AIP 12: Increase Ideal Staking Ratio to 75%

Governance V1 Avail Improvement Proposal (AIP)
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Authors: Jackson Lewis, Tanisha Katara

Description: This AIP proposes increasing the ideal staking ratio from 50% to 75% to align with network scaling, ensure sustainable APY, and strengthen network security.

Technical Summary

This AIP proposes raising the ideal_stake parameter in Avail’s inflation model from 50% to 75%. The ideal_stake defines the staking rate at which the network achieves an optimal balance between security and liquidity. Increasing this parameter ensures sustainable APY for nominators and validators, reflects the network’s maturity, and supports the scaling of staking participation through the Foundation Delegation Program.

This adjustment has been tested on Turing and will be implemented via a runtime upgrade.

Motivation

At genesis, the ideal_stake parameter was set at 50% to encourage early staking participation by offering high APY to nominators and validators. Over time, the network has scaled significantly, with an increasing amount of tokens staked due to organic growth and the Foundation Delegation Program.

If the ideal staking ratio remains at 50%, the inflation model will lead to abrupt APY drops as staking rates exceed the ideal threshold, potentially discouraging participation. Increasing the ideal_stake to 75% aligns with the network’s growth and ensures the long-term sustainability of staking incentives.

Technical Specification

The ideal_stake parameter directly influences Avail’s inflation dynamics and staking incentives:

  1. Staking Rate (x):

    (StakedSupply) / (TotalSupply)

    The staking rate determines the inflation rate (I_NPoS) and the yearly interest rate (i(x)).

  2. Inflation Dynamics:

    • Below χ_ideal: Inflation increases linearly with x, incentivizing more staking.

    • At χ_ideal: Inflation achieves its maximum value:

      INPoS=χideal∗iidealI_NPoS = χ_ideal * i_idealINPoS=χideal∗iideal

    • Above χ_ideal: Inflation decreases exponentially to discourage over-staking.

  3. Proposed Update:

    • Current χ_ideal = 0.50 (50%)
    • Proposed χ_ideal = 0.75 (75%)

  4. Testing:

    This change has been tested on Turing, validating its effectiveness and compatibility with network parameters.

Rationale and Reasoning

The decision to increase the ideal staking ratio (χ_ideal) to 75% is driven by the following considerations:

  1. Network Scaling and Ecosystem Maturity:

    The total stake has grown significantly due to organic participation and the Foundation Delegation Program. A higher χ_ideal aligns with this natural growth and avoids excessive APY dilution for stakers. A higher χ_ideal reflects the network’s evolution from incentivizing early participants to ensuring long-term stability for all stakeholders.

  2. Sustainable APY:

    While increasing χ_ideal may result in a marginal decrease in individual APY, it ensures a smoother and more sustainable APY curve as the network matures. Without this adjustment, APY would drop abruptly when the staking rate exceeds the current ideal ratio (50%).

Backwards Compatibility

This proposal does not introduce any backwards incompatibilities. The change to the ideal_stake parameter is applied via a runtime upgrade and does not affect the consensus mechanism or validator operations. The network will continue to function as intended, with no disruptions for participants.

Security Considerations or Risks

The runtime upgrade process ensures the change is applied uniformly across the network, introducing no security vulnerabilities. Testing on Turing has validated the safety and effectiveness of this adjustment. The increase in staking participation will further enhance network security.

Copyright Waiver

Copyright and related rights waived via CC0.

10 Likes
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Looks good to me, gang!

We’ve had similar issues over the years with the Polkadot network, and over time these sorts of adjustments are necessary to foster the best possible solution for all ecosystem participants, whether individual stakers such as myself or validator operators such as our company, GlobalStake.

Kudos to the team for their foresight in this matter. If you’d like me / us to create any content to share on social media to make others aware of this necessary and timely change, please do not hesitate to ask!

Best,

Ryan / Phunky

2 Likes
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Thanks for the feedback Phunky!

Always welcome to put something on socials if you’d like, we’d love to amplify!

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Hey, I have several questions:

  1. What are the specific reasons to believe that the staking ratio will increase from 15% to over 50%, as reported by Subscan? What key factors or mechanisms are expected to drive this 3x growth in staking participation?

  2. A similar proposal was implemented on Polkadot last year, but in that case, the staking ratio was several pp close to the ideal ratio. However, after it led to a shift toward a fixed inflation model, entirely abandoning the complex non-linear dependency between staking ratio, APR, and treasury inflows. Has the Avail team explored adopting a similar fixed inflation approach? What are the pros and cons of such a model in Avail’s context?

  3. Why is Avail’s proposal still being approached in a centralized manner rather than leveraging on-chain governance (giving substrate framework and governance palette) and trackable voting, which are now standard practices in many protocols? What are the challenges preventing the implementation of decentralized governance mechanisms?

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Thanks for your comments Aleks!

  1. We have had many applications to the Foundation Nomination Program, we are now bumping additions to the nomination program at 10 per time (roughly ten per week) so there will be sufficient stake entering network.

  2. Avail has fixed inflation of 5%.
    AVAIL - Avail Developer Docs
    I am not familair with these changes in polkadot, would need references to comment further.

  3. We have phased decentralised governance clearly outlined here.
    Progressive decentralization is the norm, as we are only a matter of months out from mainnet launch, its a gradual process. The community / network is not yet at a stage where we can actively decentralize all operations.
    We are of course committed to decentralization and will continue to work towards it as the network matures.

4 Likes
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in support of this proposal, with more validators joining active set this can be crucial for avail’s success.