Tokenomics on Polymesh is the interwoven set of mechanics for how the network protocol token, POLYX, is used on the blockchain. We like to think of POLYX as the fuel of Polymesh; it enables the creation and management of security tokens, drives POLYX holder participation through governance, and secures the chain through staking. Tie these pieces together and an ecosystem emerges on Polymesh with POLYX at the centre.
POLYX on Polymesh will not be created from scratch. With the launch of the chain, the main mechanism to build the supply of POLYX is through an upgrade bridge allowing users to upgrade their Ethereum-based POLY utility tokens to POLYX on Polymesh. This upgrade opens the door for users to create and manage security tokens and secure the chain (through staking). POLY can be upgraded to POLYX at a 1:1 ratio (i.e. 1,000 POLY = 1,000 POLYX). Polymath recommends that the Polymesh Governing Council maintain the POLY to POLYX Upgrade Bridge for at least one year following the launch of Polymesh mainnet.
Upon the Polymesh mainnet launch, Polymath will upgrade between 240 million and 250 million POLY to POLYX to be deposited in the Polymesh Network Treasury. Newly minted POLYX will be created for block rewards with a maximum of 14% of the total supply minted annually. To prevent the continuous acceleration of inflation, the amount of newly minted POLYX used for rewards will be fixed at 140 million annually once the supply reaches 1 billion POLYX.
The Polymesh Network Treasury exists to maintain the network and grow network adoption. It is maintained and managed by the on-chain governance process overseen by the Polymesh Governing Council, accumulating a store of POLYX over time for different community uses. It’s funded in two ways:
Network Treasury funds will be disbursed by the Polymesh Governing Council by approving Polymesh Improvement Proposals (PIPs). For the most part, these funds can be then used in 2 ways:
The Polymesh Settlement Engine reduces delivery failure risk by immediately commiting assets once a settlement instruction is affirmed so that they cannot be spent in other transactions The settlement engine is also at the protocol layer, meaning assets do not need to be sent away in advance of the transaction. The settlement engine facilitates asset transfer on an atomic basis without requiring a smart contract to hold custody of both assets for the transfer to occur.
Fees charged for all transactions on Polymesh. They are a product of the transaction size (in bytes) and the complexity of the transaction, but otherwise charged regardless of the functionality used in a transaction. Fee payment is split at a 4:1 ratio between the Network Treasury and the block-creating Node Operator.
Charged for certain types of native functions (e.g. reserving token ticker); set by the Polymesh Governing Council. Fee payment is split at a 4:1 ratio between the Network Treasury and the block-creating Node Operator.
Charged and set by developers of smart contracts and smart extensions. While these are not yet activated for Polymesh, further details will be provided on specifics of the mechanism, fee split, and more, determined through the on-chain governance process.
One of the key types of Network Treasury disbursements are grants used to bolster important development on the Polymesh or other activities in support of the chain. Developers who provide an answer and solution to a specific Request for Proposal, or even address unsolicited solutions, may be provided a grant in the form of POLYX.Grants and their associated development requirements will be managed by the Polymesh Treasury Committee.
Staking secures the network by aligning the economic incentives of Node Operators and Stakers to the correct operation of the chain through rewards and penalties denominated in POLYX. It’s an important aspect of the Nominated Proof-of-Stake consensus mechanism, which defines which blocks get written to the chain as well as the roles, rules, and incentives of Polymesh.
Block rewards and fines are the carrot and stick vital to Polymesh’s Nominated Proof-of-Stake consensus mechanism, and therefore, proper chain operation. For each block created, the Node Operator who created it is rewarded in POLYX along with their Stakers. Failure to meet the performance standards of the chain, however, could lead to Operators being fined in POLYX; in future, stakers may also be fined pending Governing Council approval. Rewards and fines are calculated and enacted per era (every 24 hours).
The total block rewards pool per era is a product of the nominal rewards rate and the total POLYX staked on Node Operators. They are then split by a number of factors:
Block rewards are newly minted and rewarded each era, increasing the total supply of POLYX up to a maximum annual inflation rate of 14%. Maximum inflation is reached only with a 70% staking ratio (the amount of POLYX staked v. the total POLYX supply). Block rewards are structured to incentivize this ideal staking ratio. When there is less than 70% POLYX staked on the chain, the rewards rate is higher; but, if the staking ratio is above 70%, there is less incentive to stake on Polymesh due to a lower rewards rate. The ideal staking ratio of 70% was selected because it properly balances security for Polymesh and availability of POLYX.
The severity of fines on Polymesh is based on the amount of offending Node Operators across the chain. There are two types of infraction that can lead to a fine:
Fines on Polymesh differ based on infraction type and are applied to the amount of POLYX a Node Operator has staked on their node. In future, if fines are also applied to Stakers, the fine will apply to the entire pool of POLYX staked on the Node Operator.