Rewards and Restaking

Role of LAVA Token

The LAVA token serves various purposes on the Lava Network:

• LAVA is the asset denomination needed for paying the gas fees required to execute transactions or other operations on the Lava Network
• Validators stake LAVA to secure the network and participate in governance
• Providers stake LAVA, affecting the frequency of their pairing to Consumers
• Token holders delegate and can restake in LAVA to Validators and Providers
• Initial bootstrapping rewards (“Provider Drops”) for Providers are distributed in LAVA
• Consumers buy subscriptions in LAVA
• Providers are rewarded in LAVA monthly, in direct proportion to LAVA used to buy subscriptions the previous month

Reward Types

There are 5 types of rewards on Lava Network and each is distributed across different actors. All % are determined by and can be changed by DAO governance.

info

A few flows are missing from this diagram: (i) data accuracy slashing / rewards (ii) cosmos validator slashing for misbehavior (iii) Referral / affiliate fees (iv) staking, (iv) Public Lava RPC Pools, (v) validators rewards from subscription rewards.

Subscription Rewards

Consumers purchase subscriptions with LAVA. The majority of this LAVA is distributed monthly to Providers, relative to factors such as total compute served. More details are available in the whitepaper. The rewards distribution is as follows:

• 95% to Providers and their Delegators, of which Champions will take a % commission determined by the DAO
• 4.9% to Validators and their Delegators
• 0.1% to Community Pool

Public Lava RPC Pools

Chains create Pools on Lava Network by depositing their native token. This pool is used to incentivize RPC Node Providers to serve and scale the chain’s RPC infrastructure. The rewards distribution is as follows:

• 95% to RPC Node Providers and their Delegators, of which spec contributors will take a % commission determined by the DAO
• 4.9% to Validators and their Delegators
• 0.1% to Community Pool

Block Rewards

Block rewards are a fixed 3.4% of total LAVA supply, monthly over 4 years, with variable burn. The rewards distribution is as follows:

• 98% to Validators and their Delegators
• 2% to Community Pool

RPC Node Provider drops

RPC Node Provider Drops are a fixed 6.6% of total LAVA supply, monthly over 4 years, with variable burn.

Provider Drops are a rewards reserve dedicated to attracting RPC Node Providers to join the network and offer service in the early growth stages. The payouts from this reserve are scheduled to be distributed across 4 years and are variable based on paid demand:

• 0-100% to Providers
• 0-100% burn

The higher the paid demand for Lava Network subscriptions, the higher the payouts of Provider Drops (up to a limit per month).

RPC Node Provider and Validator Commissions

Delegators earn rewards minus a commission % set by RPC Node Providers and Validators.

The *default commission *for Providers is 50%.

Commission is expected to be higher for Providers because they run a more operationally intensive business than Validators.

Economic Actors & Rewards

Chains

Chains pay gas fees to deploy Public Lava RPC Pool in LAVA tokens. These Pools consist of the native tokens of that chain. Tokens are used to attract RPC Node Providers to serve RPC.

Each month, Pool rewards are distributed to Providers based on the amount of compute units served and the quality of that service.

Staking and Restaking

LAVA can be delegated to validators, who earn block rewards for securing the network. This delegation can then be restaked to RPC Node Providers, who serve subscriptions defined by their spec. Restaking is to a chosen spec and RPC Npde Provider.

The following shows the different scenarios for delegating to Validators and Providers:

Scenario	Flow	Rationale
I want to delegate to a Validator	Delegate to a Validator. Optionally restake to a chosen Provider and spec	Improves Quality of Service by allowing Validator delegators to contribute towards Provider selection.
I want to delegate to a Provider	Delegate a Validator and then restake to a chosen Provider and spec.	Improves capital efficiency by requiring Provider delegators to contribute towards security
I want to stake as a Validator	Stake as a Validator. Optionally restake to a chosen Provider and spec	Improves Quality of Service by allowing Validators to contribute towards Provider selection.
I want to stake as a Provider	The tx to create a Provider first delegates to a Validator then restakes as a Provider	Improves capital efficiency by requiring Providers to contribute towards security

Example

Staking to a Validator Scenario #1: Validator has staked a minimum of 100 LAVA and a user wants to delegate. The Delegator can stake LAVA solely to the Validator, without obligation to restake to a Provider.

Staking to a spec Scenario #2: Provider has staked a minimum of 100 LAVA and a user wants to delegate to the Provider’s Dymension RPC spec to earn a share of their rewards for serving Dymension RPC. Delegator is required to first delegate to a Validator. No additional capital is required but the delegation can be restaked to a spec, meaning greater risk but higher rewards (Provider rewards to Delegators).

Validators

Validators earn block rewards, fees from subscriptions, and incentives from Public Lava RPC Pools.

• Block rewards: for every successfully signed block, Validators and their delegators/restakers earn rewards from a reserve worth 3.4% of total supply
• Commission on delegations: Validators can set a commission on delegator rewards
• Provider subscription rewards: 4.9% of subscription rewards go to Validators and their delegators
• Public Lava RPC Pool rewards: 4.9% of the Pool rewards go to Validators and their delegators earn. Pools consist of the native token of a chain deployed on Lava Network.

Example

Validator has staked a minimum of 100 LAVA. A user delegates 50 LAVA to the Validator i.e. Validator has 66.6% of stake and delegator has 33.3%. Consider a scenario where the block reward is 1000 LAVA and commission is 5%.

98% (980 LAVA) of Block rewards go to Validators and delegators. 2% goes to the Community Pool (20 LAVA).

Of the 980 LAVA, the Validator gets (9800.66) + (9800.33*0.05) in rewards i.e. 668.85 LAVA. Delegators would get 311.15 LAVA.

Additionally, if there is a Public Lava RPC Pool of 1000 TOKEN or a Subscription pool of 1000 LAVA, Providers and their delegators would get 95%, Validators and their delegators would get 4.9% and the Community Pool would get 0.1%.

Of the 4.9% (49 TOKEN or LAVA), assuming the same 2:1 ratio in Validator:Delegator stake and a 5% commission, the Validator gets (490.66) + (490.33*0.05) in rewards i.e. 33.1485 TOKEN or LAVA. Delegators would get 15.8515 TOKEN or LAVA.

RPC Node Providers

RPC Node Providers earn rewards from subscriptions, commission on restaked LAVA, Public Lava RPC Pools and variable Provider Drops.

• Provider Subscription rewards: Providers and their restakers earn 95% of subscription rewards. A subscription is not to an individual Provider, and this 95% is shared between all Providers who have served the relays under that subscription
• Commission on restaked LAVA: Providers set a commission on delegator rewards
• Public Lava RPC Pool Rewards: Providers and their delegators earn 95% of the Pool rewards. Pools consist of the native token of a chain deployed on Lava Network
• Provider drops: Lava Network has a rewards reserve designed to incentivize RPC Node Providers to join in the initial phases of Mainnet

Example

Provider has staked a minimum of 100 LAVA. A user delegates 50 LAVA to the Provider (which has also restaked to a Validator of their choice) i.e. Provider has 66.6% of stake and delegator has 33.3%. The Delegator would also restake the same 50 LAVA to a Validator, taking on extra risk but earning additional yield, as calculated in the previous section on Validator rewards.

Consider a scenario where the monthly Subscriptions total to 1000 LAVA and Provider commission is 5%. This example assumes that there is 1 Provider and Champion commission is 0% - learn more in the next section.

The Provider and their delegators would get 95%, Validators and their delegators would get 4.9% and the Community Pool would get 0.1%. Of the 95% (950 LAVA), given that Provider stake is 2:1 of delegations and there is a 5% commission, the Provider gets (9500.66) + (9500.33*0.05) in rewards i.e. 642.675 LAVA. Delegators would get 307.325 LAVA.

If there are multiple Providers on the network, individual Subscription rewards are determined by factors including Quality of Service and compute served. More details are available in the whitepaper.

RPC Node Providers also receive Drops, a variable reward boost distributed monthly in direct proportion to paid demand for Lava Network. In cases where there are a few Providers or quality is low, Drop rewards may not be distributed. This is to prevent collusion between Consumers and Providers to earn rewards.