigger indicates that in any given period, 160,000,00 TKS must be staked across to the network before a carry over pool distribution can occur. The second trigger states that 40% of eligible tokes must be staked. Both triggers must execute during any mini-epoch to trigger the carry over balancer pool distribution in that period. Additionally, these are not one-time triggers. They are assessed in every period for validation. They can result in both on or off for any period.

The carry over pool distribution is weighted such that a greater proportion of the total balance is distributed as we approach completion of the program, and a smaller proportion distributed earlier in the program — maintaining the theme of providing opportunity to those who are later to staking.

The specific formula we use for carry over distribution amount determination is: 1 / (24 - priorMiniEpochCount)

In period 2, this results in: 1/(24 - 1) = 1/23 = 4.3478%

Subsequent Periods:

• 1/22
• 1/21
• 1/20
• …
• 1/1
• /end

So, if both triggers were met during period 2, 4.3378% of the carry over balance from period 1, if any, would be distributed as a bonus to all stakers in period 2, proportional to their share of the network. In the final staking period, 100% of remaining tokens in the carry over pool will be distributed alongside the final mini-epoch base pool distribution.

All these numbers can get confusing without a visual example. Several tests using our staking protocol have been conducted with various waves-based test tokens, and utilized the following spreadsheet to determine accuracy of the protocol. I am proud to declare that every one of our tests resulted in 100% accuracy in delivery of rewards. Users might also find it helpful to review the test scenario document that was prepared:

[Public] Tokes Staking Scenario Testing: Balance Validation

Closing

It closing, it is my hope that those following our progress at Multichain will find this information useful in determining how best to participate in our ecosystem. I am excited about the introduction of our first deFi product to the crypto space, and look forward to delivering more innovative features in the future.