Does the expected return of being a validator scale with the number of transactions?

Question:

  • Let’s say I’m running a validator and the number of transactions happening per day is X. I earn Y per year for taking part in providing this service.
  • At some point in the future, let’s say the number of transactions per day grows to 1000X. Does the earnings scale to 1000Y as well? Do you get more rewards for processing more transactions per day?

(for simplicity, in this scenario assume the number of validators or their respective stakes don’t change)

Yes, through burning of additional transaction fees. The interesting part about burning of fees is that it benefits everyone (even non-stakers), although it benefits stakers proportionally more because they are continuously growing their share of the capped supply of AVAX, while users (non-stakers) are diluting themselves.

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Oh. so basically the money pool gets smaller as transactions scale so the rewards of validating became more valuable ?

Cool.

I have no doubt its a well thought out design but I’m curious and would like to learn: What’s the logic behind burning? Why not distribute transaction fees to the validators and keep the number of coins outstanding constant?

So are fees getting burnt, like gone for good? Or added back to staking rewards pool?

I initially thought the former, but then heard the latter somewhere so I’m unsure.

According to the tokenomics paper (Pg. 9), based on the circulating supply the minting function continually mints up to a max of 720m.

Thanks for pointing this out. I should really read the whitepapers before asking dumb questions. Not sure what you mean by “Pg. 9”, but I’m seeing pertinent info in the “Token Economics” section (TeX label 3-5) in this paper. https://files.avalabs.org/papers/token.pdf My cursory read’s summary is: Coins are minted for staked validators, and burned by transactions. The correlation is not necessarily 1-to-1, but the minting & burning formulas are built to scale with the desired curves towards 720M coins.

Unlike other protocols that pay all fees to the elected leader, such as in Bitcoin, in Avalanche fees are simply burned. Therefore, payment is global and for the good of the entire ecosystem. Fee burning increases scarcity of tokens in the system. The minting process offsets the transaction fee burning, therefore there is no danger of the system grinding to along term halt due to gradual destruction of coins"

Ah I missed the part referring to minting, or misunderstood what it meant. The “fee burning increases scarcity” led me to assume that the cap will reduce from 720m.

Good to know.

Thanks @jd21

So basically, the burnt fees are redistributed as node rewards at some point. Then, more transaction means more reward. (although I’m not sure in which proportion)

Right?

Through non-dilution yes.

Yep, so one might expect we find a “steady-state” of inssuance vs tx burns at some point down the line.

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