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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:

Verification and Acceptance Flow​

DeltaVerifier (on-chain) validates each challenger submission by consuming HEM (Hokusai Evaluation Manifest) per-row eval artifacts stored in MLflow. When a submission passes verification, DeltaVerifier publishes a MintRequest (schema v1.0) to Redis; amounts are standardized on bps + USDC micro-units for on-chain precision (see HOK-1266). For sales-specific scorers, measurement policies, and mint-eligibility gates, see Custom Scorers & Sales Metrics.

Reward Calculation​

Reward = DeltaOnes * Tokens_Per_DeltaOne

Where:

  • DeltaOnes = Number of percentage points of improvement (1 DeltaOne = 1% improvement on the model's primary metric)
  • 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 routes API usage fees with cost-plus logic when the oracle has a price for the model:

  • Infrastructure cost: Estimated from InfrastructureCostOracle and sent to InfrastructureReserve
  • Profit Share (residual): Deposited to AMM Reserve as USDC, increasing token price

If the oracle has no entry for the model, the router falls back to the model's infrastructureAccrualBps parameter in HokusaiParams.

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

How It Benefits Token Holders​

When profit share is deposited to the AMM reserve:

Example: $10,000 API revenue with 70% infrastructure accrual
Infrastructure Accrual: $7,000 → InfrastructureReserve (for AWS/compute costs)
Profit Share: $3,000 → AMM Reserve

Reserve increases: R → R + $3,000
Supply unchanged: S → S
Price increases: P = R / (w × S)

Example: $10,000 API fees with 70% infra accrual → $3,000 profit share to reserve → ~3% 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 based on per-model parameters:

function depositFee(
    string memory modelId,
    uint256 totalFees,
    uint256 callCount
) external onlyFeeDepositor {
    uint256 costPer1000Calls = costOracle.getEstimatedCost(modelId);
    uint256 infrastructureAmount = (costPer1000Calls * callCount) / 1000;
    if (infrastructureAmount > totalFees) infrastructureAmount = totalFees;
    uint256 profitAmount = totalFees - infrastructureAmount;
}

Key Insight: The profit share (after infrastructure accrual) increases USDC reserves without minting tokens, creating price appreciation for holders. Models with lower infrastructure costs generate higher profit share.

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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