Aptos Proposes 42% Staking Reward Cut to Boost Innovation

The Aptos community is actively evaluating governance proposal AIP-119, which seeks to reduce staking rewards from 7% to approximately 3.79%. This proposal has sparked a debate within the community, with supporters arguing that it could drive innovation, while critics express concerns about the sustainability of smaller validators and the potential impact on network decentralization.

Yui, the COO of Aptos-based game Slime Revolution, cautioned that smaller validators might be pushed out due to the reduced rewards. This concern echoes broader worries within the community about the potential consequences of the proposal on the network's decentralization.

AIP-119 characterizes staking rewards as a “risk-free” benchmark within the ecosystem, similar to conventional finance’s interest rates. The authors of the proposal argue that the current yield of 7% might be too high, leading to stagnant capital allocation rather than fostering growth and innovation. By lowering the staking yield to around 3.79%, the aim is to encourage users to engage in more dynamic economic activities beyond passive staking. This strategic shift is expected to boost demand for participation in various innovative projects, such as restaking, MEV extraction, and deeper involvement in DeFi.

Moon Shiesty noted that any reduction in staking demand could be offset by the decrease in inflation from this proposal and the launch of new reward-generating opportunities in the next six months, as well as other sources of DeFi rewards. The savings generated from reduced staking rewards could be redirected to support various initiatives, such as liquidity incentives and gas fee subsidies, particularly benefiting early-stage Layer 1 stablecoin programs.

However, the proposed reductions in rewards have raised concerns about the viability of smaller validators. Operating a validator node incurs yearly costs ranging from $15,000 to $35,000, which could pose a substantial burden under the new rewards structure. Currently, more than 50 validators manage under 3 million APT each, representing about 9% of the total network stake. To address these potential issues, the proposal includes a delegation program aimed at supporting smaller validators. This initiative intends to allocate resources and delegate tokens to ensure the network’s decentralization and geographical diversity.

The community’s response to AIP-119 is mixed. Yui emphasized the need for a balanced approach that encourages innovation while safeguarding decentralization. “While it could drive innovation, I’m concerned about the potential impact on smaller validators and decentralization. We need to ensure the move doesn’t push out smaller participants! Aptos should focus on balance and long-term resilience,” Yui remarked.

Conversely, Kevin, a researcher, suggested that the adjustments might enhance Aptos’s position in the long term. High inflation rates can often mask underlying weaknesses in product-market fit. Conversely, a reduction in inflation compels developers to create sustainable demand. Kevin further posited that dwindling token emissions could elevate APT’s scarcity, potentially improving its market price and offsetting lower staking yields. “We expect APT’s price to grow due to the reduced inflation rate, and validators’ actual returns may offset the APY decline through price appreciation, forming a positive cycle,” he concluded.

The ongoing discussions surrounding AIP-119 reflect a pivotal moment for the Aptos ecosystem, balancing innovation against the critical need for sustainability among validators. The path forward will be observed closely by stakeholders, as the outcomes could determine the future structure and success of the network. As changes unfold, community engagement and feedback will be vital in navigating this transformative phase.