Root Proportion
Root Proportion determines how validator rewards are distributed between TAO staked to root and ALPHA staked to a subnet.
Root Proportion determines how validator rewards are distributed between TAO staked to root and ALPHA staked to a subnet.
When a new subnet launches, root nominators initially receive the majority of the rewards. Over time, the distribution gradually shifts towards ALPHA nominators. This shift occurs as more subnet tokens (ALPHA) enter the supply of the subnet.
Root Proportion ensures a smooth transition from centralized security, which is initially provided by root. It gradually shifts the consensus towards validators holding ALPHA in the subnet.
The root proportion is calculated based on the amount of TAO staked to root and the total ALPHA's supply of a given subnet. The formula goes as follows:
This calculation is influenced by three main factors:
- The amount of TAO staked to root
- The "TAO weight" parameter (1.8% on testnet, 18% on mainnet)
- The total supply of a subnet's token (ALPHA)
The root proportion increases when more TAO is staked to root. This is because the effective stake of TAO in the subnet increases. However, the root proportion decreases as more subnet tokens enter the supply of the subnet. This reduction happens naturally as the subnet's supply matures.
As a result, the root proportion will continue to decrease gradually over time. This decrease corresponds directly with the growth of the subnet's token supply.
41% of newly created ALPHA that are distributed to the subnet participants, are allocated as validator rewards.
The root proportion splits these rewards between TAO staked to root and ALPHA hold by validators and nominators. For example, if the root proportion is 0.75, then:
| Share of total ALPHA | Share of dividends | |
|---|---|---|
| Root's TAO | 30.75% | 75% of 41% |
| Subnet's ALPHA | 10.25% | 25% of 41% |
The ALPHA "owned" by root, is being automatically sold for TAO through the subnet's pool each block. This conversion process takes place before any rewards are distributed. Root nominators only receive TAO instead of subnet tokens.
In contrast, validators holding ALPHA receive the subnet tokens directly and can choose to either hold or sell those themselves.
During the early stages of a subnet, strong selling pressure occurs. This happens because a significant share of ALPHA dividends, the share "owned" by root is sold for TAO.
As a result, this selling pressure lowers the price of a subnet. This pressure gradually decreases over a period of approximately 65 days. During this time, the root proportion reaches 50%. After this point, it continues to decrease until it eventually reaches 0%.