AIP-119 and the Future of Validator Economics on Aptos
edit (April 22, 2025): Added profitability calculator to help estimate validator profitability at different APRs and APT prices.
Introduction
As the founder of Kofi Finance, a liquid staking platform on the Aptos blockchain, I enthusiastically support AIP-119, which proposes reducing the APT staking reward rate from approximately 7% to 3.79% over six months. Detailed in the Aptos Foundation's GitHub issue #587, this visionary proposal enhances capital efficiency by prioritizing DeFi and infrastructure, aligning Aptos with leading layer-1 blockchains like Ethereum and Solana. While it presents challenges for smaller validators, we see it as a transformative opportunity to innovate. At Kofi Finance, we're committed to empowering validators with MEV-boosted yields and diverse revenue streams, leveraging our MEV infrastructure to deliver superior returns.
The Vision of AIP-119
AIP-119 outlines a 1% monthly reduction in staking rewards over three months, with a six-month implementation to foster community collaboration. The current 7% expansion rate limits capital flow into high-impact areas like DeFi, restaking, and infrastructure (e.g., RPC, indexing, MEV). The target 3.79% staking reward encourages more network activity by encouraging participants to explore innovative opportunities that drive network growth, instead of just parking all their APT for "safe-yields"
Challenges and Opportunities for Smaller Validators
We recognize that the reduction in staking rewards poses a challenge for smaller validators, who may struggle to maintain profitability without the scale of larger players.
The estimated annual profit for a validator can be calculated using the formula: Profit = (Total Stake Delegated × APT Price × Network APR × Validator Commission Rate) - Annual Validator Cost
Use the calculator below to estimate profitability based on different inputs. We've used an average validator cost of $35,000 per year and assumed a 5% commission rate for the defaults and the table that follows (note: the table simplifies the calculation by showing profit based on total rewards before commission for brevity, but the calculator uses the full formula).
Validator Profitability Calculator
| Stake Delegated | APT Price | Validator Profit at 3.79% APR | Validator Profit at 7% APR | Validator Profit at 12% APR (Kofi MEV) |
|---|---|---|---|---|
| 1M APT | $5 | -25,525 | -17,500 | -5000 |
| 3.7M APT | $5 | 58 | 29,750 | 120,400 |
At 3.79% APR, 5% commission and at current APT price of $5, a validator would need about 3.7M APT staked to break even.
At Kofi Finance, we're inspired to empower smaller validators through our liquid staking protocol. By delivering MEV-boosted yields, as demonstrated in the table, and pioneering new revenue streams, we aim to ensure all validators thrive in Aptos' evolving ecosystem. The Foundation's community-driven approach, combined with our innovative strategies, sets the stage for a vibrant future.
A Call for a Stake-Matching Program
To fully realize AIP-119's potential, we urge the Aptos Foundation to enhance its community validator program with a stake-matching initiative. We propose matching delegated stake for smaller validators, doubling their staked APT up to 3M APT where these validators can break even.
This program would:
- Strengthen Decentralization: Supporting smaller validators ensures a diverse validator set, reinforcing Aptos' decentralized foundation.
- Inspire Participation: Matching stake lowers barriers, inviting new validators to enrich our community.
- Better Governance: Empowering smaller validators fosters trust and collaboration, aligning with Aptos' inclusive governance.
New Revenue Streams: Fueling Validator Success
We're thrilled by AIP-119's push toward a dynamic economy, opening exciting avenues for validators to offset reduced rewards. At Kofi Finance, we're leading with:
1. MEV Capture
Our MEV infrastructure, leveraging insights from our research with Aptos core engineers, enables validators to profit from transaction ordering.
2. Transaction Tips
We see tips for prioritized processing as a key revenue stream. Inspired by Ethereum's EIP-1559, we're developing tip-sharing in our protocol, distributing earnings to boost yields for validators and stakers, enhancing our platform's appeal.
Our Role at Kofi Finance
Our liquid staking protocol, built by a team with expertise in MEV, DeFi and liquid staking, delivers MEV-boosted yields via kAPT and stkAPT. Partnerships with Tapp Exchange, Aries Markets, Joule, and Hyperfluid amplify returns, while our Discord community fosters collaboration. With mainnet deployment, audits with Zenith and Ottersec, and ongoing MEV research, we're aligned with Aptos' vision. By offering tips, DeFi rewards, and infrastructure services, we aim to make Kofi Finance the premier liquid staking platform, delivering yields exceeding 3.79%.