The vote on staking rewards on Fantom has concluded. On October 5, the Fantom community signaled a majority agreement to set the staking APR to 6% and to extend the duration of staking rewards emissions to 4.7 years.
Why adjust staking rewards?
Prior to the vote, staking rewards yielded a 13% yearly return. This was far above the market rate, calculated in terms of the average staking returns of the top ten protocols. But more importantly, at a rate of 13%, the maximum supply of tokens would have been reached in just 2 years.
The new staking rewards rate of 6% aligns with peer Layer-1s and ensures sustainability for the next 4.7 years. The new rate went live shortly after the vote.
Why is extending staking emissions important?
Lowering staking rewards effectively lowers the emission rate of the network. As suggested, this lengthens the runway for the current circulating supply to reach maximum supply to 4.7 years.
This extra time leaves room for many things to happen on the network.
First, as data amply illustrates, Fantom is attracting more users. As broad crypto adoption becomes a reality, the Foundation’s goal is to accelerate the growth that we already observe ‒ more users on the network translate into more transactions and transaction fees paid to validators.
Put simply, lengthening the runway before token emissions cease gives the network and the industry at large valuable time to mature and further grow.
Second, adjusting staking rewards allows network actors to explore diverse revenue streams. The Foundation will work with validators to explore alternative possibilities for income, like providing price feeds and offering decentralized services.
Finally, and perhaps most importantly, the upcoming Fantom Virtual Machine (FVM) deployment, coupled with ongoing node and network upgrades, will radically boost the platform performance and lower operating costs for validators.
Reduced validator overhead costs and increased transaction volumes translate into higher revenues for validators to share with stakers.
What can we learn from this vote?
The 6% staking return was implemented shortly after this vote, which was arguably one of the most impactful proposals since Fantom governance went live.
The vote confirms that validators and stakers see the value of adopting a longer perspective and recognize the future growth potential.
The community is now in a strong place to plan for a future in which validators and stakers can be assured of steady incentives for securing the network.