Reward Schemes for DReps

Becoming a Delegate Representative (DRep) will require time to study governance actions and make a qualified opinion for on-chain voting. There is consensus that DReps should be financially compensated. In the article, we explain some possibilities of how DReps could be rewarded.

5 Variants Of How To Reward DReps

The discussion on how to compensate Delegated Representatives (DReps) for their contributions to Cardano is still ongoing.

ADA holders have the choice to either register as a DRep or delegate their voting power to an existing DRep.

Being a DRep requires a significant time commitment, as they need to stay informed about every governance action and cast their votes accordingly.

It’s beneficial for the Cardano community if DReps are experts in a certain area and have a deep understanding of Cardano and blockchain technology.

To encourage the best individuals in the community to become DReps, compensation is necessary.

There’s a consensus that DReps should be rewarded, but the exact reward scheme is yet to be decided.

Five potential reward schemes have been proposed:

  1. Equal Rewards for Top DReps by Stake (Variant 1A):

This scheme ranks DReps based on the total stake delegated to them (including their own). Only the top ‘m’ DReps receive an equal reward ‘r’. The rest do not receive any payment.

If ‘m’ = 10, reward ‘r’ = 500, then the first 10 DReps will each receive 500 ADA.

  1. Equal Rewards for Top DReps by Stake Above a Minimum Threshold (Variant 1B):

Similar to Variant 1A, but only DReps who have attracted a delegated stake that is at least 1/m as a percentage of the total delegated stake will receive a reward.

If ‘m’ = 30 and ‘r’ = 500, a maximum of 30 DReps can get the reward ‘r’. Only those who have exceeded the threshold, which in this example is 3.33%, will receive the reward. Each Drep gets 500 ADA.

  1. Proportional Rewards for Top DReps by Stake (Variant 2A):

In this scheme, the top ‘m’ DReps are selected and they are paid a reward ‘B’ proportional to their stake.

If ‘m’ = 10 and reward ‘B’ = 5000, the reward will be distributed proportionally to the stake among the top 10 DReps.

  1. Proportional Rewards for Top DReps by Stake Above a Minimum Threshold (Variant 2B):

Only DReps who reach the required threshold are entitled to the reward. Once the number of DReps to whom the reward is to be paid is known, it will be paid proportionally to the delegated stake of DReps.

If ‘m’ = 30 and the reward budget ‘B’ = 5000, only those DReps who reach the threshold of 3.33% will receive a proportional part of the reward.

  1. Proportional Rewards for Top DReps by Stake, with a Bonus (Variant 3):

This variant combines a proportional reward scheme with a bonus for the top ‘m’ DReps. All DReps receive a reward from the budget ‘B1’, equal to their proportional share, in terms of stake delegated to them. Then, the top ‘m’ DReps in the ranking receive an extra reward from the budget ‘B2’.

B2 reward can be paid by using either one of variants 1A, 1B, 2A, or 2B. In the figure, there is variant 1A (top 10 DReps get equal reward).

These schemes aim to incentivize DReps to make an effort to understand the proposals and attract delegation.

However, the final decision on the reward scheme is yet to be made. You can think which option you like the most.