According to the AURORA token economy, it was decided to allocate 30M AURORA tokens to be distributed to NEAR ecosystem in a form of a farming rewards to the ones who are delegating NEAR tokens to Aurora validator. At the moment the code for the new version of the validator that allows such mechanics is close to be finalised, so it’s worth discussing the setup parameters.
The validator has three parameters, one of which is uncontrollable, while other two are controllable by the owner of the validator.
NEAR burn. This parameter is describing the percentage of the mined NEAR, which would be
The parameter is specified at the moment when the validator factory (not the instance of the validator) is deployed. Important mechanics is that NEAR Foundation needs to approve the factory contract; only after that the locked NEAR can be staked with the validator. Having an ability to use locked NEAR is crucial for the success of the validator, since a lot of investors and NEAR team members have their NEAR tokens in a locked condition.
It is expected that the NEAR burn would be 30%.
Validator fee. This is the cut that a validator would take from the staking rewards. This parameter is specified by the party that deploys the instance of the validator.
It is expected that the Aurora DAO would be the deploying party.
- Farm parameters, namely the amount of tokens that would be distributed to the delegators and the duration of the farming period. This parameter, again, is specified by the validator deploying party.
Initial considerations on the above parameters were described high-level in the token economy proposal: 10% NEAR burn, 20% validator fees and 30M AURORA over the period of the next 3 years (10M AURORA per year). Taking into account the expected change in the NEAR burn rate and having more information on the fair market value of NEAR and AURORA tokens, there is a need to reconsider the parameters of the validator.
The main value that would be important for the delegator is APY on his investment. Normally, the higher is the APY, the higher is incentive to delegate with Aurora validator. There are other cases why delegators will or will not delegate with Aurora validator, but we are not taking these into consideration here.
Another important piece to count for is the expenditures on the Rainbow Bridge maintenance and the transactions on Aurora (which currently are free). There is no way how to make a good projection for these taking into account the ever-changing landscape of the crypto prices and fees, however the rough estimation is: the bridge fees would take 250 ETH and around 800k NEAR for Aurora transaction fees.
Interestingly, with some setups of the validator, it is possible to keep the transaction fees on Aurora zero, maintain the high APY for the Aurora validator delegators and have a non-negative balance sheet.
The prices of the tokens that were taken for the calculations are the following: AURORA $21.95; NEAR $14.7, ETH $3800. Attached to the post is the Excel spreadsheet where one can tune the parameters and simulate different scenarios.
Validator parameters estimation.xlsx (16.8 KB)
- To set up the validator fee to 100%.
- Set up the farm of 5M AURORA tokens for a length of 1 year.
- As expected, the validator fees depend only on the validator cut and the total amount of staked NEAR. The first parameter linearly increases the fees.
- With a big farm size, NEAR rewards are contributing pretty weakly in the total APY. Even for a 5M Aurora farm with 30M NEAR staked the difference in the APY is the following: 5% fee – 32.2% APY; 100% - 24.9%. The lower is the total staked amount, the lower is the the influence.
So it’s not that important for the user APY what is the validator cut. The important piece is the size of the farm.
- 5M AURORA farm with 100% validator fee capable of covering the all costs of the Aurora project maintenance with 12.5M NEAR staked, which seems pretty achievable, especially with almost 60% APY for this setup. If users will stake more, the APY would drop; however up to 70M NEAR staked, users would get higher APY than conventional NEAR staking.
- There’s always an option to add additional farms (and increase user APY) when the user incentives are not working as expected. That’s why it’s worth sticking to low-time low-amount option in the beginning and see how the ecosystem would evolve.
- In case Aurora validator would be net positive even after paying for the transaction fees and Rainbow Bridge, the excess funds can be used for other purposes, like additional audits, user insurance, etc. Alternatively, the validator fee can be decreased over time.
Validator parameters estimation.xlsx (16.8 KB)