ThreeFold recently introduced a third generation farming model, which also creates a change in tokenomics. Here, I’ll be explaining the shift and what it means to farmers as well as the larger community. I hope also to open a discussion around any questions and concerns that remain.
Let’s start by looking into the old farming V2 model. Under V2, farmers receive diminishing rewards over time according to a “difficulty level” that’s based on the number of tokens already minted and the amount of capacity connected to the Grid. There is a limited supply of TFT that will ever exist, so no more tokens would be minted when that cap was reached. This model assumed that cultivation income from Grid utilization would eventually replace farming rewards as the sole source of income for farmers.
Like many projects offering token rewards to network participants, V2 was designed to bootstrap the Grid by providing meaningful rewards to early participants, even without significant adoption to drive cultivation income. This was a success, driving the Grid to already become the largest decentralized storage and compute network in existence. However, utilization has not grown to match the available capacity, and there were no incentives under V2 to drive the sales of Grid capacity.
Moving to V3
A shift in the farming model was necessary to sustain the long term viability of the Grid and ensure that there is also a proper incentive to grow utilization. Farming V3 provides stable rewards for farmers over a five year period, with the possibility that rewards will taper off after five years. This means that while farmers may receive fewer tokens per month upfront, they will have a predictable return over five years. At the same time, a portion of tokens spent to deploy workloads to the Grid are burned, ensuring that more tokens can be minted to reward farmers on an ongoing basis.
The other piece of V3 is providing incentives for those who sell Grid capacity. This includes farmers who sell their own capacity. By directing some revenue to “sales channels”, we balance incentives among those providing capacity and those bringing users for that capacity. As with V2, a small part of tokens spent on capacity go to the ThreeFold Foundation for marketing, promotion, and supporting growth of the Grid.
A final piece of V3 is that farmed tokens are staked, either until the 3Node reaches 30% utilization for three months, or until the node has been online for 24 months. Cultivation revenue is still made available to farmers immediately. This has been done in order to scale the release of tokens with the growth of Grid utilization and demand for TFT. Farmers who want their tokens unstaked sooner will be motivated to find uses for their capacity. Another consequence is that farmers whose capacity in high demand will be encouraged to add more capacity when their tokens are unlocked.
While existing nodes may earn less initially when they migrate to v3 minting, they will earn more cumulatively over the five year period that the reward rate is locked.
Designed with care and open for discussion
Ultimately, the farming models have always been designed with consideration for the best interests of all stakeholders in the network. This shift is intended to provide sustainable rewards for new farmers on an ongoing basis, while also bringing utilization to the Grid through sales incentives. Farmers can calculate the rewards for a specific hardware configuration using the calculator, with confidence that these rewards will be stable for five years.
So, what questions and concerns do you still have about the new ThreeFold farming model?