> For the complete documentation index, see [llms.txt](https://docs.primestaking.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.primestaking.xyz/for-partners/reward-mechanics.md).

# Reward Mechanics

This section explains how XDC liquid staking rewards are generated and distributed under V3. The model is **NAV-based**: rewards are not handed out via a manual `claim` flow — they are embedded in the psXDC vault share price.

***

## Reward Source

PrimeStaking generates yield through XDC Network masternode operations. Validators participate in the XDPoS consensus process and receive protocol rewards derived from block production and network activity.

Unlike ETH-based liquid staking protocols, XDC Network **does not implement punitive principal-slashing mechanisms comparable to Ethereum Casper**. XDC's slashing instead penalizes downtime: a masternode that fails to sign any block during one full epoch (900 blocks, \~30 minutes) is excluded from block production for the next 4 epochs (\~2 hours) and forfeits rewards during that window. Validator penalties are therefore limited to operational demotion and reward impacts, without destruction of the underlying staked capital. This creates a materially lower staking risk profile for institutional partners and end users.

***

## Why Use PrimeStaking vs. Direct Staking

Direct XDC staking requires running a masternode (10M XDC minimum, infrastructure management, uptime obligations). PrimeStaking removes all of these barriers:

|                              | Direct Staking                 | PrimeStaking V3                                     |
| ---------------------------- | ------------------------------ | --------------------------------------------------- |
| **Minimum**                  | 10,000,000 XDC                 | None                                                |
| **Infrastructure**           | Run and maintain a masternode  | Fully managed                                       |
| **Liquidity**                | Locked until unstake           | Liquid (psXDC is ERC-4626, transferable, tradeable) |
| **Principal-stake slashing** | None (XDC model)               | None (XDC model)                                    |
| **Reward rate**              | Depends on your node's uptime  | Pooled across optimized validators                  |
| **Composability**            | None                           | psXDC usable as ERC-4626 collateral in DeFi         |
| **Withdrawal UX**            | Wait the network unstake delay | Instant when buffer allows; FIFO queue otherwise    |

***

## How rewards reach holders

```
XDC validators
      │ block rewards
      ▼
PrimeStakedXDC_V3 vault
      │ totalAssets += rewards
      │ totalShares  unchanged
      ▼
exchange rate (totalAssets / totalShares) ↑
      │
      ▼
every psXDC share is worth more XDC
```

| Aspect                     | Detail                                                                                                       |
| -------------------------- | ------------------------------------------------------------------------------------------------------------ |
| **Source**                 | XDC Network masternode block rewards                                                                         |
| **Accrual mechanism**      | Reward XDC enters the vault → `totalAssets` rises → exchange rate rises automatically                        |
| **User claiming**          | None — value is already inside each share                                                                    |
| **Settlement event**       | When the user redeems shares (instant or queued), the higher rate translates directly into more XDC returned |
| **On-chain verifiability** | Yes — every reward inflow event and the exchange rate are public                                             |

There is **no `notifyRewardAmount` admin call** in V3 (V2-era behaviour). There is **no per-user `claim` flow** for the base reward layer. Both were removed when V3 replaced the time-based APY model with the share-based NAV model.

***

## Calculation

| Parameter              | Detail                                                                                                              |
| ---------------------- | ------------------------------------------------------------------------------------------------------------------- |
| **Gross APY**          | Determined by XDC Network masternode economics (network staking ratio, validator performance, operator throughput)  |
| **Protocol fee**       | Percentage of gross validator rewards retained by the protocol — exact figure available under partner due diligence |
| **Net user APY**       | \~4.5% net (variable; depends on the above)                                                                         |
| **Distribution basis** | Pro-rata over psXDC shares **automatically through share price**, not at claim time                                 |

Net APY is variable and depends on:

* **Network staking ratio** — total XDC staked across the network affects per-validator rewards.
* **Validator performance** — uptime and block production efficiency for the operators the vault is delegating to.
* **Protocol fee** — retained percentage before reward XDC is reflected in `totalAssets`.

***

## NFT boost layer (separate from base APY)

XDC NFTs earn an **additional** XDC stream on top of base NAV via the Synthetix-style accumulator inside `XdcNftStakingVault`. The boost is **separate** from validator rewards and follows its own funding model:

* Boost is pushed into the NFT vault by [`XdcNftBoostHarvester`](/products/xdc-staking-nfts/boost-harvester.md) via `notifyBoost(amount)`.
* The boost slice is distributed pro-rata to each NFT's weight (`stakedShares × (rarityMultiplier + level + lockBonus)`).
* Boost **is** claimed (`claim(tokenId)`) and paid in XDC.

Boost is a product-side reward stream, not validator economics. The **floor** for every NFT position is the **base \~4.5%** (psXDC v3 NAV appreciation, automatic, never goes away regardless of rarity / lock / boost cadence). When the harvester is feeding the accumulator, the combined APY ranges from **\~4.75% (Plentiful unlocked)** up to **\~6% (Handcrafted locked)** — the delta over the floor is the boost slice.

→ [Reward Model: Base NAV + Boost](/products/xdc-staking-nfts/xdc-nft-staking-reward-system.md)

***

## Key Parameters for Partners

| Parameter                          | Detail                                                                                   |
| ---------------------------------- | ---------------------------------------------------------------------------------------- |
| **Reward asset (base layer)**      | XDC, accruing as share-price appreciation of psXDC                                       |
| **Reward asset (NFT boost)**       | XDC, accruing into the NFT vault's Synthetix accumulator                                 |
| **Distribution frequency (base)**  | Continuous via share-price growth (no batches)                                           |
| **Distribution frequency (boost)** | Each `notifyBoost` event — cadence is an operational choice (typically weekly or daily)  |
| **Claim flow (base)**              | None — rewards are realized on redemption                                                |
| **Claim flow (boost)**             | User-initiated `claim(tokenId)` from the NFT detail page                                 |
| **On-chain verifiability**         | Yes — both layers emit events indexed by the public subgraphs                            |
| **Principal-stake slashing**       | None — XDC penalizes downtime via \~2h exclusion + missed rewards, never burns principal |

***

## Loss Reporting

Validator outcomes can be reported via `reportValidatorLoss(operator, assets)` (gated by `RISK_MANAGER_ROLE`). The function is bounded by:

* `maxLossBpsPerReport` — cap per individual report.
* `maxDailyLossBps` — cap over a rolling 24h window.

Both caps are themselves governed by **delayed governance** — changes are scheduled, wait for `governanceDelay`, then execute. Reports emit the attributed operator (`outstandingValidatorPrincipalByOperator` is updated atomically). This bounds the blast radius of any single risk-management call.

***

## Transparency & Verification

* Every reward event is logged on the XDC blockchain.
* Exchange rate is a deterministic function of `totalAssets` and `totalShares` — auditable at any block.
* Historical exchange-rate data is available via the public subgraph for forecasting and reporting.
* psXDC v3 supply and total assets are verifiable on-chain at any time on [XDCScan](https://xdcscan.com/address/0x98D916F5773Ac0482b49856f2659d6c32114C4Ba).

→ [Liquidity Model](/for-partners/liquidity-model.md) → [Risk & Compliance](/for-partners/risk-and-compliance.md) → [How Rewards Work (user-facing)](/products/xdc-liquid-staking/xdc-staking-rewards.md)


---

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