Function X: April Hash Out

[Request for comment (ROC)] Computation of the Delegation of Governance Staking


It was in August 2018 that we first shared f(x) The Road Ahead , it is the call-to-action to build something ten times better. It is with this that we set ourselves to build Function(x) a blockchain that is ten times better. After almost three years, we finally countdown to Mainnet launch. It is imperative to reiterate our vision and what it means to FX and PUNDIX token holders.


FX is the governance DAO token.

Holders are able to earn newly minted tokens from new blocks, we expect the earnings to be attractive but sustainable. It is likely on par or higher with the staking reward users are getting in the running pre governance staking. PUNDIX token holders will be able to participate via ecosystem development allocation part of new tokens especially with XPOS ported into Function X blockchain.

Block rewards of FX Core

As per discussion of the previous article, the team has revealed and illustrated the mechanic, variables and rationale behind the block reward mechanism of the backbone of Function X network — FX Core blockchain.

We would like to discuss the key parameters of the block reward of FX Core in this article, namely:

  1. Target staked (bonded) ratio

  2. Inflation rate change variable

  3. Initial annual inflation rate

  4. Minimum and maximum of the annual inflation rate

  5. Ecosystem, liquidity and community pool

  6. Commission rate of validator

Review of the mechanics

The formula of delegation reward can be divided into two parts:

Part one, to determine how many new tokens will be generated per block (see Formula of New Token Creation per block);

Part two, the distribution of the newly generated tokens among the contributors of the network (See Formula of delegation reward).

Part one: Formula of new token creation per block

Formula 1: Inflation rate per block = (1- Current staked ratio / targeted staked ratio) * inflation_rate_change_variable / annual number of block creation

Formula 2: Number of new token creation = (Previous annualised block inflation per block + inflation rate per block ) current token supply*

We have introduced Dynamic inflation rate in our previous article, in which Inflation rate (per block) changes in every block according to the current staking ratio, target staked ratio and inflation change variable.

Inflation rate (per block) is the key parameter in deciding how many tokens will be generated per block and the inflation rate of each block will be adjusted upon the staked tokens in the network on the previous block. In theory, the inflation rate of block 10001 and block 10002 are different as the inflation rate is computed on a block by block basis. The annual inflation rate has to be divided by the annual block generated (assume is 3,944,700).

Initial annual inflation rate is the basis or the starting point of the inflation rate per block, i.e. to plus(+), minus(-), remain unchanged(=) upon the initial rate after the calculation of the previous block to get the inflation rate (per block). Current token supply times the inflation rate (per block) to get the number of new generated token (per block).

Part two: Formula of the distribution of delegation reward

[(Total current token supply * inflation rate * current staked ratio * block) * (1- community, liquidity & ecosystem pool rate)] * [(total delegated token / total staked token of the node * (1-commission rate) * participation period]

To diversify, enrich and enhance the ecosystem, Function X network needs to attract and incentivise contributors, such as liquidity providers, developers, marketing, community and so on, to participate in the development of Function X network. All newly generated tokens shall be shared among all contributors, such as governance stakers (validator and delegator) and community, liquidity providers and ecosystem.

In the other words, all newly generated tokens minus community, liquidity and ecosystem pool shall equal to the portion that belongs to governance participants (validator and delegator).

From here, the governance portion shall further be distributed among the validators and the governance reward of each respective validator shall further be distributed among the delegators after deducting the commission rate required by each validator according to the participation period.(See figure 1)

Figure 1

Illustration of the parameters

1. Target staked (bonded) ratio

The indicator shall come with a current (market) staked ratio. The differences between these two indicators determine to increase or decrease the degree of the inflation rate per block according to the current staked ratio.

If target staked ratio > current staked ratio, the inflation rate per block increases, it means more token will be created to attract more token to be staked;

If target staked ratio = current staked ratio, the inflation rate per block remains unchanged;

If target staked ratio < current staked ratio, the inflation rate per block decreases, it means less token will be created to meet the target staked ratio.

2. Inflation rate change variable

It is an accelerator that reflects the difference of the target staked ratio and current staked ratio to the inflation rate. The higher the number (%), the faster the reflection to the inflation rate. If it takes the inflation rate change variable of 0.2 to increase the inflation rate of 10% in 2 years, it will only take 1 year if we adjusted the inflation rate change variable to 0.4.

3. Initial annual inflation rate

It is the starting point of the inflation rate of the genesis block. The annual inflation rate means the annual number of newly generated tokens. Please note that the annual inflation rate is calculated on a per block basis and in theory, this parameter will keep changing depending on the current (market) staked ratio.

4. Minimum and maximum of the annual inflation rate

It is the ceiling rate and floor rate of the inflation rate since FX Core is introducing a dynamic inflation rate mechanism, the inflation rate in theory can drop to zero or sky rocket. The setting of min and max are to ensure Function X network stays competitive.

5. Ecosystem, liquidity and community pool

It refers to the reserve portion belonging to other contributors, such as developers, community, liquidity providers etc. This portion of funds shall be locked in a reserve smart contract where it can only be unlocked through governance voting. The lower the number (%), the lesser the tokens will be reserved for the other contributors.

6. Commission rate of validator

It is the commission fee that is set by the validator and paid to the validator directly (a person or institution sets up the node) if the delegator decides to delegate his/her token to the specific validator node. This commission rate is preset and cannot be changed when the node is running. The commission will automatically be deducted and sent to the validator wallet address. The higher the number (%), the merrier the token will be paid to the validator.

Please note that item(1) to item (6) are subject to be changed by the governance voting and will be reviewed and monitored by the community periodically.

Proposal (Request for comment)

As mentioned in the previous article, safety is our utmost concern and sadly, safety is not the only concern we are worried about. Rewards shall come with risk and responsibility and these lessons can be very expensive without guidance.

We are urging our token holders and community to participate in the current onchain staking program to get familiar with the setup, environment, costs, risks etc. The next stage would be the risk and responsibility. To smoothen the transition, the team has decided to take a step by step approach by enabling the function of delegation first and opening the validator node spots to the trusted institutions and public gradually.

Despite the fact that FX Core shall only enable the function of delegation (staking in validator node) at the very beginning, participants from the delegation shall be entitled to the block reward as well.

The team would like to propose the parameters as follows:

  1. Target staked (bonded) ratio

Proposed rate: 51%

  1. Inflation rate change variable

Proposed rate: 30%

  1. Initial annual inflation rate

Proposed rate: 35%

  1. Minimum and maximum of the annual inflation rate

Proposed minimum annual inflation rate: 17%

Proposed maximum annual inflation rate: 41.6762%

  1. Ecosystem, liquidity and community pool

Proposed rate: 40%

Remarks: 10% for liquidity provider, 10% for DEFI application, 15% for developers, 3% for FX Core, 2% for community

  1. Commission rate of validator node

Proposed rate: 1%

Remarks: Initially all validator nodes will be co-managed by Pundi X and Function X. The commission rate for each validator node is just to cover the minimal server and management cost.

Further illustration under the above setting:

  1. The initial annual inflation rate is 35%, if the current staked ratio > target staked ratio (51%) maintaining in a sufficient time period, the minimum annual inflation rate will be reduced to 17%; if the current staked ratio < target staked ratio in a sufficient time period, the maximum annual inflation rate will be increased to 41.6762%.
  2. Assume the current staking ratio is 33%, it will take 0.56667 year to increase 6% annual inflation (from 35% to 41%) ; assume the current staking ratio is 67%, it will take 0.6375 year to decrease 6% annual inflation rate (from 35% to 29%)
  3. For every 10 newly generated token, 6 (60%) token shall be distributed among the validator node and 4 (40%) shall be distributed among ecosystem, liquidity and community pool. Taking item 1 into account, if the inflation rate is 35%, 21% (35% *60%) shall reflect on the governance staking and 14% (35%*40%) shall reflect on the ecosystem, liquidity and community pool.
  4. If the total receivable staked reward as a delegator during the initial stage is 100 FX, only 99 FX will be received after the deduction of commission rate (1%) of validator.
  5. The initial setting shall be revisited and revised periodically and can be changed through governance voting in the future.

Some examples for reference:

  1. Alice decides to stake as validator on the first day on the Mainnet, during that time only 20% of tokens are staked (assume with proposed parameters as above), Alice will tentatively enjoy an annual token staking reward up to 103% . This is assuming that tokens staked remains constant at 20%.
  2. Bob decides to stake as validator after Mainnet goes live in a year and there are already close to 100% tokens staked because the project was successful. He will enjoy an annual token staking reward of 10%. This is a very simplified scenario.
  3. Charles chooses to stake as delegator.( In most cases, holders will choose to stake as delegator. The difference between a delegator and validator is that there are less work to do as a delegate as you let validators manage your tokens.) Assuming that validator charges 10%, instead of getting a 1000 $fx per annum, Charles will be getting only 900 $fx.

Reference reward rate (in token basis)

If we insert the above mentioned parameters to the calculator as below:

Assume block time is 7 secs, current (market) staking ratio is 33%, the annual block reward rate shall be 63% (token basis). If the staking ratio is lesser than 33%, the block reward shall be increased accordingly. For reference and benchmark, according to, FX Core’s 63% annual staking reward shall rank top 10 in terms of the staking reward.

For reference purpose, under the proposed setting and the assumption of market staking ratio as 33% (which could be fluctuated), for every 100 FX staked in the governance staking the annual compounding reward could be somewhere around 63 FX.


*FX Core is using dynamic staking ratio per block, hence the variable might be different.

**The block reward is merely for reference, it might not be accurate in practice. Do your own research.

***Compounding means the delegator needs to stake their FX reward derived from their principal staking in the governance staking.

Last but not least

Nothing is guaranteed. In extreme cases, the fund and the staking reward may be reduced or lost. Please always do your own research and put in what you can afford to lose only.

Decentralised world has a pretty steep learning curve. STAKE AT YOUR OWN RISK. (SAYOR). Participate at your own risk.

As always, you can comment here or in Reddit and let us know your thoughts and feedback on the proposal we’ve made.

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