This article was first published on Hello ICON World - Medium
The ICON Network has many complex concepts in place to keep the network running smoothly under various conditions. In this ICON ByteSize, ICX Station breaks down ICON’s dynamic reward system and explains why it matters.
One of ICON’s unique features is a dynamic reward system that allows for flexibility given different network conditions. Bitcoin, on the contrary, has a fixed block reward (12.5 BTC at time of writing), which gets cut in half approximately every 4 years regardless of network conditions (adoption, users, transaction volume, etc.). On the ICON Network, however, the rewards are regularly adjusted based on two key factors: staking participation rates and monetary policy decisions made by P-Reps (via i_rep).
Staking Participation Rates
The dynamic reward system on the ICON Network is designed to autonomously adjust based on varying network conditions. When the percentage of the network staked is low (therefore security of the ICON network is weak), the network automatically increases reward rates to encourage more people to participate in staking and securing the network. When staking participation rates are high, the network lowers the reward rate to encourage ICX holders to use their ICX for other things (playing with DApps, trading, deploying smart contracts, etc.).
This model creates the proper incentive structure, where ICONists are highly incentivized to lock up their tokens by staking when the network is weak. On the other hand, when the ICON Network is strong and secure, ICONists could potentially realize greater economic benefits through providing liquidity on exchanges, playing with DApps, etc.
Monetary Policy (i_rep)
The monetary policy of the network can be adjusted through toggling the i_rep variable. This tool can be used to bring more contributors to the ICON Republic via an adjustment to the rewards for committing certain actions. If there are not enough people contributing ...
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Hello ICON World - Medium