Response to ACP-285: A Targeted Alternative That Preserves Existing Staker Economics

Summary

We support the goal of ACP-285 — steepening the reward gradient to discourage ultra-short rolling stakes enabled by ACP-273 + ACP-236. The security concern is valid and we agree this should co-activate with ACP-273.

However, the proposed mechanism — a blanket reduction of MinConsumptionRate — is too blunt. It solves a forward-looking problem created by ACP-273 by retroactively penalizing existing staker behavior that has been securing the network without incident since mainnet launch.

We propose a piecewise linear alternative that achieves a comparable incentive gradient for ultra-short stakers while leaving all existing staker economics completely unchanged.

The 1.02% Spread Isn't Broken

ACP-285 frames the current 1.02% spread between 14-day and 365-day stakers as evidence of weak duration incentives. However, 1.02% is only "small" in absolute terms.** On a base of 5.36%, an additional 1.02% represents a 19% relative increase in yield. If a bank offered 19% more return for locking a term deposit, that is a meaningful premium. For context, the US Treasury curve spread between 1-month and 12-month bills frequently sits below 100bp. Investors think in relative terms.

Why the Current Proposal Creates Collateral Damage

The linear reward formula places 48-hour and 14-day stakers in nearly the same position on the curve (0.5% vs 3.8% of the minting period). Lowering MinConsumptionRate penalizes both almost equally:

The 14-day staking cohort — primarily liquid staking protocols like BENQI (sAVAX) — stakes at this duration as a structural requirement to service user redemptions, not as a low-commitment choice. These validators run the same infrastructure, maintain 90%+ uptime, and provide the same consensus security as 365-day validators. The short duration exists to serve DeFi liquidity, not to game the reward curve.

At 25M AVAX staked through sAVAX, this proposal costs liquid staking ~320K AVAX/year in lost yield. The cascading effects — reduced competitiveness vs. other chain LSTs, TVL outflows, looping strategies that will break, liquidations on lending markets, weakened DeFi composability — are counterproductive to Avalanche's ecosystem growth.

Proposed Alternative: Piecewise Linear Reward Curve

Rather than lowering a single constant that compresses the entire short-duration range, we propose a piecewise linear interpolation with a breakpoint at 14 days (the current MinStakeDuration):

For d ≥ 14 days: Existing formula, completely unchanged.

rate(d) = MinRate + (MaxRate − MinRate) × d / MintingPeriod

For d < 14 days: Steep interpolation from a new floor rate to the existing 14-day rate.

rate(d) = FloorRate + (rate(14) − FloorRate) × d / 14

Where:

• FloorRate = 7.5% (new parameter, same value as ACP-285)
• rate(14) = MinRate + (MaxRate − MinRate) × 14 / MintingPeriod (the existing 14-day rate under the current formula)
• MinRate = 10% (unchanged)
• MaxRate = 12% (unchanged)
• MintingPeriod = 365 days (unchanged)

This produces the following APY schedule:

The 48-hour-to-365-day spread under the piecewise approach is 2.20% — comparable to ACP-285's target of 2.30% — while preserving zero impact on any staker at 14 days or above.

Why 14 Days Is the Natural Breakpoint

14 days is the current MinStakeDuration and has been since mainnet launch. It is the boundary between:

1. Existing proven behavior — validators have been operating at this cadence since genesis, providing consistent network security.
2. New behavior ACP-273 enables — ultra-short 48-hour rolling stakes that have no operational track record and whose security properties are unproven.

The penalty should target the new risk surface ACP-273 opens, not retroactively punish the existing staker base.

Implementation

This proposal is more involved than ACP-285's single-constant change — we want to be upfront about that. The implementation requires:

• A conditional branch in the reward calculator (vms/platformvm/reward/calculator.go) to select the appropriate rate formula based on stake duration
• Two new genesis parameters (FloorConsumptionRate, LegacyMinStakeDuration) threaded through the Config struct and calculator constructor
• Updates to three genesis files (mainnet, fuji, local)
• Test coverage for both branches of the conditional

The core logic is:

if stakedDuration < LegacyMinStakeDuration:
    legacyRate = MinRate + (MaxRate - MinRate) × LegacyMinStakeDuration / MintingPeriod
    rate = FloorRate + (legacyRate - FloorRate) × stakedDuration / LegacyMinStakeDuration
else:
    rate = MinRate + (MaxRate - MinRate) × stakedDuration / MintingPeriod

Realistically this is ~30–50 lines of code versus ACP-285's 3-line diff. No new state transitions, P-Chain transaction types, or consensus logic changes are required. The tradeoff is a modest increase in implementation effort in exchange for completely eliminating impact on every existing staker at 14 days or above.

Addressing ACP-285's Open Questions

Q1: Is 7.5% the right value?
7.5% is reasonable as a floor for ultra-short stakes. The piecewise approach makes this question less sensitive — because the penalty is isolated below 14 days, even an aggressive floor (e.g., 5%) would not affect existing stakers.

Q2: Should MaxConsumptionRate change?
No. The piecewise approach makes this unnecessary since the existing curve above 14 days is untouched.

Q3: Should this co-activate with ACP-273?
Yes. We agree fully. The piecewise curve is specifically designed around the duration range ACP-273 introduces.

Summary

Both approaches solve the same problem. The piecewise alternative does so without penalizing the infrastructure that is critical to Avalanche's DeFi ecosystem.

Treehouse's Response to ACP-285 and @hinkavax's Piecewise Proposal

Posted on behalf of the Treehouse team

Treehouse is a DeFi protocol building LST vaults on Avalanche, currently ranked No. 19 among all DeFi protocols on Avalanche by TVL. We would like to formally register our support for the piecewise approach proposed by @hinkavax above, and offer an additional parameter recommendation for consideration.

1. We Support the Goals of ACP-285

We agree with the core motivation of ACP-285: the combination of ACP-273 (reducing minimum stake duration to 48H) and ACP-236 (auto-renewal) creates a structural incentive misalignment where short-term rolling stakes become nearly economically equivalent to long-term commitments. This weakens the network's validator security posture and should be corrected.

2. Concerns Around a Simple MinConsumptionRate Reduction

We also echo @hinkavax's concern that a straightforward reduction of MinConsumptionRate from 10% to 7.5% — without structural changes to the reward formula — risks causing significant unintended harm to Avalanche's DeFi ecosystem.

The most immediate impact would fall on Liquid Staking Tokens (LSTs), which are a foundational primitive for DeFi on Avalanche. Protocols like BENQI's sAVAX are structurally constrained to stake at or near the 14-day minimum duration in order to facilitate user redemptions. Under the proposed flat reduction, sAVAX's average staking yield would compress to just slightly above 4% — a material deterioration that cannot be offset through protocol design changes alone.

The downstream consequences extend further:

• Looped LST positions will break. A significant portion of TVL across Avalanche's lending protocols is built on leveraged LST loops. These strategies are profitable only within a narrow yield band. A ~1.3pp reduction in underlying LST yield would push the majority of these positions into negative PnL territory, triggering forced unwinds.
• TVL outflows will cascade. Reduced LST yields → lower LST demand → reduced collateral utilization in lending protocols → reduced DeFi protocol revenues across the board across lending, liquid staking, and vault curation protocols. The unwinding would propagate across the DeFi stack simultaneously, with protocols like Treehouse directly exposed to the second-order impact.

To provide more context on why this matters at an ecosystem level: Treehouse operates as a large-scale but risk-managed looping strategist, performing leveraged LST strategies in size across major Avalanche lending protocols. In doing so, we help tie the spread between staking rates and borrowing rates, contributing to more efficient DeFi capital markets on Avalanche. A severe compression of LST yields directly impairs this function, with unprofitable strategies lowering the lending market utilizations and reducing overall capital efficiency across the ecosystem.

Beyond the mechanical impact, Treehouse also serves as a point of integration for significant institutional and protocol capital on Avalanche. AVAX One has publicly deposited into tAVAX, and we maintain active protocol integrations with Silo and Spectra among others. A material deterioration in tAVAX strategy yield would not only affect our depositors directly — it would create ripple effects across every protocol integrated with tAVAX, potentially triggering coordinated capital outflows that extend well beyond Treehouse itself.

3. We Support the Piecewise Linear Approach

The piecewise formula proposed by @hinkavax elegantly solves this problem by introducing a breakpoint at 14 days (the current MinStakeDuration):

For d ≥ 14 days — existing formula, completely unchanged:

rate(d) = MinRate + (MaxRate - MinRate) × d / MintingPeriod

For d < 14 days — steep interpolation from FloorRate to the existing 14-day rate:

rate(d) = FloorRate + (rate(14) - FloorRate) × d / 14

This approach:

• Leaves the ≥14D reward curve entirely intact, protecting LST yields and the DeFi ecosystem built on top of them
• Creates a steep disincentive specifically for sub-14D staking — the behaviour introduced by ACP-273 and ACP-236 that this ACP seeks to discourage
• Introduces only one new parameter (FloorRate) rather than restructuring the entire reward function

4. Additional Recommendation: Increase MaxRate to 13%

In addition to supporting the piecewise structure, we recommend consideration of increasing MaxConsumptionRate from the current 12% to 13%.

The rationale is twofold:

Incentive gradient. With the introduction of 48H staking, the spread between the shortest and longest stake durations should widen to make long-term commitment meaningfully more attractive. Simply penalising the short end is only half the equation — rewarding the long end more explicitly sends a stronger complementary signal.

Emission sustainability. With a new class of short-duration validators entering the network post-ACP-273, the network's aggregate stake duration will structurally shorten. Raising MaxRate allows the network to sustain a similar level of absolute AVAX issuance to all validators as it does today.

The combined proposal (piecewise formula + MaxConsumptionRate raised to 13%) produces the following yield profile versus current parameters:

The 14D rate is effectively unchanged (+0.02pp), protecting LST protocols and the DeFi strategies built on top of them. The 48H rate drops by 1.14pp, meaningfully disincentivising short-term rolling. The 365D rate rises to 6.91%, strengthening the long-term staking incentive. Leveraged LST looping strategies will also benefit from the improved long-duration yield, further deepening Avalanche's DeFi ecosystem rather than disrupting it.

Summary of Proposed Changes

We believe this combination achieves the security objectives of ACP-285 without compromising the integrity of Avalanche's DeFi ecosystem, and we encourage the community to consider it as the basis for the final implementation.

— The Treehouse Team

I agree with @hinkavax and @treehousegovernance comments re: foreseen negative impacts for the DeFi ecosystem.

Posted on behalf of the BENQI Community

Thanks @meaghanfitzgerald, the revision is a clear step forward. The 30-day ramp, grandfathering active stakes, and especially the explicit acknowledgment of risk to LSTs and "relevant strategies" all show the concern is being taken seriously.

We'd build on exactly that LST acknowledgment, with one structural point.

The ramp smooths when the cut lands, not where the 14-day rate ends up. After the ramp, a 14-day stake still settles at ~4.08% vs 5.36% today, a permanent −1.28pp that flows straight into LST yields, lending-market rates, and the spread that keeps looping positions solvent.

More importantly, the flat cut doesn't target the behavior ACP-273 actually enables. The new behavior is sub-14-day rolling stakes — nothing sits below 14 days today, since that's the current MinStakeDuration. Yet under the proposed cut, 48 hours (4.00%) and 14 days (4.08%) are still only ~0.08pp apart, so rolling 48h instead of committing to the structural minimum is barely penalized. The cut mostly lowers the whole floor, and its headline effect is widening the 14d→365d premium from 1.02 to 2.30pp.

A fixed 14-day breakpoint targets the regression directly:

d ≥ 14 days: existing formula, completely unchanged.
d < 14 days: steep interpolation from the 7.5% floor up to the existing 14-day rate.
(Pinned at a fixed 14 days — the pre-273 minimum — deliberately: since ACP-285 co-activates with ACP-273, a breakpoint defined on the live MinStakeDuration would collapse to 48h at activation and the steep segment would cover nothing.)

This produces a real ~1.2pp penalty between 48h (4.18%) and 14d (5.36%), a far sharper disincentive against sub-14-day stakes than the flat cut's ~0.08pp, while preserving the 14-day rate entirely. It needs no transition ramp of its own, because it disturbs no existing stake: everything staked today is at or above 14 days and stays untouched.

It's also worth being concrete about who would actually occupy the sub-14-day range once ACP-273 opens it. The natural occupants are custodial and ETF stakers, Grayscale's GAVA and Bitwise's BAVA already hold and stake AVAX, whose binding constraint is redemption liquidity, not yield: staked AVAX they can't unwind quickly impairs their ability to meet redemptions. That cohort will gravitate to the shortest available duration and is largely indifferent to the rate, accepting a lower 48h yield as the price of near-daily liquidity. The steep sub-14-day segment therefore does double duty, a genuine disincentive for discretionary stakers who could commit longer, and an appropriate liquidity discount for the ETF cohort that they'll pay rather than be deterred by. The flat cut, by contrast, lowers the 14-day rate paid to yield-sensitive LSTs that feed DeFi: it lands on the cohort that minds and spares the one that doesn't.

On the duration premium: the breakpoint leaves 14d→365d at 1.02pp rather than widening it, and we'd argue that's correct. Widening that premium is the speculative lever, the proposal's own Goal 3 projects only a ~2-month shift in stake-weighted duration and frames it as an expected secondary effect, not a guaranteed one, with mixed evidence on whether large validators move at all. Sacrificing the structural 14-day rate (at the cost of real DeFi losses) to widen a premium the model says may not change behavior is a poor trade.

On inflation, the breakpoint still trims issuance to the sub-14-day cohort; it forgoes only the broad level reduction across the structural 14–365 day range. Weighing that honestly: the reduction the breakpoint gives up is diffuse (spread across all holders as marginally-lower dilution), modest, and reached only gradually, whereas the harm the flat cut imposes is concentrated on the full-security DeFi cohort, effectively certain, and amplified by second-order effects in looping and lending. We'd rather not fund a diffuse, gradual emissions reduction by compressing the rate paid to the validators who provide both security and DeFi liquidity, particularly when the breakpoint preserves most of the structural benefit and lands the cut on the cohort that accepts it.

Ask: adopt a fixed 14-day breakpoint, concentrating the gradient where ACP-273 creates the regression. If a curve change is out of scope for the Helicon timeline, extend the ramp from 30 to 60–90 days as an interim cushion.