As a Web3 infrastructure provider, Pocket Network has designed its tokenomics to attract users to its solution. Recently, Messari highlighted Pocket’s token incentives approach in relation to other Web3 infrastructure providers. Discover how Pocket’s token has paved the way for a wave of growth and is fostering long-term sustainability for the protocol. Make sure to see Part 1, Part 2, and Part 3 of this series for more of Messari's insights.

A Supply and Demand Economy Balanced with Incentives

Supply and demand marketplaces like Pocket all experience the same challenge at the beginning: attracting enough people to the marketplace and making it valuable for every user.In DeFi, for example, protocols are in a way injecting “artificial” liquidity through token emissions to generate enough leg room for traders to use their platforms.Web3 infrastructure protocols face similar challenges with a slightly different approach, due to their economics. Even with these different approaches, token incentives still play a major role in attracting the first users, from applications to node runners, and bootstrapping protocols for future growth and adoption.Web3 infrastructure providers like Pocket have designed systems with novel, cost-effective, and equitable structures, focusing on an economy based on staked tokens in order to boost adoption.

How do Token Incentives Work within the Pocket Ecosystem?

A node wanting to participate in Pocket’s protocol needs to buy and stake its native token - POKT - to start servicing data relays. Currently, the minimum stake for a node to start servicing relays is 15,000 POKT. When node runners successfully service relays for applications, new POKT is minted and distributed to them as a reward.On the other side of the marketplace, applications can query blockchain data under a free tier (offering up to 1 million daily relays) or by staking POKT for extra bandwidth beyond the free tier.Every time a serviced relay is successful, the rewards are distributed between three parties:

• 89% to Servicer Nodes
• 10% to the Pocket DAO
• 1% to Validator Nodes

A Boost in Growth Requires an Evolution of Monetary Policy

Pocket has experienced exponential growth in the last year, with a simplified onboarding strategy to integrate more blockchains and a more decentralized node network.As Pocket grows with a network of 48,000+ nodes and 45+ blockchain integrations, the metric that reflects all of this maturation - data relays - also surges.Last week, Pocket Network averaged about 900 million daily relays, after recently achieving one of its 2022 goals of breaking 1 billion relays in a day.As a result, the more serviced relays, the more new POKT is minted. With the support and popularity of key networks in the ecosystem like Harmony, Polygon, and Gnosis/xDai, node runners received over 8 million POKT in rewards just across these three networks last week.Looking at the broader picture, in the first quarter of 2022, Pocket issued over $360M in POKT rewards, a 168% growth from the last quarter of 2021.

The “Growth Stage” of Pocket’s economics has confirmed the need and demand for Web3 node infrastructure provided in a decentralized fashion. At the same time, it created a foreseeable challenge regarding inflation, which has required adjustments to monetary policy.

Tokenomics Governance Enables a Long-Term, Sustainable Protocol

As Pocket enters a “Maturity Phase,” the challenge of inflation is one of the main targets of the protocol’s economics. Even though inflation has some short-term benefits, the primary goal of Pocket is to implement a system designed for the long-term, without losing out on growth potential.To solve for this challenge, the Pocket DAO has passed a proposal to limit annual inflation via the Weighted Annual Gross Max Inflation (WAGMI) rate. In short, this proposal reduces the rate of POKT rewards per relay in order to reduce annual inflation and encourage long-term sustainability of the tokenomics of POKT.By July 24th, 2022, the WAGMI rate will reach 50% of the initial baseline inflation amount, which will be more in line with the level of inflation that Pocket’s supply was experiencing in February of this year. In other words, even as sources of POKT minting (i.e. data relays) continue to grow with network adoption, annual inflation of the POKT token will be kept at a reasonable, sustainable level.Under the “Maturity Phase,” and with the v1 upgrade coming in the future, Pocket will also consider options to introduce a burn rate, with applications potentially burning POKT as they use it to offset inflation.Discover more about token incentives in Web3 infrastructure providers from the latest Messari research.