WAL Staking Rewards

Onchain storage uses a fundamentally different pricing structure and business model than traditional smart contract platforms, which focus primarily on executing transactions. While fixed costs constitute a large share of overall operator costs for validators in high-throughput blockchains, variable costs make up a substantial portion of expenses in storage infrastructure. Increasing the amount of data stored—for example, going from storing one petabyte to two—requires increasing storage capacity, often by a sizable multiple, because data must be sharded and distributed across many machines to offer the required security and resilience guarantees.

Thus, onchain storage presents a unique opportunity to design an incentives and tokenomics implementation that leverages these distinctive features of storage and unleashes its full potential.

Walrus’ pricing and business model are based on the fact that the system stores approximately five times the amount of raw data that the user wants to store; this ratio is at the frontier of replication efficiency for a decentralized platform. That storage, in turn, is fundamentally an intertemporal service. Users may pay for an extended period of storage upfront, but the fees must be delivered across time to properly secure the data, differing from smart contract platforms where transaction execution happens immediately and all at once.

In particular, in Walrus, fees are charged at the outset and are linear in the amount of data being stored and the number of epochs through which the data will be stored. Walrus’ pricing model then distributes these funds across time, with the exact flow of funds governed by four canonical rules:

1. A Walrus user pays:
   • User_Price = Storage_Price * (1 - Subsidy_Rate)
2. A node’s revenue from commissions equals:
   • Node_Revenue = Storage_Price * (1 + Subsidy_Rate) * Commission
3. A staker’s revenue net of commissions equals:
   • Staker_Revenue = Storage_Price * (1 + Subsidy_Rate) * (1 - Commission)
4. Subsidies pay the delta between system revenue and user payment:
   • Subsidy_Payment = Storage_Price * 2 * Subsidy_Rate

Walrus’ tokenomics include a 10% allocation earmarked for increasing adoption and growth of the network during its early phases. Part of these WAL tokens will be distributed as subsidies, ensuring that Walrus users can use the protocol at a fraction of its market price, while also guaranteeing that storage operators make enough revenue to cover their fixed costs. As the protocol matures and expands its user base, storage operators will work in parallel to reduce their fixed costs per data unit stored and seek efficiencies in their operations. In addition, technological advancements in storage hardware, such as future decreases in the price of HDD and SSD units, together with competition across manufacturers, will further trickle down into cheaper onchain storage prices.

In the long run, this setup ensures that Walrus can be widely adopted and financially sustainable even once subsidies are phased out.

Built for long-term economic viability

Walrus’ design results in stake rewards starting at a very low rate but scaling into more attractive rates as the network grows. While low stake rewards initially might sound unattractive, the flip side is that Walrus will have high stake rewards in the long run, all while ensuring that operations remain sustainable. Walrus participants sacrifice some short-term gains for long-term network success.

To best understand this trade-off, consider the following:

• In a simplified world, storage operator capacity has a roughly one-to-one relationship with the amount of data stored, meaning storage operator costs increase linearly with data stored.

• Stakers, on the other hand, have no costs, and only care about the amount of data held in storage to the extent that storage payments influence the amount of stake rewards they receive.

Hence, as Walrus usage increases and storage requirements increase, operators receive proportionally more revenue in order to offset their additional costs. For stakers, in contrast, the amount of stake rewards received increases without an equal increase in costs, such that the rewards they can expect to obtain over time on their stake increases considerably as Walrus grows.

This chart illustrates how Walrus’ economics model is successful in the medium and long-term as Walrus obtains deeper product market fit and meaningful adoption.

Capital efficiencies at scale

Walrus’ incentives model features an additional feedback mechanism by which user costs go down over time as product usage accelerates.

Recall, in the previous example, stakers can expect to receive a very high rate of rewards when Walrus is widely adopted. In practice, however, market forces would ensure that some of Walrus’ efficiency gains are passed on to the end user. Namely, since stakers face little cost relative to operators, as Walrus scales, the network will pass these gains on to users by reducing the onchain price of storage.

In principle, a reduction in storage prices decreases a storage node’s operating margin. Since storage operators need to remain viable, operators can respond by increasing the share of stake rewards they keep in order to offset the lower prices.

In other words, in order to keep storage operators’ profit margins constant, market mechanics will push to increase the commission rate received by operators as prices go down. This change keeps a storage node’s operating margin constant at the expense of lower growth in the rewards received by stakers. Stakers continue to receive more stake rewards as the network grows, but the increase in rewards is lower than if the network did not pass some of these gains on to the end user. This dynamic benefits all of Walrus’ users, storage operators, and WAL stakers, and creates a fair economic system.

Generating sustainable success

Overall, the intricacies of Walrus’ pricing model are such that stake rewards increase as Walrus grows, while ensuring operators have viable business models and supporting ecosystem adoption. While Walrus will naturally launch with a low rewards rate for stakers, everyone benefits in the long run as Walrus can support higher reward rates and pass on cost reductions to end users, further supporting its growth flywheel.

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