Aligning Network Incentives
The Arithmic Network takes a fundamentally different approach to building a truly decentralised Layer-2. Our protocols allow users to participate in network security by bridging and staking their capital to infrastructure providers, who in turn execute important activities like validation, consensus, data availability, routing, sequencing, proving, etc. The network payouts and transaction fees are then split between the users and the infrastructure providers. This allows for existing and new infrastructure players to overcome prohibitive capital limitations that are prevalent in present-day networks. The Arithmic Network empowers users to earn high yields by providing the capital to secure the network infrastructure. It further accepts a variety of tokens as staking capital, which allows for a diverse set of compatible assets - a highly desirable feature for any Layer-2 network.
Developers building dApps on the network are also part of the network payout mechanism. As this model efficiently attracts users and infrastructure partners, the network provides a payout to developers building on Arithmic. Additionally, builders of projects involving Arithmic’s Liquid Staking Pools (explained in Section 4) can charge a larger fee on the yield payouts by the network, in the form of performance fees. The diagram below illustrates how end users, developers, and infrastructure providers, are aligned together through a carefully designed incentive mechanism based on staking and restaking at the protocol level.
The incentive for users to participate/use the Arithmic token lies in the lucrative yield mechanism built into the network. Users who would otherwise be holding capital with zero or modest returns can now participate and earn up to 10% APY in a growing network (more details in the next section). Infrastructure partners provide computation and are rewarded for it through the same yield mechanism while their honesty is guaranteed by the capital provided by users. The increasing number of users bringing in liquidity and actively earning yield makes the developer ecosystem extremely rewarding. They can now create sustainable business models on the protocol-guaranteed yield in addition to the usual performance/service fees.
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