Algorand Relay Node Conditional Accelerated Vesting
Overview
The EIP-11252019AF was approved at the end of 2019 by the majority of the Relay Node runners, early backers and supporters of the network. The EIP proposes to modify the initial distribution which was generating more inflation than the market could absorb.
Several individuals from the community and users of My Algo Algorand Wallet and Algoexplorer reached out for more clarification on the details of the new distribution. Tal Rabin from the Algorand Foundation took the time to explain to me the process in detail and I am reflecting it in this article.
This new distribution changes the original linear distribution to generate incentives to reduce the selling pressure and extends the distribution to a maximum of 5 years from the blockchain start.
Guaranteed Base
Node runners will receive a minimum of algos that does not depend on the market conditions. This table shows the guaranteed base established by the EIP based on an initial allocation of 1 million, for 2019 I show the 14% already distributed:
How Does the Accelerated Vesting Work?
Apart from the guaranteed annual vesting of algos that Relay Node Runners receive every year, additional vesting is given (taken out from future vesting) whenever the 30-day moving average price of algo passes its previous all-time high from a base of $0.30:
Bonus = (30DayMA - Max30DayMA) * ElapsedDays * 0.0015 * totalRewards30DayMA: moving average over the previous 30 days
Max30DayMA: maximum value of 30DayMA since 1-Jan-2020
ElapsedDays: days elapsed from 1-Jan-2020
Price Reference: open price from Messari
totalRewards: original allocation
If the 30DayMA is smaller than the Max30DayMA then the Bonus is 0.
Bonuses are distributed only when the 30DayMA reaches a new ‘all-time-high’ from 1-Jan-2020, which means that if a bonus is distributed based on 30DayMA price of a P1, only after the 30DayMA grows over P1 a new bonus is triggered. If there is a price spike at the beginning, it generates a small amount of bonus because it would be computed by multiplying a small amount of ElapsedDays and will not generate any extra bonus until the price surpasses the previous Max30DayMA.
Here I show an example of a possible price evolution with the rewards and accelerated bonus using 1 million Algos for totalRewards:
Scenarios
In this illustration, the same details of the scenarios stated in the EIP-11252019AF are used except for changing the theoretical initial price of $0.25 with $0.217, which was the real price on 1-Jan-2020. The price evolution in these hypothetical illustrations shown below is linear. All these graphs are based on 1 million of totalRewards.
The vertical axis shows amounts distributed in algos on the left and the algo price on the right.
Scenario 1: Price of the Algo at the end of Year 4 is $0.65 ($0.55 at the end of Year 3)
Scenario 2: Price of the Algo at the end of Year 4 is $1.00 ($0.80 at the end of Year 3)
Scenario 3: Price of the Algo at the end of Year 3 is $1.20
What Happened So Far
With the same allocation, I zoom in February 2020 to see what happened on an original allocation of 1 million. The Guaranteed Base is 82.19 algos this year and the accelerated vesting bonus reached 719.345 algos on Feb 25.
Conclusion
Relay Node Runners’ distribution had been a complex problem during the first months of Algorand’s blockchain. Algorand Foundation came up with a novel formula that enables the injection of Algo supply to the network over time that allows for an organic and sustainable price appreciation of the Algo. This shows the benefits of having a flexible monetary supply backed by a policy directed towards creating a healthy and useful currency of the internet.
