VIP Architecture

At genesis, a portion of the total INIT token supply will be set aside as rewards for the VIP program, which will be distributed over several years. Let’s call this portion of the supply $R$. These rewards are given out at regular intervals, or stage $t$, throughout the distribution period. The total rewards are first distributed to each rollup, then subsequently to the rollup’s users and operators.

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Rewards Distribution

At each rewards distribution stage $t$, the total VIP rewards for that stage $R_t$ are distributed amongst each rollup ecosystem. The distribution is split into multiple steps:

1. Splitting the total rewards allocated for that stage, $R_t$, between all whitelisted rollups.
2. Distributing the rewards to each rollup’s users.
3. Distributing the rewards to each rollup’s operators.

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Rewards Split Between Rollups

At each stage $t$, the total VIP rewards for that stage $R_t$ are distributed amongst each rollup ecosystem. The total rewards are then split into two pools: the Balance Pool $R_B$ and the Weight Pool $R_W$. These two pools aim to incentivize and reward different aspects of rollup operations. The ratio between $R_B$ and $R_W$, called poolSplitRatio, is set by the Initia L1 governance and can be changed through on-chain proposals. The sum follows the equation: $$R_t = R_B + R_W$$ The rewards for each rollup $m$ are then calculated as follows: $$R_{m,t} = R_{B,m,t} + R_{W,m,t}$$ Where:

• $R_{B,m,t}$ represents the portion of rewards from the Balance Pool $R_B$ allocated to rollup $m$ at stage $t$.
• $R_{W,m,t}$ represents the portion of rewards from the Weight Pool $R_W$ allocated to rollup $m$ at stage $t$.

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Balance Pool

The Balance Pool aims to encourage rollups to find new and interesting uses for the INIT token by distributing rewards based on the proportion of INIT supply on the rollup. Specifically, at each stage $t$, the rewards are allocated according to the amount of INIT locked on each rollup’s OPinit bridge address $m$ relative to the total amount locked across all rollups. $$R_{B,m,t} = R_{B,t} \frac{I_{m,t}}{\sum_{i=1}^{N,t} I_{i,t}}$$ Where:

• $R_{B,t}$ is the total rewards from the Balance Pool for the stage.
• $I_{m,t}$ is the amount of INIT tokens locked by rollup $m$ during the stage.
• $N_{t}$ is the total number of rollups in the stage.

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Weight Pool

The Weight Pool ($R_W$) rewards rollups based on their weight value, which is determined by a gauge weight voting process similar to protocols such as Curve’s. $$R_{W,m,t} = R_{W,t} \frac{W_{m,t}}{\sum_{i=1}^{N,t} W_{i,t}}$$ Where:

• $R_{W,t}$ is the total rewards from the Weight Pool for the stage.
• $W_{m,t}$ is the weight of rollup $m$ during the stage.
• $N_{t}$ is the total number of rollups in the stage.

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Distribution to Rollup Users

Once we know how much rewards each rollup receives for a given stage, we then further distribute these rewards to the users of the rollup. The amount of VIP rewards to each user is defined by a scoring methodology decided by the rollup team. The scoring method could be based on factors such as:

• Number of transactions a user makes on the rollup.
• Value of assets a user borrows.
• Trading volume or liquidity provided by the user.

At the end of each stage, the rewards for each user are calculated and stored. Once the rewards for each rollup are known, the rewards are then directly distributed to the users of the rollup. If a user $u$ on rollup $m$ has a score of $S_{u,m,t}$, their rewards are: $$R_{u,m,t} = R_{m,t} \frac{S_{u,m,t}}{\sum_{i=1}^{N_{u,m,t}} S_{i,m,t}}$$ Where:

• $R_{m,t}$ is the total rewards from the VIP program for the stage.
• $S_{u,m,t}$ is the score of the user on rollup $m$ during stage $t$.
• $N_{u,m,t}$ is the total number of users on rollup $m$ during stage $t$.

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Distribution to Rollup Operators

To ensure that rollup operators are also incentivized to keep their rollups active and useful, they can set an operatorCommissionRate, $c$. This rate allows them to take a portion of the rewards for their rollup. The rewards for an operator $o$ of rollup $m$ during a stage are: $$R_{o,m,t} = R_{m,t} c_{m}$$ The commission rate is set when the rollup is first approved for VIP rewards and can be changed later, but only by a fixed amount each stage to prevent abuse. Taking into account the operator commissions, the total rewards distributed to a user on a rollup is then: $$R_{u,m,t} = (1-c_{m}) R_{m,t} \frac{S_{u,m,t}}{\sum_{i=1}^{N_{u,m,t}} S_{i,m,t}}$$

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Rewards Vesting

Rewards from the VIP program are given in the form of escrowed INIT tokens (esINIT). These tokens are initially non-transferable and can be vested in multiple ways depending on whether the receiver is the user or rollup operator.

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User Vesting

These tokens are initially non-transferable and can be vested in two ways:

1. Maintain a VIP Score: Keep a certain score over a number of vestingPeriod, with each period lasting stageDuration.
2. Convert into LP Lock-Staked Position: Convert the escrowed tokens into a whitelisted INIT:TOKEN staking position.

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Maintaining a VIP Score

Vesting Process VIP esINIT rewards are converted into regular INIT tokens over multiple vestingPeriod, denoted as $p$, with each period lasting one stage. For instance, if the vesting period is 26 stages, the user will receive $\frac{1}{26}$ of their esINIT at each stage. Achieving the Required Score To fully convert their rewards into INIT tokens, users must maintain a certain score over the vesting periods, $p$, as determined by Initia L1 governance. The minimum required score is set by a threshold factor $f$, also determined by the L1 governance. The score calculation is as follows: $$S_{\text{target},m,t} = S_{u,m,t} \cdot f$$ Where:

• $S_{u,m,t}$ is the user’s score on rollup $m$ during stage $t$.
• $S_{\text{target},m,t}$ is the target score for rollup $m$ during stage $t$.

Calculating the Target Score The target score $S_{\text{target},m,t}$ is the user’s score for stage $t$ multiplied by the factor $f$. For example, if a user $u$ has a score of 100 at stage $t$, their target score to fully vest their esINIT after $p$ stages is $100 \cdot f$. Failing to Meet Target Score If a user fails to meet the target score at a certain stage $t$, they will only vest and receive a portion of their esINIT, calculated by the formula: $$c_{\text{user}} = \frac{S_{u,m,t}}{S_{\text{target},m,t}}$$ For instance, if $f$ is 0.5, a user with a score of 100 must maintain a score of at least $S_{\text{target},m,t} = 100 \cdot 0.5 = 50$ for the next $p$ stages to fully vest their esINIT. If after $p$ stages, their score $S_{u,m,t}$ is only 30, their $c_{\text{user}}$ will be $\frac{30}{50} = 0.6$, and they will only be able to vest 60% of their esINIT. Example Scenario Parameters

• Vesting Period ((p)): 50 stages
• Minimum Score Factor ((f)): 0.5

Stage 1 ((t = 1))

• User Score: 100
• esINIT Received for Stage 1: 100
• Vesting Rate: $\frac{100 \text{ esINIT}}{50 \text{ stages}} = 2 \text{ INIT per stage}$

Stage 2 ((t = 2))

• Minimum Score Needed from Stage 1: $100 \times 0.5 = 50$
• User Score: 60
• Vesting from Stage 1: Since $60 \geq 50$, the user vests the full 2 INIT
• Vesting Rate for Stage 2: $\frac{60 \text{ esINIT}}{50 \text{ stages}} = 1.2 \text{ INIT per stage}$
• esINIT Received for Stage 2: 60

Stage 3 ((t = 3))

• Minimum Score Needed from Stage 1: $100 \times 0.5 = 50$
• Minimum Score Needed from Stage 2: $60 \times 0.5 = 30$
• User Score: 40
• Vesting from Stage 1: Since $40 < 50$, the user vests $\frac{40}{50} \times 2 = 1.6 \text{ INIT}$
• Vesting from Stage 2: Since $40 \geq 30$, the user vests the full 1.2 INIT
• Total Vesting for Stage 3: $1.6 \text{ INIT (from Stage 1)} + 1.2 \text{ INIT (from Stage 2)} = 2.8 \text{ INIT}$

Summary Table

Stage	User Score	esINIT Received	Vesting Rate (per stage)	Min Score Needed	Actual Vesting
1	100	100	2 INIT	-	-
2	60	60	1.2 INIT	50 (Stage 1)	2 INIT
3	40	-	-	50 (Stage 1), 30 (Stage 2)	1.6 + 1.2 = 2.8 INIT

Explanation

1. Stage 1: The user scores 100 and receives 100 esINIT, which will be unlocked at a rate of 2 INIT per stage over 50 stages.
2. Stage 2: The user needs to score at least 50 to unlock the full 2 INIT from Stage 1. They score 60, so they unlock the full 2 INIT and receive 60 esINIT for Stage 2, which will be unlocked at a rate of 1.2 INIT per stage.
3. Stage 3: The user needs to score at least 50 to unlock the full 2 INIT from Stage 1 and at least 30 to unlock the full 1.2 INIT from Stage 2. They score 40, so they unlock 1.6 INIT from Stage 1 and the full 1.2 INIT from Stage 2, totaling 2.8 INIT.

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Converting to LP Lock-Staked Position

Maintaining the score over several periods can be challenging for some users. Therefore, VIP allows users to convert their esINIT into a locked, stake-locked INIT:TOKEN LP position on the InitiaDEX for pairs whitelisted on Enshrined Liquidity, with the user providing the TOKEN side of the pair. When creating a lock-staked position, users can choose the duration for locking their LP position. The length of this lock will determine their voting power on VIP gauge votes. However, when lock-staking through VIP, a minimum lock duration of 26 weeks is enforced.

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Operator Vesting

Similarly, rollup operators’ esINIT rewards are also vested, but the process is slightly different. Operator esINIT rewards are released linearly over a number of operatorVestingStages. For example, if the operator vesting period consists of 10 stages, the operator will receive $\frac{1}{10}$ of their esINIT at each stage.