Many of us staking in the NNS wonder whether the current return of 28% per annum for 8-year holders is sustainable. Price guru Kyle Langham believes the future is bright for long-term holders.
Staking in an 8-year neuron on the NNS will be lucrative for many years to come.
I get this question a lot… “what will my 8-year neuron return in the next year”. I think the answer will surprise you (it certainly surprised me). It seems that people fear the incredible 28%+ annual returns be reduced soon. Given all the available information, it’s possible to get a good prediction on this, not only for next year but for years into the future. Read below…
First, here are the assumptions needed for this analysis:
- All neurons currently dissolving will continue to dissolve. All neurons currently locked will remain locked.
- All new ICP to the NNS will be in locked 8-year neurons
- The amount of ICP coming to the NNS will remain constant at ~500,000 ICP/month.
- Governance rewards are not re-staked.
That’s all that’s needed to conduct this analysis. If you are interested in how to stake your ICP, here’s a great article on icp.guide. If you want to learn more about how a neuron’s APR is calculated, read this Substack article by ocluf.
As you can see below in the yellow column, if you were to stake ICP next month (January 2022), you would instantly be earning 28.2% interest on your ICP. Not only that, but your APR would increase slightly over the next five years. In fact, your neuron will spend most of the next half-decade above 32%!
How can this be with the inflation rate decreasing from 9.2% to 5.8%?
Well, the fact is A LOT of ICP is dissolving on the NNS, much more than our assumed newly staked ICP (assumption 3). Don’t worry if you don’t have the fiat to stake next year… the blue column shows you the expected return if you were to stake in future months or years. As you can see, the return on ICP staked in an 8-year neuron will remain around 26-30% for the foreseeable future.
A more ICP-bullish take
Assumption 3 is rather conservative. It’s reasonable to think that staking on the NNS will become more popular as the Internet Computer network grows. So let’s see what happens if we change assumption 3 to include an extra 100k ICP each month (so 500k in month 1, 600k in month 2, 700k in month 3…) with a cap of 1.5M ICP/month.
This is a relatively bullish assumption for ICP since it would be taking a lot of liquid ICP off the markets (more than 2x on assumption 3). Changing this assumption impacts the expected yearly return, but it’s still rather lucrative. Under this assumption, a neuron you stake next month can expect to earn between 25-30% each year for the next five years (see yellow column below).
This is on top of any price appreciation of ICP due to this bullish scenario. The blue column below shows that staking in an 8-year neuron will still produce 20% annual returns five years out, even in this bullish ICP model. The #8YearGang will be well rewarded for years to come.
DFINITY has stated that they would like 90% of ICP locked in the NNS in the long term. If this is accomplished, and the vast majority of that ICP is in locked 8-Year Neurons, and the long-term inflation rate remains at 5%, then you can expect your locked 8-Year Neuron to generate around 6% interest per year. As even the bullish model above shows, it will take a long time for the annual rewards to get anywhere close to that number.
A Few Notes
The assumptions above are almost certainly wrong, and large errors in them will produce significant differences in expected yearly interest. In all, though, I think it’s very reasonable to assume that your current 8-year neuron will receive over 20% interest every year for at least the next five years.
This analysis also doesn’t account for compounding interest, which could add a 3-6% bump if performed.
*This article has been published with the consent of author Kyle Langham and is taken from his fantastic website focused on ICP Price analysis.
You can reach him on Twitter.
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