Economic Flywheels of wPOKT and POKT | wPOKT ELI5 Series

Before jumping into the tokenomic flywheels, let’s first go over a Pocket economics primer.

Pocket Network is an application-specific proof of stake blockchain that employs the use of its native utility cryptocurrency POKT to create a permissionless, two-sided marketplace between node operators who run full nodes and developers that want to query from any blockchain for their application or service. Due to the unique incentives on each side of the marketplace, POKT staking differs between both parties.

On the application side of the marketplace, developers stake POKT once for a guaranteed amount of blockchain network bandwidth (measured in relays) for the lifetime of the bond. The amount of POKT required to be staked is directly proportional to the relay throughput needed or expected for an application. At the moment, 1 POKT equates to 1.67 relays each session (a session is about one hour long).

Because the POKT token staking mechanics eliminate recurring payments to centralized blockchain infrastructure providers, it vastly reduces the cost of infrastructure to near-zero over the lifecycle of an application. The longer an application uses Pocket Network, the more value it can extract from the protocol. After a few months of usage, the service essentially becomes free!

On the node side of the marketplace, node operators are required stake POKT on a per node basis with a minimum stake 15k+ POKT for each node that wants to participate in Pocket Network’s work economy. In exchange for servicing application requests, nodes earn revenue in POKT by minting .0089 per relay served and validated.

Because the POKT rewards are directly proportional to the number of relays, node operators find that the optimal economic strategy is to horizontally scale their node operation by spinning up more nodes and staking across multiple nodes in order to maximize their chances of being randomly chosen in as many sessions as possible which in turn provides them with more opportunities to serve relays and earn POKT. These full-node incentives promote further decentralization, redundancy, and increase the number of nodes available for each blockchain network supported by Pocket.

For more on Pocket tokenomics, read the economic paper or briefs (nodes/apps).

So, how does the wPOKT and data farming program interact with the Pocket Network ecosystem?

The wPOKT data farming program completely eliminates switching costs for applications by enabling web3 users to stake for blockchain network bandwidth on their behalf with wPOKT while earning rewards. Essentially, application end-users and regen farmers crowdsource the infrastructure costs for web3 applications, services, and tools.

In short, regen wPOKT data farming is a growth bootstrap program for Pocket Network’s work economy.

The data farming program is designed to drive relays to the protocol, which boosts the rewards for nodes since the POKT mint rate is directly proportional to relays.

It’s a win-win-win scenario for all parties involved:

  1. Farmers earn rewards for staking wPOKT on behalf of applications in a farm.
  2. Applications get crowdsourced free infrastructure. As they consume their daily allotted network bandwidth, they drive relays (blockchain data requests) to the underlying network.
  3. As relays are driven to the Pocket Network protocol, node operators serve and validate those application requests to earn POKT.

More relays means more network revenue for node operators to capture. This will attract more nodes to the network, making it more decentralized and resilient. This in turn will attract more applications to use Pocket Network to benefit from the service guarantees stemming from decentralization and resiliency. In other words, the more redundant blockchain node infrastructure becomes the more reliable the Pocket’s service will be compared to centralized alternatives.

It also means more network revenue distributed to the DAO, which in theory could keep this program funded in perpetuity if voters find it valuable over the long run.

The top left corner of the diagram depicts the standard flywheel of Pocket’s two-sided market, illustrating how supply growth boosts demand growth through improvements in service quality. Regen farmers subsidize the network bandwidth (supply) for applications to consume, which causes the economic flywheel to spin faster and faster.

By augmenting Pocket Network’s core economic engine with the wPOKT data farming program, we redirect proven liquidity farming mechanisms towards a noble purpose — being a tokenomic supercharger on the flywheel of a true public good.

Alluded to in the previous part of this series, the data farming program actually locks up double the amount of POKT, since wPOKT is backed 1:1 by POKT and POKT will still need to be staked on behalf of applications. This takes out more POKT from the circulating supply and adds it to the total staked supply, which leads to a higher TLV.

Will the wPOKT data farming program undermine incentives to run nodes?

The short answer is no. wPOKT rewards are not designed to exceed the POKT rewards a node operator can earn. Node running rewards are expected to remain at a premium due to the technical hurdles and inherent costs involved.

We believe that the data farming program is additive and non-competitive with node running rewards. However, we’ll monitor the impact of data farming on node running to ensure there’s no vampiric conflict between the two economies.

To wrap (POKT) it up

There are now two opportunities for capital providers to earn revenue from supporting Pocket Network’s dual economies:

  1. Stake POKT tokens as a node runner in native Pocket Network to earn staking rewards, serve relays to apps, and secure the network
  2. Stake wPOKT as a Regen Farmer to earn farming rewards, subsidize relay throughput for applications, and provide liquidity to the network.

Which one will you pick? Let us know on Twitter!

The data farming program encourages end-users to spread the word of Pocket Network so that they can earn additional yield. Every time a new application (or network) is onboarded to the program, a new farm can be raised with varying degrees of reward rates which provides new opportunities for regen farmers to earn more wPOKT.

This revolutionary new economy will coordinate DeFi degens towards a more regenerative outcome, planting rather than extracting value, by decommissioning centralized points of failure and bringing crypto back to its decentralized roots.