Skip to main content

General Channel Rewards Formula

The General Channel Rewards Formula is applied to LN Channel Rewards as well as LOC Channel Rewards. The general formula to calculate the two types of Channel Rewards uses the same general scheme, but the parameters can be set differently for each type.

The general formula to calculate the value of Channel Rewards for logging outbound capacity is a fixed amount or a percentage amount depending on which is lower:

general-channel-rewards-formula

  • reward-received  is the reward received in PL2.
  • fixed-reward  is a fixed reward.
  • capacity-multiplier  is the capacity multiplier.
  • treasury-hodl  is the current Treasury HODL reserves.
  • percentage-based  is a percentage-based reward.

Simply put, Lightning Nodes receive Channel Rewards in proportion to the capacity (i.e. amount of sat) and relative to the duration of the payment channel, depending on Plenny's reserves.

  • The fixed amount (F) is set to X* PL2.
  • The percentage (P) is set to X%.
  • The percentage-based variable (known as the Time Lock Reward in the Nucleus release**) defines the % of PL2 to be unlocked relative to a given time period (e.g. 1d is ≈6,500 blocks) from the total locked PL2 amount based on the bitcoin (i.e. sat) available in the payment channel.
  • Also, the percentage-based variable to calculate the value of rewards depends on the amount reserved for distribution in the Treasury HODL (THR).
  • The general reward threshold is set to X sat (e.g. 500,000), meaning Channel Rewards require this minimum amount of capacity in payment channels before LN Channel Rewards or LOC Channel Rewards can be generated.

The decisive factor in the general formula is the capacity multiplier. By using a capacity multiplier, higher capacities are rewarded above-average. This exponential growth calculation is intended to favor the participation of high-volume payment channels provided by stable nodes. Channel Rewards grow exponentially depending on the outbound capacity in sat. The original setup is based on the following values:

  • percentage-based = 500,000 (minimum size in sat).
  • capacity-multiplier  = 16,000,000 (maximum size in sat).
  • drawing= 1.5 (i.e. this constant is a pre-defined value referring to the square root function in Solidity).

The capacity multiplier is further defined as:

drawing
  • drawing  is the capacity provided in Satoshi (sat).
  • drawing is a threshold value (to discourage smaller channels).
  • drawing  is the maximum permissible channel size in Satoshi (sat).
  • drawing  is a power exponent for token rewards.

Applying these numbers results in the following reward multiplier curve based on the channel size in Satoshi (sat):

reward-multiplier-curve

The values for the actions quoted above follow the high-level logic that F equals P given the token inventory of 250M PL2 (the primary size of the Treasury HODL).

*X serves as a placeholder specifying a variable in the Smart Contract. Most of the variables and parameters used are visible through the Dapp user interface. Variables can be adjusted if the community votes by majority to change a setting.

**See Release and Version History.