SIP-7: Brubeck mainnet mining rewards

In the Brubeck testnets, participating miners were incentivized by sharing a fixed reward pool of 2M DATA across the testnets. Minting of this reward pool was approved in SIP-5.

For the upcoming Brubeck mainnet, I suggest that:

• The centralized reward mechanism built for the testnets is reused and a similar process is continued in the Brubeck mainnet
• To supply the mining rewards, inflate the supply at an annualized rate of 2%
• The process is continued until it is replaced by the decentralized and open incentive mechanics of the Tatum milestone, expected in late 2022
• Participating miner nodes earn a share of the rewards based on their DATA stake

The last point differs from the Brubeck testnets, where nodes were able to join without staking. This lowered the threshold to participate, which resulted in a large number of nodes joining the network. The downside was that some people were able to cheaply run a large number of nodes, therefore claiming a larger share of the rewards as well as making the testnets more centralized.

By distributing the mining rewards based on stake, we are taking one step closer to the realistic token mechanics of the Tatum milestone, creating a token sink by locking up some supply in the stakes, and serving our token holders by enabling them to earn a yield on their holdings by participating in the mining.

Example of reward attribution

Assume there are 3 nodes in the network, all doing a perfect job. Their staked DATA holdings are as follows:

• Node A: 1,000 DATA
• Node B: 2,000 DATA
• Node C: 3,000 DATA

In total, 6,000 DATA is staked. Node A earns 1/6th of incoming reward supply at any given time, Node B earns 1/3rd, and Node C earns half.

Example APY calculation

2% annualized supply increase is roughly 20M DATA per year. The APYs for staked tokens depend on the amount of DATA staked in total:

Total DATA staked	% of supply staked	APR *	APY **
10M	1%	200%	611.71%
20M	2%	100%	169.26%
40M	4%	50%	64.48%
80M	8%	25%	28.33%
160M	16%	12.5%	13.3%

* assuming perfect operation of nodes, the network, and the reward system ** assuming weekly compounding

Maximum stake

It's beneficial to have more nodes in the network, so it's good if large token holders need to run several nodes to stake their whole token supply. For this reason, a maximum stake of 10,000 DATA per node is proposed. From this, a minimum number of miner nodes in the network can be calculated for each scenario of total DATA locked:

Total DATA staked	% of supply staked	Min miner nodes *
10M	1%	1,000
20M	2%	2,000
40M	4%	4,000
80M	8%	8,000
160M	16%	16,000

• This is the minimum; in practice there will be more nodes, as not everyone will have max stake

The inflation rate

0.2% of new DATA was minted to incentivize the testnets, which ran over a course of roughly one month. That attracted a lot of nodes, perhaps even too much, for a limited period of time. Multiplying that by 12 months would lead to 2.4%, giving a rough ballpark of what an appropriate yearly rate might be. For the Brubeck mainnet, we expect a lower amount of miners, but larger and more stable income per miner. I propose setting the inflation rate for the mainnet rewards to 2%. Later Streamr governance decisions can adjust the rate up or down if needed.

Pros/Cons analysis

Pros

• Token holders are able to earn yields by participating in the network
• A larger network generates valuable research data for the Streamr team
• A larger network validates scalability and provides great marketing value
• By running nodes, people are educated about the Streamr technology
• Some miners will convert to actual application builders, benefiting the ecosystem even more
• It provides a 'simulation' of what actual mining might feel like in Tatum

Cons

• Setting up the Brubeck incentive mechanism takes some development time to build something that will be obsolete in Tatum (but most of it was already built for the testnets, so the additional work needed is not huge)
• Adding this incentive mechanism will make it certain that the Brubeck launch will not happen by the end of the year, but rather in January (which seems fine, as launching things close to the holiday season is not great anyway)
• 2% annualized inflation
• People may not understand that they must keep their node private keys safe, otherwise they will lose their tokens
• Risk of confusion: this is not Tatum yet!