OMG Network Staking Returns

In Blog, OMG Network by OMG Network

There have been a lot of questions about staking returns and transaction fees on the OMG network. Unfortunately most of them can’t be answered yet — partly because the network is still in development, but just as importantly because it is not up to us to set the fees. Although we are building the platform, it is you, the stakers and users of the network, who will ultimately determine the actual fees.

OmiseGO’s OMG blockchain decentralized exchange (DEX) will be built into the consensus layer of a Proof of Stake (PoS) blockchain. OMG tokens are required for participating in the network’s consensus and validation process. Stakers will act as validators of the blockchain and, if you choose to stake, you will receive a return from fees that validators charge to network users to cover the cost of validation of transactions (which include trades) carried out over the DEX.

However, there are some common misunderstandings about how fees work in an open, public blockchain, and we want to be very clear about what is and is not known at this point. At this stage, it’s probably most important to explain that there is no way for OmiseGO to control the fee structure. Fees are not controlled by any algorithm, or central party’s decision, but are instead 100% dynamically determined by supply and demand within the network.

Transaction fees are paid dependent on network use, and revenue comes from both network usage and network growth. As an organization looking to create a 100% public network, OmiseGO are looking for the most usage possible. As a payments company looking for a profitable transition model for payment processors (not just us, but any other payment processor) moving into the decentralization age, we are looking for the most growth possible too.

People question whether Omise (OmiseGO’s parent company) will take further profit from the OMG network. The answer is yes, but only inasmuch as Omise is able to take advantage of the OMG network’s capabilities to improve the way we do business. If Omise is able to leverage the network’s capabilities to solve inefficiencies within our own operations, we can lower our own costs. If we are able to provide value added services to the payments we’re facilitating then that would be grounds for charging additional fees according to market rates (e.g. related consultancy work).

As with Ethereum or Bitcoin, users will be able to name their price when they submit a transaction, and validators are able to choose which transactions they pick up. Transactions with unreasonably low fees attached will find few or no validators willing to pick them up, and so will be slow to confirm or never confirmed at all. Validators trying to extract unreasonably high fees will find themselves with nothing to validate and therefore collecting no fees. Somewhere in the middle, reasonable people will be doing business based on fees that are equal parts practical for users and profitable for stakers.

The goal is to provide a payment rails that is as complete and autonomous for both sender and receiver as possible, to have all middlemen (including ourselves) facing an unprecedentedly transparent and competitive environment, and to have the cost of using the network as close to the will of the network as possible. The potential for additional profit is there but unclear, and Omise will have to compete on exactly the same playing field as everyone else.

Beyond this, it’s impossible to say right now — it simply isn’t feasible to try to calculate numbers at the present stage of development. But don’t be discouraged: people will pay to use the OMG network, and OMG stakers will be paid when it’s used. Ultimately this comes down to supply and demand: how many transactions people are submitting versus how much block space is available. We anticipate that both will be high and are constructing the network accordingly. We expect returns to be competitive (we will be staking too, on equal terms as everyone else) but at this point we won’t make promises about what that will mean.

We know you’re also very curious about the mechanics of staking, and will be putting out another post soon to address some of the (thoughtful and valid) questions that we see floating around. But before you get all excited, be advised that many of these things are also still to be determined.

Remember this post: where we referred to the OMG network scaling to a huge forest thanks to the fertile soil that is Plasma?

You, token holders and future stakers, are the saplings putting down roots who will be nourished by a gentle rain of life-giving transaction fees under the warm rays of the…open source Sunlight Development Kit? The metaphor can only take us so far, but the point is: you are the network.

Other networks that are already up and running put out concrete numbers based on historical data (and possibly highly questionable economic models). We do not. Other people building networks have made claims about what returns will be. We will not. At this point, trying to predict staking returns would be irresponsible and would only fuel rumors and exacerbate volatility in the token price, setting the market up for frantic price corrections (in one direction or the other) once concrete numbers start to actually emerge. We don’t want that and neither do you.

In a way, the specific numbers involved in staking are beside the point, given that they are an expression of the relationship between the cost of running the network and the willingness on the part of users to pay to use it. Nevertheless, we are building to keep costs as low as possible in order to allow the return that can be claimed by stakers as high as possible without diminishing the extent of adoption and use. Ultimately, the success of the OMG network will depend on how the technology is developed, how much adoption occurs, and the engagement of the community in operating the network and bringing on board new use cases.

We’re just as excited as you to find out how this is all going to shake out. We understand why you want us to tell you how many million dollars you are going to make, and how that leads people to speculate based on what they do know, what they presume and what they would like to be true. It’s tempting to act based on speculation and guesswork, and if you choose to do that then we wish you the best of luck. But please take it from us that there is not enough data to make a fully informed decision. When there is, we will be the first to know, and we will share it freely.