Namada Tokenomics: A Guide to NAM Staking, Rewards, and Privacy Features - Figment

Namada: Tokenomics – What is Namada?

Namada is a Proof-of-Stake Layer 1 that enables interchain, asset-agnostic data protection. Once Namada’s 5-phase mainnet launch is complete, it will support private transfers of any fungible or non-fungible asset issued on IBC-compatible networks. Namada will also leverage connections to other ecosystems to extend its privacy protection properties to generalized, multichain application interactions. These are known as shielded actions, with the most notable upcoming example being Osmosis Shielded Swaps.

Quick Takes

Namada Highlights

Namada is unique among privacy protocols in its ability to support any tokenized asset within the same shielded set, known as the Multi-Asset Shielded Pool (MASP). Users who deposit their assets to the MASP can transfer them to other users within the MASP without revealing the assets, amounts, or addresses involved in the transfer.

The benefits of being able to keep multiple different types of assets within the same shielded set are not limited to user flexibility in the assets they can hold privately. As Anoma Co-founder, Awa Sun Yin, discusses in this blog post, the size of the shielded set is the primary factor that determines the effectiveness of multichain privacy protocols.

In addition to private transfers, which are supported natively by the protocol, Namada will leverage IBC to extend these privacy properties to a much broader scope of on-chain interactions with shielded actions. For example, Osmosis’ upcoming shielded swaps feature will allow users to swap assets on Osmosis directly from the Namada shielded set.

What is the NAM Token?

The NAM token is critical to the operation of Namada, and plays four key roles in the protocol:

Cubic Proof of Stake

Cubic Proof of Stake, Namada’s consensus mechanism, is modeled after Cosmos bonded proof-of-stake but comes with a number of important changes. Most notably, Namada’s approach to slashing is meaningfully more aggressive than the ones taken by most other networks. The percentage of a misbehaving validators’ stake that is slashed is proportional to the cube of voting power that commits infractions within a given window. By default, this window includes the epoch immediately before, during, and immediately after an infraction occurs.

In practice, this means that the percentage of stake that is slashed from any misbehaving validator is variable, and grows very quickly if other validators are also committing infractions within a cubic slashing window. If a third or more of total bonded NAM participates in committing a slashable offense within a given window, 100% of the stake associated with malicious validators will be slashed. Namada validators can be slashed for equivocation (double signing or producing two blocks for the same height) or invalidity (voting on or producing an invalid block) offenses. Validators are not slashed for downtime, but if a validator’s downtime exceeds a protocol-defined threshold, they’re removed from the active set for two epochs (12 hours).

Staking Overview

Protocol Rewards

Many of the parameters relevant to protocol rewards are still up for community discussion – the Knowable team, one of the three core entities contributing to Namada, has published a proposal for these parameters.

Staking Rewards and SRR

Namada’s SRR is variable, dependent on a maximum annual inflation budget for staking rewards and a target percentage of NAM staked. Knowable’s proposal suggests a maximum annual inflation budget of 5% with a target participation rate of 40%. If this proposal is accepted, the NAM staking SRR is expected to be approximately 12.5% at the 40% target staking rate.

Shielded Set Rewards

In addition to the inflationary NAM rewards paid out to stakers, Namada will also direct up to 10% of annual inflation to reward users who store their assets in the MASP. Because the strength of the privacy protection the MASP provides is proportional to its size, each user deposit creates a positive externality by improving the MASPs security properties. With this in mind, it is in the interest of the protocol overall to subsidize users who are willing to deposit to the MASP, particularly when the MASP is relatively small.

All else being equal, the earliest depositors to the MASP make the largest incremental impact on improving its privacy properties but benefit the least – by virtue of being early, they’re depositing to a relatively small shielded set. Namada offers a subsidy schedule that incentivizes early users the most heavily as a mechanism to bootstrap a larger privacy set. As the privacy set grows, its privacy protections improve, and the per-user subsidy decreases accordingly.

Users who deposit to the MASP will earn rewards without the need to lock their assets for any length of time and can claim rewards while remaining in the shielded set. The rewards each user earns will vary based on the assets they deposit since some assets will be more heavily incentivized than others based on overall asset diversity within the MASP and how usage conditions change over time. The parameters defining the exact assets that will be eligible for rewards, the amounts that will be targeted in the shielded set, and the maximum annual NAM inflation that each asset will be eligible to receive are yet to be determined.

Genesis Distribution

The Anoma Foundation recently published a blog post with the following proposal for the initial distribution of NAM tokens:

While NAM tokens will not be transferable until stage 5 of the network’s mainnet launch, none of the tokens allocated in the initial distribution would be subject to any lockup or vesting schedules.

Figment’s Involvement

Figment is at the forefront of Namada’s ecosystem, actively participating in the testnet and poised to be a day-one validator on the Namada mainnet. This early involvement demonstrates our commitment to understanding and supporting emerging protocols from their inception.

Key Figment Advantages for Namada Stakers:

Over 500 institutional clients trust Figment to deliver best-in-class staking services across various protocols. This includes not just the technical aspects of staking, but also seamless integrations, detailed rewards reporting, invaluable insights, and comprehensive risk management through features like double sign slashing and downtime penalty coverage.

Our team’s deep understanding of Namada’s unique features positions us to offer unparalleled support for NAM stakers.