Staking Rewards

One of the biggest challenges in designing a staking rewards system is protecting against mercenary farming—where users stake only to farm rewards and leave as soon as incentives dry up. Traditional staking models, like those used in Aave, Synthetix, and Compound, function like a firehose, spraying rewards over a predetermined period. This approach attracts short-term liquidity but often leads to rapid outflows once the incentives disappear.

Our generalized staking rewards model is designed as a standalone incentive framework that can be utilized by any decentralized protocol to discourage mercenary behavior and reward long-term commitment. Instead of a firehose, our model operates more like an airdrop: rewards are distributed based on staked positions at the moment rewards hit the protocol. However, these rewards do not become available immediately—they enter a pending state and gradually convert into claimable rewards over time.

Core Mechanics

1. Pending vs. Available Rewards

When rewards are distributed, they first enter a pending state. Pending rewards cannot be claimed immediately but vest over time. A half-life mechanism controls the rate at which pending rewards become available. Once pending rewards are converted to available rewards, they can be freely claimed.

2. Forfeiture on Unstaking

If a user unstakes before their pending rewards fully vest, they forfeit a proportional amount. Example: If a user unstakes 25% of their position, they lose 25% of their pending rewards. Available rewards are never forfeited—once vested, they belong to the user permanently.

3. Redistribution of Forfeited Rewards

Forfeited pending rewards are not burned or lost; instead, they are redistributed to remaining stakers. This creates a compounding effect, where users who stay staked longer than others see amplified rewards. The system naturally rewards patience and discourages opportunistic behavior.

Flexible Reward Distribution

Rewards can be sent by any user, not just the protocol. This allows for external reward boosts, making it easier for projects, DAOs, foundations or other partners to incentivize staking participation.

Conclusion

The staking rewards framework introduced here is broadly applicable to decentralized protocols beyond Multiswap. It addresses the fundamental weaknesses of traditional staking incentives by shifting from a firehose-style rewards system to an airdrop-based approach with vesting and forfeiture that ensures that long-term participants benefit the most.