As always I am going to start off this post with a disclaimer stating that this is a theoretical example of how earnings are doled out from the FTSO. This comes at no risk to your actual FLR token as the vote for the FTSO is detachable thanks to advances in programming. I hope everyone enjoys and finds some value.
For the Flare Network to drive value through its ecosystem and scale over time, an incentive structure has been created to introduce inflationary Spark (FLR) tokens through the Flare Time Series Oracle (FTSO). The FTSO awards participants on the Flare Network for delivering accurate price data feeds to maintain decentralized on-chain pricing for the entire network. As this task can be a highly technical, many retail users will want to delegate their detachable FLR votes through a signal provider with the capacity to scrape the financial landscape for the best pricing data. Signal providers will have to put in time, effort, and capital to achieve this, so they will take a haircut for any FLR votes delegated through their signals that qualifies for a reward. It is too early to know what the fee structure will look like for signal provider services, so we will be taking a guess for the sake of our scenario detailed in this post.
Billy is going to be the name of our FLR owner who is excited to participate in the FTSO and earn daily compounding yield. We will assume that Billy is moderately well-off and holds 21k FLR, which will all be delegated through signal providers to the FTSO. As the network is just launching, Billy is unsure of which parties are the best signal providers to delegate his detachable FLR votes to, so he decides to spread out those votes to three different signal providers evenly.
Billy has successfully delegated 7k FLR detachable votes across three different signal providers. All Billy now has to do is sit back and let the signal providers get to work and hopefully earn him FLR rewards via the FTSO rewards system. However, Billy may not receive rewards for every closure of the FTSO, which happens every few seconds. Based on the FLR inflation schedule featured in Flare Network’s Spark (FLR) Token Distribution, we are fairly confident that ~27M FLR will be delivered daily through the FTSO inflation rewards. Additionally, it looks like around 8.25B FLR will be eligible on Day 1 of the Flare Network for the FTSO rewards, which stems from the 15% of FLR supply being delivered to XRP holders who claimed their FLR airdrop and the Flare Limited firm made up of the Flare Network dev team.
We can see above the theoretical examples of fee schedules and success rate for these three signal providers. The fee rate will be the portion of Billy’s FLR rewards that the signal provider takes as compensation with the success rate being the percentage of FTSO closures that the signal providers’ price data feeds are within the median 50% of all estimates which is required to earn FTSO rewards for each closure. Billy can see that there are tradeoffs between a signal providers’ fee and success rates. However, it is the first day of the Flare Network, so he needs to see how everything works in action to determine how to delegate his detachable FLR votes in the future.
Based on the performance on Day 1 from our signal providers above, Billy earned the best rewards by delegating his detachable FLR votes through FTSO.EU with Towo Labs and Pac Global finishing up next, but not entirely too far behind. Also, we assumed that since it was Day 1 of the Flare Network that many FLR owners were not ready to participate so only 25% of 8.25B eligible FLR votes were providing price data feeds to the FTSO. This resulted in Billy netting 209.3 FLR on the first day of the Flare Network. Billy’s daily returns equal out to roughly 1%, which Billy is pleased with as he will be able to compound these returns daily moving forward. The best part about the Flare Network is that users like Billy will be able to compound their FLR via multiple avenues like the minting of f-assets, participation in liquidity pools, and collateralizing of stablecoins.
I hope everyone found some use in this blog post and it at least helps a few looking to understand the mathematics behind earning rewards through the FTSO. Please pop in the comments below if you have any questions or suggestions for future material. Additionally, check out F-Asset Rewards Pool Walkthrough, which is the first post in this Flare Network rewards series.