Nym Token Economics update

An update on the tokenomics of the Nym mixnet with a new vest underway.

Author: Nym

November 22, 20229 mins read

An update on the tokenomics of the Nym mixnet with a new vest underway.

A new vest is underway this month. Over the course of two years, NYM tokens vest on a quarterly basis, meaning backers, team and Option 2 token holders receive a batch of tokens (testnet participants now fully vested!). This incrementally increases the circulating supply of NYM, stake supply and saturation point, affecting the token economic dynamics as the privacy network and the NYM supply grow. This blog post gives an overview of changes as a result of the new quarterly vest.

In short, the main token economic changes you might want to be aware of are:

The circulating supply of NYM is now around 304 million NYM.
Staking supply is approximately 349 million NYM.
Target level of staking across the entire network is 50%, and thus mix node rewards are maximised when 174 million NYM (50% of the staking supply) are staked.
Stake saturation point is now 726k NYM saturation per node. It is determined by target stake divided by the target number of mix nodes (that remains unchanged at K=240 rewarded nodes per epoch). Dividing 174 million of target staked amount by 240 nodes results in approximately 726k NYM saturation per node.
The ability to delegate unvested tokens is now capped at 10% to prevent whales from receiving the largest proportion of rewards by staking locked tokens, thus ensuring a better rewards and wider distribution among all the stakeholders that stake unlocked NYM tokens.

Circulating supply of NYM

The circulating supply (let’s denote it by C) of NYM is defined as the amount of unlocked tokens that are available. Currently, the circulating supply is around 304 million NYM.

The circulating supply increases on a per-epoch (hourly) basis with the rewards distributed from the mixmining pool and quarterly with the vesting of locked tokens (let’s denote by V the amount of tokens that are still in a vesting contract). The quarterly vest is currently underway, unlocking an additional tranche of tokens, hence a more drastic change to supply.

As of the end of November 2022, taking into account rewards distributed so far and newly vested tokens, the circulating supply stands at about C=304 million NYM — with about V=451 million NYM still locked in vesting accounts and the remaining 245 million NYM locked in the mixmining pool.

Staking supply of NYM

The staking supply (let’s denote it by S) of NYM is defined as the amount of NYM that is available to stake in nodes in the Nym mixnet. Currently, the staking supply is about 349 million NYM.

The amount of NYM tokens available to stake on nodes in the Nym mixnet is slightly higher than the circulating supply as people are also able to delegate stake using a portion of their locked tokens.

More precisely, the staking supply includes all the circulating supply C and part of unlocked tokens V. Thus S = C+f*V, where f is the fraction of unvested tokens that can be staked. The parameter f is set to 10%, resulting in a staking supply S = 304m+0.1*451m = 349m.

The staking supply S is an important parameter, as it affects the mix node saturation point, meaning the stake required for a mix node to achieve maximum rewards.

Mix node stake saturation point

The node stake saturation point, which we denote by Nsat, is given by the stake supply, target level of staking and number of rewarded nodes. The current node saturation point is approximately 726K NYM (after adjusting for the fact we aim for 50% of the supply being staked).

The node saturation point, Nsat, is the amount of stake (reputation) that a mix node needs in order to maximise its rewards. If all of the staking supply is taken into consideration, then the mix node saturation point is given by the staking supply S divided by the number of rewarded nodes (denoted by K and currently set to K=240 nodes), ie, the equilibrium (maximum distributed rewards) is reached when the entire staking supply S is distributed equally among K nodes.

Note however that this assumes that 100% of the tokens in the staking supply must be staked for the network to distribute maximum rewards. Since aiming for 100% staking is unrealistic, we have introduced a parameter b (with values between zero and one) that determines the target level of staking. Thus, for example if b=0.5, then the network reaches maximum rewards (equilibrium) when 50% of the supply S is staked on K nodes. Taking all of this into account, the node saturation point is computed as Nsat = b*S/K = b*(C+f*V)/K.

The parameters C and V (circulating and locked tokens) are given by the token distribution and vesting contracts. The parameter K (number of rewarded nodes) is selected so that there is a sufficient number of nodes in the mixnet to route all the user packets.

The fraction f of unvested tokens that can be staked is set to 10% as a compromise, to enable participation with locked tokens while keeping high rewards for staked circulating tokens. The target level of staking b is set to 50% to account for a fraction of the token supply not being staked. This results in Nsat = 0.5*(304m+0.1*451m)/240 = 726K NYM.

Mixmining pool and per-epoch node rewards

The mixmining pool started out with 250 million NYM and it currently still contains about 245 million NYM, after having distributed about 5 million NYM in rewards to mix nodes over the last few months. The mixmining pool is configured to make 2% of its value per month available for rewards (currently 0.02*245m = 4.9m).

The resulting mixmining rewards available per hourly epoch for the set of rewarded nodes are about 6.800 NYM per hour (4.9 million divided by 30*24 hours). Note that out of the 6.800 NYM rewards available for distribution in an epoch, not all is given out to nodes, e.g. due to low stake or underperformance. The unallocated rewards remain in the mixmining pool for future distribution.

Considering K=240 rewarded nodes, the maximum rewards received in an epoch by any given node are about 6.800/240 = 28 NYM/hour, which are reached when the node is fully saturated with stake, has perfect performance and a very high bond. In practice, a typical node that is close to saturated, has less-than-perfect performance and a minimal bond receives about 21 NYM/hour in rewards.

Estimated APY

Estimated APY with the new node saturation stake is approximately 29%.

Considering 21 NYM/hour earned by a node, how does the node saturation point relate to the APY of tokens staked on the node? Simply put, the higher the saturation point, the lower the APY, because those 21 NYM are shared among all the tokens staked on the node.

Before the vest and corresponding increase in circulating supply, the node saturation was at Nsat=430K NYM, while now it has increased to Nsat=726K NYM. A saturated node receiving 21 NYM in an epoch provided 21/430.000 NYM rewards per staked token. With an increased Nsat=726K NYM, each staked token receives 21/726.000 NYM in rewards.

The APY is an “annual” yield that takes compounding into account, and in the case of Nym compounding happens on an hourly basis (24 times per day and 365 days per year). Thus, if the rewards per token per epoch were 21/430.000, then the APY of that node was APY = (1+21/430.000)^(24*365) — 1 = 53%. With the increased saturation point, each staked token receives 21/726.000 in rewards, and the APY = (1+21/726.000)^(24*365) — 1 = 29%.

Note that for simplicity we are considering that the node’s profit margin is zero. A higher profit margin increases rewards (and APY) for the node operator at the expense of decreasing rewards (and APY) for the node’s delegates. (The total mix node rewards stay constant regardless of profit margin, which only affects the operator / delegates split of rewards).

Whale defences — cap on staking for unvested tokens

The parameter f determines the contribution of unvested tokens to the staking supply S = C+f*V. Bonding and delegating unvested tokens as stake is now capped at 10% in order to prevent whales from hoarding the majority of rewards and ensure a fair saturation point and rewards across the network.

On the upper bound, f=1 considers that all 755 million tokens (whether liquid or locked in a vesting contract) can be staked. This high value of f favors whales with a substantial amount of unvested stake, by making their locked tokens have the same staking power as unlocked tokens. Considering b=0.5 and f=1, this would lead to a saturation of Nsat=1.6million NYM per node! And a corresponding APY of only 12%.

On the lower bound, f=0 considers that only the currently liquid 304 million NYM can be staked. This low value of f favors stakeholders that do not have any unvested tokens. Considering b=0.5 and f=0 leads to a saturation of Nsat=633k NYM per node and a corresponding APY of 34%.

In order to allow stakeholders with unvested tokens to participate in staking while limiting their overall effect on the staking supply, we select f=0.1, i.e. 10% of unvested tokens can be staked. This 10% is applied equally to all accounts with unvested tokens.

This results in an overall staking supply S = 304m + 0.1*451m = 349m NYM which are then factored by b=0.5 to account for a 50% staking target, leading to a target staking supply of 174 million NYM. This results in node saturation Nsat = 726K NYM and APY of 29% when considering 21 NYM/hour in rewards for a typical near-saturated node.

Essential links

Tokenomics FAQ

Nym on CoinList

The Nym architecture