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Reward Mechanisms

This document details how contributors earn tokens and how token holders benefit from API usage.

Token Distribution & Benefits​

There are two ways value flows to participants:

  1. Performance Rewards: Contributors earn new tokens for improving models
  2. API Fee Benefits: Token holders benefit from price appreciation as API fees increase reserves

Important: There are no staking rewards, dividend distributions, or governance token rewards currently available.

1. Performance Rewards​

Rewards for improving model performance:

Reward Calculation​

Reward = DeltaOnes * Tokens_Per_DeltaOne

Where:

  • DeltaOnes = Number of percentage points of improvement (1 DeltaOne = 1% improvement)
  • Tokens_Per_DeltaOne = Fixed number of tokens awarded per DeltaOne

Example:

Baseline Performance: 75% accuracy
New Performance: 82% accuracy
Performance Improvement: 7%
Tokens per DeltaOne: 100 tokens

Reward = 7 DeltaOnes * 100 tokens = 700 tokens

2. API Fee Benefits​

API usage generates fees that benefit token holders indirectly:

Fee Distribution via UsageFeeRouter​

The UsageFeeRouter contract splits API usage fees two ways:

  • 20% to AMM Reserve: Deposited as USDC, increases token price
  • 80% to Infrastructure: Covers operational costs (compute, hosting, bandwidth)

Note: These are NOT direct rewards to token holders. Instead, the 20% increases the USDC reserve backing all tokens, which raises the token price proportionally.

How It Benefits Token Holders​

When API fees are deposited to the AMM reserve:

Reserve increases: R → R + Fees (20% of API fees)
Supply unchanged: S → S
Price increases: P = R / (w × S)

Example: $10,000 API fees → $2,000 to reserve (20%) → ~2% price increase for all holders

This is NOT:

  • Staking rewards
  • Dividend payments
  • Direct distributions to holders
  • Governance token rewards

Distribution Mechanisms​

1. Performance Distribution​

The TokenManager contract handles performance-based rewards:

function mintForImprovement(
    bytes32 modelId,
    uint256 improvementBps,
    address contributor
) external onlyVerifier {
    require(improvementBps > 0, "No improvement");
    uint256 reward = calculateReward(improvementBps);
    _mint(contributor, reward);
    emit ImprovementRewarded(modelId, contributor, reward);
}

Key components:

  • DeltaOneVerifier: Validates performance improvements
  • TokenManager: Mints and distributes rewards
  • ModelRegistry: Tracks model performance and token addresses

2. API Fee Distribution​

The UsageFeeRouter contract routes API usage fees:

function distributeFees(
    bytes32 modelId,
    uint256 totalFees
) external onlyFeeCollector {
    uint256 ammAllocation = (totalFees * 2000) / 10000; // 20%
    uint256 infrastructureAllocation = totalFees - ammAllocation; // 80%

    // Deposit to AMM reserve (increases token price)
    HokusaiAMM(ammAddress).depositFees(ammAllocation);

    // Send to infrastructure
    USDC.transfer(infrastructureAddress, infrastructureAllocation);
}

Key Insight: 20% of API fees increase USDC reserves without minting tokens, creating price appreciation for holders.

Vesting Schedules​

1. Performance Rewards​

  • 3-month cliff period
  • Early withdrawal penalty

2. Liquidity Rewards​

  • Immediate distribution
  • Bonus for longer commitments

Reward Parameters​

1. Performance Parameters​

  • Minimum improvement threshold: 10 bps (0.1%)
  • Maximum reward per improvement
  • Cooldown period between improvements

2. Liquidity Parameters​

  • Base reward rate
  • Bonus multipliers
  • Lock-up periods

Monitoring and Analytics​

1. Reward Metrics​

  • Total rewards distributed
  • Reward distribution by type
  • Vesting status

2. Participation Metrics​

  • Active contributors
  • Liquidity providers

3. Impact Metrics​

  • Model improvements
  • Protocol growth
  • Community engagement

Next Steps​

For additional support, contact our Support Team or join our Community Forum.

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