FIO Token Staking — FIO Improvement Proposal (FIP) 21: Explained
The FIO community is currently working on FIP-21 which would enable staking of FIO Tokens on the FIO Protocol blockchain. This post will provide a layperson’s overview of this project.
Background
The FIO Protocol is a Delegated Proof of Stake (DPOS) blockchain. Block producers are elected by the vote of FIO Token holders who may vote directly or proxy their vote to other FIO accounts. The FIO token itself is a utility token used to pay fees on the FIO blockchain such as registration of FIO Addresses and FIO Domains. A core element of the FIO blockchain model is that those who contribute to the protocol’s success participate in the value created by the FIO Protocol blockchain. Block producers, for example, receive the largest portion of the fees paid to the FIO blockchain by users to support them in securing the chain. Technology providers that integrate the FIO Protocol receive a portion of the FIO token fees paid to the FIO chain from within their product. But, todate, users who hold FIO Tokens and participate in the critical role of chain governance do not participate in the economic success of the FIO blockchain.
Purpose
The goal of the FIO Staking FIP is to enable users who hold FIO Tokens and who participate in governance by voting or proxying their tokens to also participate in the economic success of the decentralized FIO Protocol blockchain which they are enabling by holding and voting/proxying their tokens. FIP-21 creates a mechanism whereby holders of FIO Tokens who stake and vote/proxy their tokens are able to participate in the economic growth of the decentralized FIO Protocol itself.
Creation of Staking Rewards Token Pool
For Staking to have impact, the FIO Blockchain must have a permanent mechanism to provide FIO Token rewards to those who stake and vote/proxy their FIO Tokens. FIP-21 provides an exceptional method for achieving this including a minimum guaranteed amount of FIO Tokens that would be paid out to Staked Tokens each day.
FIP-21 starts by re-allocating the distribution of FIO Token fees received by the FIO Blockchain to cause 25% of those FIO Tokens to be distributed as Staking Rewards. In other words, FIO Tokens that are staked participate in the economic success of the decentralized FIO blockchain. As more and more users utilize FIO Address, FIO Domains, FIO Requests and other future features the FIO Token fees paid to the FIO blockchain will increase and so will the amount paid out in Staking Rewards.
In addition, FIP-21 creates a pool of 25 Million FIO Tokens to ensure that, at a minimum, for the first 1,000 days after FIO Staking is launched on the FIO blockchain that no less than 25,000 FIO Tokens would be available for Staking Rewards each day.
How Staking Rewards are Earned
Users desiring to participate in receiving Staking Rewards will simply vote or proxy their tokens and then stake them which causes the tokens to be locked until they are unstaked. Tokens which were locked at FIO Mainnet and are still locked are not eligible to participate. When a FIO Token is staked, it is allocated Staking Rewards Points on the FIO blockchain. Initially, each FIO token staked receives one Staking Rewards Point. But as the Token Rewards Pool grows, the Staking Rewards Points received for staking a FIO Token goes down. Thus, earlier stakings have more upside than later stakers. When a user Unstakes, they receive a number of FIO Tokens equal to the Staking Rewards Points they have divided by the then current “Rate of Exchange” between Staking Rewards Points and FIO Tokens. So, since that ratio is always declining, the unstaker always obtains more FIO Tokens than they staked and the faster the Toke Rewards Pool grows, the faster the Rate of Exchange declines meaning more earnings for those who staked earlier!
The Staking Rewards have several important attributes regarding how they are paid out:
No Chance to Lose Staked Tokens
The Staking method included in FIP-21 ensures that stakers of FIO Tokens will always earn a positive return — meaning they receive more FIO Tokens back when they unstake than the number they staked.
Earlier Participants Receive Greater Rewards
In addition, it is structured such that FIO Tokens that are staked earlier receive a greater share of future rewards per FIO Token staked then tokens staked later. This intentionally rewards those who participated in staking and chain governance through voting/proxying during the earlier periods of time of the FIO Chain receive greater rewards than those who join the “bandwagon” later.
The Greater the Success of the FIO Chain, the Greater the Staking Rewards
As more FIO Token fees are paid by users into the FIO Blockchain for FIO Addresses, Domains, Requests and more, the greater the amount of FIO Tokens that will be contributed by the FIO blockchain to the Staking Rewards Pool. As the Staking Rewards Pool grows, the amount of FIO Tokens paid out to unstakers increases.
Timing
FIO Improvement Proposals are always subject to acceptance by ⅔+1 of the FIO Block Producers and are not final until that occurs. The FIO Community is targeting summer 2021 to release code to the FIO Block Producers for their acceptance into the FIO Mainnet.
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