# Distribution

## Overview

The distribution module enables a simple collection and distribution mechanism to passively distribute rewards between validators and delegators.

## Summary

* [Staking Rewards](#staking-rewards)
* [How rewards are distributed on dYdX Chain](#how-rewards-are-distributed-on-dydx-chain)
* [How staking rewards are calculated](#how-staking-rewards-are-calculated)

## Key Concepts and Definitions

* Community Pool: a pool of tokens funded by a portion of staking rewards (`community_tax`) that the dYdX community could use to fund contributor grants, community initiatives, liquidity mining, and other initiatives.
* Distribution `ModuleAccount` Account: an account that collects and distributes trading and transaction fees among validators, delegators, and the community pool.
* Staking Rewards: the total portion of the Fee Pool that a DYDX staker can claim at a given block.
* Fee Pool: fee pool from maker trading fees (USDC), taker trading fees (USDC), DYDX-denominated gas fees from transactions, and USDC-denominated gas fees from transactions for a given block.
* Staking Rewards Withdrawal: a DYDX staker may claim their portion of the Fee Pool for each block. If a DYDX staker does not claim staking rewards, their respective rewards will accrue in the Distribution `ModuleAccount` Account.
* Total Bonded Power: the sum of all tokens that are currently staked by validators to themselves and tokens staked to validators by DYDX holders.
* Block Rewards: fees distributed to validators and delegators for successfully proposing and validating a new block on the blockchain.

{% embed url="<https://docs.cosmos.network/main/build/modules/distribution>" %}

## Parameters

The dYdX Community may adjust these parameters with an on-chain governance proposal.

<table><thead><tr><th width="277.3333333333333">Title</th><th width="69">Value</th><th>Description</th></tr></thead><tbody><tr><td><a href="https://github.com/dydxopsdao/networks/pull/39/commits/8915a65da04932dfdedea255feadd6b380c94865#diff-74b06241cbb20c39839cc9341cc4cb5ed24a9f290cc61435d29094f9af70afe3R1142"><code>community_tax</code></a></td><td>0</td><td>A tax that directs a percentage of the fee pool to the community pool.</td></tr><tr><td><a href="https://github.com/dydxopsdao/networks/pull/39/commits/8915a65da04932dfdedea255feadd6b380c94865#diff-74b06241cbb20c39839cc9341cc4cb5ed24a9f290cc61435d29094f9af70afe3R1143"><code>base_proposer_reward</code></a></td><td>0</td><td>Part of the block reward reserved for the validator that proposes a given block.</td></tr><tr><td><a href="https://github.com/dydxopsdao/networks/pull/39/commits/8915a65da04932dfdedea255feadd6b380c94865#diff-74b06241cbb20c39839cc9341cc4cb5ed24a9f290cc61435d29094f9af70afe3R1144"><code>bonus_proposer_reward</code></a></td><td>0</td><td>Bonus incentive for block proposers based on the number of transactions included in a given block.</td></tr><tr><td><a href="http://withdraw_addr_enabled"><code>withdraw_addr_enabled</code></a></td><td>True</td><td>Whether a delegator can set a different withdrawal address (other than their delegator address) for their rewards.</td></tr></tbody></table>

## Staking Rewards

On the dYdX Chain, all transaction fees (trading fees denominated in USDC, DYDX-denominated gas fees from transactions, and USDC-denominated gas fees from transactions) collected by the protocol will be distributed to validators and DYDX holders that stake to dYdX Chain validators.

The Cosmos [x/distribution module](https://docs.cosmos.network/main/modules/distribution) is a simple mechanism to allocate rewards earned by Validators and Stakers. For a detailed understanding of the Cosmos rewards mechanism, read [here](https://github.com/cosmos/cosmos-sdk/blob/main/docs/spec/fee_distribution/f1_fee_distr.pdf).

## How rewards are distributed on dYdX Chain

DYDX holders who stake to (a) validator(s) are entitled to a portion of the following fees:

* DYDX-denominated gas fees from transactions,
* USDC-denominated gas fees from transactions,
* USDC maker trading fees, and
* USDC taker trading fees.

Fees will accrue in the `Distribution ModuleAccount Account` each block. Each block a DYDX staker may claim their portion of Staking Rewards. If a DYDX staker does not claim Staking Rewards, their respective rewards will accrue in the `Distribution ModuleAccount Account`.

Note, Staking Rewards are not automatically staked to a dYdX Chain validator. Any DYDX earned by a staker as Staking Rewards will need to be claimed from the `Distribution ModuleAccount Account` and staked to a dYdX Chain validator to contribute to the security of the network and qualify to earn staking rewards.

## How staking rewards are calculated

* Fee Pool = fee pool from maker trading fees (USDC), taker trading fees (USDC), DYDX-denominated gas fees from transactions, and USDC-denominated gas fees from transactions for a given block.
* Number of DYDX staked by DYDX holder = total DYDX tokens that a dYdX Chain address has staked to (a) validator(s) at a given block.
* Total bonded power = the sum of all DYDX that are currently staked by validators to themselves and DYDX staked to validators by DYDX holders.
* Staking Rewards = the total portion of the Fee Pool that a DYDX staker can claim at a given block.
* Community tax = A tax that directs a percentage of the fee pool to the community pool.
* Validator commission rate = commission set by each validator and applied to the staking rewards of each delegator. Validators are required to follow the `min_commission_rate` parameter but are otherwise free to set their own commission rates.