This report brings to light the token numbers that the Flare ecosystem could expect, from TDE through to 36 months after. Based on the available information revealed in Flare's FIP01 blog and the updated Tokenomics blog, a comprehensive tokenomics model was created to analyse the dynamics of the FLR distribution. This model maps out the entirety of the FLR allocations and balances of different players in the Flare ecosystem, from TDE to T = 36 months (end of distribution period).
The “Definitions” and “Vesting Details” tables are shown below for easy viewing, more details located in the Tokenomics blog.
Overview of FLR balances for Flare ecosystem entities
The table below displays an overview of token allocations to Flare ecosystem entities as well as the amounts held after T = 36 months of delegating and earning where eligible.
Some commentary on the above table and on the validity of the Tokenomics model:
Flare “Community” includes FLR airdrop recipients, retail investors, FLR infrastructure providers including FTSOs, validators and attestation providers.
The model assumes that any entity who is eligible to delegate, will delegate. Therefore the participation rate is 100%. Obviously, the participation rate will realistically be much lower, however for the purposes of this report which categorises the ecosystem participants into defined cohorts, the flow of FLR tokens across each cohort group is not significantly impacted by this assumption.
Inflation rates for the first 12 months = 10% p.a, calculated monthly on a pro-rata basis; 7% p.a for T = 13 months to T = 24 months; and 5% p.a for T = 25 months to T = 36 months (end of distribution period).
FTSO, validator and State Connector rewards begin on TDE date.
50% of the Flare VC Fund, derived from Flare Networks Limited (FNL) is eligible for delegating to the FTSO and earning rewards.
Any FLR earned from the FTSO system or the Delegation Incentive Pool (DIP) is eligible to earn from the monthly DIP distributions (see the following 2 points).
Flare Backers (investors) receive their allocations at the earliest eligible unlock and proceed to delegate to FTSO as well as earn from DIP.
Flare team and advisors delegate their allocations to earn from the FTSO. Said FTSO rewards earn from DIP and contributes to Flare “Community” supply. This model assumes that the Flare team and advisors do not sell any of their supply before T = 36 months (end of distribution period). Realistically, sales will occur and this supply would transfer to “Community” supply.
Flare Foundation supply remains the same from TDE through to T = 36 months. Realistically, the Foundation’s supply will reduce with funding new development and incentives to the ecosystem, thus increasing “Community” supply.
Cross-chain incentive pool (CCI) begins distributing FLR as rewards in T = 5 months from TDE (~ June 2023 assuming TDE on Jan 9th 2023) and is calculated on a per month basis.
Finally, more specific assumptions and limitations to the model will be discussed in the relevant analysis sections. For comparison to the 93.9B FLR circulating at the end of the distribution period, as shown in the Flare’s blog charts, this model obtained a circulating supply of 93,929,981,167 FLR at T = 36 months. This model therefore reflects a fair degree of accuracy and holds relevance to the models created by the Flare team.
Relative circulating supply of ecosystem entities at TDE versus T = 36 months.
The Community holdings of 4.279B FLR represent 35.66% of the circulating supply at TDE. This represents the amount distributed to FLR airdrop recipients. As community FTSO providers, network validators and attestation providers earn FLR inflationary rewards for providing their services, these holdings are represented under Community supply. Additionally, any DIP rewards earned by all entities (except Flare Backers) are also represented under Community supply. This means that the Community share of the circulating supply (37.62%) after 36 months represents a vastly different set of participants.
Additionally, the Foundation’s supply after 36 months will definitely be less than its allocated amount of 9.788B after funding development in the Flare ecosystem - increasing Community supply whilst decreasing Foundation supply. Nevertheless, the Foundation’s share of the circulating supply decreases over time. Of course, as Flare’s utility and value grows, less incentives and direct funding is required from the Foundation.
Flare related entities (FNL, VC Fund, team and advisers) have their share of the circulating supply decrease over the 36 months. This is due to the incremental release of FLR into circulation from the Backer’s distribution as well as from the monthly DIP distribution releases. It should be noted that Flare related entities’ FTSO rewards are able to earn from DIP, however such DIP rewards are reflected in the Community supply for the purpose of simplifying modelling. The exact amounts these entities earn from the DIP will be accounted for and discussed in later sections of this report.
According to the tokenomics blog, Flare Backers receive their total allocation over 36 months upon meeting certain conditions which have yet to be disclosed. The first group of investors (G1 Backers) receive their initial 15% of allocation in month 6. The Backers’ holdings are able to earn from DIP. G1 Backers are able to significantly increase their representative share of the circulating supply i.e from 3.98% at TDE (locked) to 6.10% of the circulating supply after 36 months. The same dynamics are exhibited with G2 Backers, however their ability to earn from DIP begins on month 13. It is important to note that the relative value of each FLR earned from DIP decreases over each months distributions. The Flare Backers’ ability to earn from DIP dilutes the amounts able to be received by the initial Community of airdrop recipients. The greater incentives offered to the Backers through Flare’s tokenomics design is reflective of their investment capital and risk committed to the development of Flare.
Governance voting weightings for eligible voters
The table above displays all eligible voters in Flare’s governance processes. The Foundation and Flare’s VC Fund cannot vote. Each FLR held is equal to one governance vote. At TDE the total FLR tokens eligible for voting is 8.179B, of which the Community (largely airdrop recipients) holds 52.32% of vote power for governance. The remaining eligible votes at TDE are held by Flare related entities (47.68%). The first governance process on Flare will be FIP#01, which requires a simple majority of votes to pass - requiring a minimum 30% of FLR turnout with over 50% of votes in favour of passing. The notice period for FIP#01 will occur once 66% all FLR eligible for voting is released (~ 5.4B FLR). As Flare related entities are receiving a total of 3.9B at TDE, only 1.5B out of the total 4.279B airdrop amount (to non-custodial and exchange wallets) is required to be active in order for the notice period for FIP#01 voting to be triggered. Out of this 4.279B amount, approximately ~ 190M FLR (or 4.4%) is required to vote in favour of FIP#01 in order for passing and implementation. It is with extremely high probability that FIP#01 will pass. Of course, this assumes that all Flare related entities vote in favour of FIP#01.
After the end of the distribution period (T = 36 months), non-Flare related entities increase their share of the governance process (60.72%, from 52.32%). This share will realistically be higher due to the Flare team and advisors selling some of their FLR received as remuneration. It is unclear how FNL will deploy their FLR in the ecosystem other than providing FLR as collateral within Flare’s decentralised economy (namely F-Assets and LayerCake). As Flare expands to serve new network participants from the broader cross-chain DeFi ecosystem, its governance structure and weighting of votes should continue to reflect the interests of all network participants.
Total FTSO rewards released upon different time periods for all delegator entities
The above numbers capture the amounts earned by each delegator entity. It is assumed that all eligible entities are delegating 100% of their FLR tokens. Note that the actual amounts earned by any single user will depend on the reward rate (performance) of their FTSO provider as well as the commission fee charged. The total FLR emissions through FTSO system (defined as 70% of total network inflation) amounts to ~ 589M (!) FLR after 6 months. This contrasts to the larger supply release of ~ 676M FLR per month coming from the DIP. In other words, the monthly distributions from DIP have a much larger impact on the circulating supply than do the FTSO rewards from network inflation. At the end of the distribution period (T = 36 months) the FTSO rewards represent ~ 7.58% of the total circulating supply of 93.93B.
Delegation Incentive Pool (DIP) rewards - a comparative analysis
The table above compares the amount of FLR rewards earned by different eligible entities from the Delegation Incentive Pool (DIP):
DIP (1) - is essentially FIP#01 with the assumption that only the Community will be able to earn from the DIP. This includes airdrop recipients and infrastructure providers who may wrap their FLR rewarded to them for their services to the network (FTSOs, validators, attestation providers). DIP (1) does not take into account Flare related entities’ ability to earn from the DIP with their FTSO rewards. In this case, the entire DIP (pool) of 24.256B is available for Community.
DIP (2) - contains another set of eligible entities who are able to earn from the DIP. As revealed in the recent tokenomics blogs “Definitions” table Flare Backers will receive their 100% FLR allocation through the 36 months, as well as having the ability to wrap their allocations (and any future FLR earned from FTSO and DIP) to earn from DIP. Obviously this has a dilutive impact on the Community, as rewards decrease from 24.246B to 21.025B available to the Community over 36 months. This is a 13.3% reduction (dilution). The greater incentives offered to the Backers is reflective of their investment capital and risk committed to the development of Flare.
DIP (3) - further accounts for the final set of participants who are able to earn from the DIP. The FLR allocations to Flare related entities are not able to directly earn from DIP however the allocated FLR are able to delegate and earn FTSO rewards. Said FTSO rewards are able to earn from the DIP. This table therefore validly represents all entities’ FLR which are eligible to earn. Looking at the numbers we see that the addition of Flare related entities’ FTSO rewards earn a total of 125,530,312 FLR from the DIP over the course of 36 months. This amount represents a marginal 0.52% of the total DIP size of 24.246B.
In discussing the Delegation Incentive Pool’s design and eligibility criteria for existing network participants, it is important to note that the DIP is structured to distribute network tokens to users who are contributing to the network, namely wrapping and delegating to the FTSO. Compared to the original distribution model (FIP#01 does not pass), the DIP considerably inflates away FLR holders who leave their tokens off-chain and/or do not contribute to the network. Other reasons for implementing FIP#01 distribution model can be understood here.
By the same token, market participants who bring their liquidity from other blockchains into Flare’s DeFi economy via F-Assets and LayerCake will not only earn FLR from the Cross-chain incentive pool (CCI), but such rewards are eligible to earn from DIP (as well as delegate to receive FTSO rewards). In the tokenomics model used for this report, the CCI pool becomes active after an arbitrary 5 months after TDE (TBA by Flare). This means that within the same Community, those who receive FLR from CCI pool will have additional FLR to dilute the DIP rewards earned by other users who do not provide cross-chain liquidity to Flare. We have modelled what this dilutive impact may be however it is beyond the purpose of this report.
Inflation rewards to Flare validators and attestation providers
As defined in the FIP#01 blog, the total network inflation on Flare is weighted “70% to FTSO, 20% to validators, 10% to the default state connector set”. The numbers generated from our model, as shown in the table above, assumes both validators and attestation providers (state connector) begin receiving rewards after TDE. After 36 months, a total of 2.034B and 1.017B FLR is rewarded to network validators and state connector attestation providers, respectively. These numbers remain valid if Flare participants do not vote to change the weighting of inflation rewards within the distribution period.
The total FLR rewards to the validator and state connector sets increase per month due to an increasing circulating supply, of which the network inflation is computed from. It should be noted that our model computes the new inflation rates of 7% p.a 2nd yr and 5% p.a 3rd year on the 13th and 25th month, respectively. This accounts for the reduction in rewards as the network inflation transitions to a lower rate.
The tabulated results approximate the amount of FLR each validator is expected to earn each epoch. This assumes a total of 100 validators. As more providers join each infrastructure set over the 36 months, the total rewards will be shared amongst a greater cohort of providers.
Flare Backers holdings, DIP rewards and share of circulating supply
Group 1 of Flare Backers receive their initial 15% allocation on month 6, with the remaining allocations vesting across months 7 to 36. On receiving their initial allocation, Backers G1’s share of the circulating supply is 2.02%. From months 6 to 12, they will delegate to the FTSO, earn a total of 288,208,583 FLR from DIP as well as receive monthly allocations of 90.525M FLR. At month 12, their share of the FLR circulating supply is 3.46%. At the end of the distribution period, Backers G1 hold a 6.10% share of the circulating supply. Note that the average monthly yield of each FLR that is able to earn from DIP is 3.65% per month, for the first 6 months. We can see that as we approach the end of the distribution period, the average monthly yield of DIP/FLR held by Backers G1 decreases.
The same dynamics are exhibited with G2 Backers, however their ability to earn from the DIP begins on month 13, the period where their initial 15% allocation is distributed to them. At this point, their share of the circulating supply is 0.93% which increases to 3.85% at the end of the distribution period. Together, Backers G1 and G2’s FLR holdings account for 9.95% of the circulating supply after 36 months of the TDE. This of course assumes that the Backers are not to sell any of their FTSO or DIP rewards within the distribution period, as well as not receiving additional FLR from the CCI pool.
Below are some (not all) of the investors who funded the Flare team and project. Some of the named Backers run institutional trading desks, market making and have experience managing funds. Such entities are well positioned to extract away the risks associated with cross-chain DeFi, by lending their collateral in the F-Assets system, or providing bandwidth collateral in Layercake. The community should monitor how these Backers’ FLR accounts are managed to reveal any insight on where they fit into Flare’s diverse DeFi economy.
Cross-chain incentive rewards (CCI)
The cross-chain incentive pool contains a total of 20B FLR used for incentivising liquidity from other blockchains. Any assets bridged to Flare via F-Assets or Layercake is eligible to receive CCI pool rewards. We modelled the CCI pool to begin rewarding FLR on month 5, which speculates that the F-Asset system V1.0 will then be live. From month 5 to month 22, the payout rate is defined as 3% p.a of the circulating supply, calculated monthly. On month 5 alone, a total of 55,702,637 FLR is programmed for release. The proportion that any F-Asset user (or Layercake) receives is based on the relative USD value of their bridged assets (compared with the total value of cross-chain assets minted).
On month 23 the payout method transitions to reward 10% p.a of the remaining CCI pool, calculated monthly. As the remaining CCI pool size can only decrease, it follows that all CCI pool rewards will be decreasing in FLR every month after month 23. This suggests that either the value of each FLR will increase over time in order to keep the USD value of the CCI pool rewards the same, or, the organic demand and utility of Flare’s cross-chain DeFi ecosystem can stand on its own - thus requiring less CCI rewards to incentivise cross-chain participants.
It should be noted that at the end of the distribution period the remaining CCI pool size is 16.185B FLR, which is ~ 80% of the initial allocated pool size. This suggests a long-term horizon for cross-chain liquidity to be bridged onto Flare. Of course in the future as additional blockchain assets seek to join Flare’s decentralised cross-chain economy, community governance processes are available to vote in additional F-Assets support and new Layercake bridges.
Summary of report and future studies on Flare’s tokenomics
This research report was prepared by @banker_defi with the intention to share numbers extrapolated from the available information revealed in Flare’s tokenomics blog. This was achieved by building a comprehensive model to map out the flow of FLR to the defined ecosystem participants, over the course of the distribution period. An analysis of the impact of Flare’s tokenomics on its ecosystem was provided, including insights to participant mechanics; community governance; infrastructure rewards; new perspectives on DIP and more.
The results from our tokenomics model contains assumptions and limitations that have been accounted for in this report. One assumption that deserves additional attention is the Community participation rate defined at 100%. Realistically, a lower participation rate is to be expected, which means Flare-related entities plus Backers will have a larger share of the circulating supply relative to Community supply (assuming 100% participation rate for Flare-related entities and Backers). An updated tokenomics report is being worked on for future release, which highlights differences to cohort supply at varying community delegation rates. Looking ahead, incorporating live data from Flare’s blockchain to support a more granular and accurate tokenomics model will be a focus. @banker_defi aims to combine on-chain data, modelling and proprietary tools to provide deeper insights to the Flare ecosystem and its participants.
Thank you for reading this report.
Currently, we are working on a website and other mediums to host more exclusive analysis, insights and tools for the Flare ecosystem. That being said, I will continue to post regular report insights for the community on Substack, please enter your email below to receive notifications and updates on my work.
Ash W ☀️
Disclaimer:
I am not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.
I am not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this information.
Thank you for this brilliant overview! Much appreciation!
@Bitrue