With Phase 3 now live, Iâd like to open the discussion on transitioning to Phase 4: Shielding Rewards Party.
Namadaâs shielded pool is designed for participants to blend in, but it wonât work if youâre the only one in the pool. So weâll need to attract deposits to bootstrap Namadaâs data protection mechanism.
This proposal aims to initiate incentives for select assets interacting with the MASP, establish guidelines for monitoring performance, and outline the rate at which they respond to shielding benchmarks. I hope that by addressing incentive distribution, flexibility, and privacy requirements, this proposal can ensure both effective rewards and robust user participation.
As mentioned in our previous Proposal Discussion post [here], and further referenced [here] in a forum post from last October, weâve laid the initial groundwork for thinking about the minimum MASP privacy requirements and the incentives needed to attract and maintain an initial set of assets.
Reward Rates
To determine the incentives needed to attract and maintain deposits, weâre using a simple model with two inputs. While itâs true that incorporating niche variables could increase accuracy, it would also add complexity, and speed to full mainnet activation is the priority right now.
We are looking for the Minimum Rewards Incentive (MRI) for each asset, calculated as:
MRI = Effective Alternative Reward (EAR) + Risk Premium (RP)
- EAR: The maximum net reward users could earn elsewhere, such as native staking or DeFi (minus any fees).
- RP: An additional reward to account for inherent platform risks and switching costs, set at 5% for now (this could be adjusted in the future and should likely be greatly reduced as the system matures, but thatâs not critical to address at this stage).
This approach helps ensure that rewards are competitive enough to encourage participation while accounting for the risks users take on by using the MASP in its early stages.
At first glance, an additional 5% on top of other available rewards might seem modest, but itâs important to consider that many of these assets have limited passive reward opportunities elsewhere, resulting in a low hurdle rate. By interacting with the MASP, token holders maintain full custody of their assets, earn the highest reward rates available, and retain liquidityâa significant advantage over native staking for many of the listed assets, which often have long unbonding periods.
Important Note: LSTs only need to earn/yield the Risk Premium since theyâre already generating native yield elsewhere.
Reward Distribution
Unlike most systems, the MASP has a minimum steady state for the number of units required to ensure reliable and effective privacy per incentivized asset. Because of this, weâre prioritizing how quickly we can reach those optimal levels vs chasing a vanity metric like top-line TVL. As a result, the reward structure will be most lucrative for early depositors. The protocol has the ability to issue NAM at different rates for different tokens. Issuance rates are determined through governance proposals, and depositors receive rewards on a pro-rata basis. The goal is to encourage early shielding actions to quickly achieve sufficient privacy. Once the key deposit metrics are exceeded, reward rates will decrease.
A key consideration of the reward distribution system is the potential risk of ârunaway incentivesâ. This could occur when, despite compelling rewards, a specific asset fails to meet the deposit benchmarks required to taper the incentives over a prolonged period of time. Such a situation could arise if there is a limited supply of tokens (units, not users) interacting with the MASP for a given asset. In this scenario, the system would continue to pay a high APY without achieving the intended benefit of additional deposits, interactions or improved privacy. Because of this, itâs very important that discerning members of the community monitor and address any such inefficiencies.
Rates of Change
Another important factor regarding incentives is how and when they change. As mentioned earlier, there will be a starting point and a minimum steady state. However, understanding how we transition between these points and maintain them is crucial.
The system operates under a few constraints, with one of the most important being that changes to emissions can only occur once every four epochs (a MASP epoch), 24 hours. This introduces a need for caution, as dramatic changes in incentives from one MASP epoch to the next could create instability. A highly reflexive systemâwhere rewards spike or drop too drastically in short timeframesâmight discourage users by creating unpredictable reward windows, leading to unnecessary behaviors like trying to precisely time interactions.
On the other hand, a system that reacts too slowly risks missing opportunities to attract new participants when conditions are favorable. Additionally, if the system is too slow to adjust, we may end up incentivizing for longer than necessary, causing rewards to persist even after MASP privacy objectives are met. The goal is to strike a balance between stability and responsiveness, ensuring the system adapts efficiently to changing conditions while providing consistent incentives to maintain user confidence and engagement.
Privacy Strength Considerations
Privacy is the cornerstone of the MASP, and ensuring sufficient deposits in the shielded pools is critical to providing effective protections for users. To maintain strong privacy guarantees, the total size of the shielded pools must be large enough to adequately obscure individual transactions. As a general rule of thumb, we estimate individual transactions should ideally not exceed 5% of the total shielded deposits in a given assetâs pool. The larger a transaction is relative to the pool size, the more likely it is that its details could be inferred.
Building on this, we assessed the minimum deposit levels needed to maintain strong privacy protections across different asset classes. For large-cap assetsâsuch as TIA, ATOM, and OSMOâthe protocol should support private transactions of up to $100,000 initially. To preserve the 5% ratio and ensure these transactions remain effectively shielded, at least $2,000,000 worth of each large-cap asset should be held in the shielded pool.
For small-cap assetsâsuch as stTIA, stATOM, and stOSMOâthe target private transaction size is $10,000, requiring at least $200,000 worth of each small-cap asset to be deposited in the shielded pool.
While this framework provides a strong initial estimate, it should be continuously evaluated as transaction volume, asset diversity, and shielded pool participation evolve. Over time, as more users shield their assets and the anonymity set grows, transaction sizes should represent a much smaller percentage of total deposits, significantly strengthening privacy guarantees. As a community, we should actively monitor and adjust incentives to support this transition, ensuring that the MASP remains an effective and scalable privacy-preserving solution.
Hereâs our proposed starting point for each asset:
Deposits
| Asset | Price (USD) | Pool Minimum (USD) | Token Quantity Est. |
|---|---|---|---|
| ATOM | $4.30 | $2,000,000 | 460,000 |
| OSMO | $0.29 | $2,000,000 | 6,800,000 |
| TIA | $3.46 | $2,000,000 | 570,000 |
| stATOM | $6.42 | $200,000 | 30,000 |
| stOSMO | $0.38 | $200,000 | 500,000 |
| stTIA | $3.79 | $200,000 | 50,000 |
Suggested configurable parameters
max_inflation_rate = 0.9% (Based on total pool requirements and comps)
p_gain_nom = 50 (Proportional Gain)
The Proportional Gain directly scales the inflation response based on the size of the deviation from the target (in this case âPool Minimumâ). A higher p_gain_nom means faster, stronger reactions to deviations. For example, If deposit participation is well below the target, a high p_gain_nom would increase rewards more aggressively to attract more participants.
d_gain_nom = 85 (Derivative gain)
The Derivative Gain adjusts the response based on the rate of change of the deviation. It helps smooth out rapid fluctuations and aims to prevent overshooting/overcorrecting. The higher the d_gain_nom, the slower the response. For example, if deposit participation were to drop suddenly, the d_gain_nom would slow the response to avoid excessive inflation adjustments that could destabilize the system. (In this case, preventing instant max inflation for what could be a short-term, temporary, deposit adjustment.)
Looking forward to hearing everyoneâs thoughts!
Knowable is ready to proceed 
I must admit that understanding the scheme feels a bit challenging for me (no offense intendedâthis is my own issue), so I would like to ask a few questions:
