# Layer 5 - Scale down factor

Layer 5 of Ethernodes' Revenue Sharing model is our latest way to reward customers who deposit funds into our protocol. **It is about making them participate in the rewards in the form of incentives that, as Ethernodes, we can receive thanks to the volume we manage**.

The simple way to propose an Airdrop is by proportionally distributing the tokens based on the weight that each Ethernodes deposit has over the total deposits in the protocol. However, as is the case in all protocols, +80% of Ethernodes volume is concentrated in less than 20% of deposits. This implies that users with lower deposits would have a very low Layer 5 incentive.

#### How does the Ethernodes mechanism work for a more attractive distribution to all clients with active deposits?

To make the incentive attractive, every resource distribution cycle in Layer 5 will be set by the following parameters:

Total number of tokens to distribute

Number of days in which the tokens will be distributed

Maximum amount to be distributed that can be assigned per deposit

Minimum amount to distribute that can be assigned per deposit

100% of the daily tokens assigned during the period assigned to a distribution will be distributed. That is, there will be no remainder or bag of tokens to be assigned. **We added a maximum and minimum distribution factor per deposit, which limits the differences between large and small deposits, impacting the large deposit very little while greatly improving the profitability of the small deposit**.

The "maximum amount" and "minimum amount" to distribute are variable. That is, it is set specifically for each Airdrop that is scheduled, taking the criteria expressed in this article.

The distribution calculation is carried out daily, depending on the number of tokens to be distributed daily. Active deposits at the time of the daily token allocation will be eligible for the airdrop distribution.

#### A practical example of how Layer 5 distributions work

With the following example it will be easier to understand the behavior of Layer 5 distributions, given the maximum and minimum limits.

Let's imagine the following parameters of a Layer 5 distribution:

Total tokens to distribute: 10,000

Number of days: 40 (250 tokens/day)

Maximum amount per deposit: 70 tokens

Minimum amount per deposit: 40 tokens

Let's imagine that the existing deposits on the platform at the time of distribution are distributed as indicated in the following table, generating a daily theoretical distribution (based on the 250 tokens/day to be distributed) as indicated, as well as a maximum or minimum to receive depending on the assigned limits:

Name | Eth Deposited | Relative weight | Theoretical distribution (day) | max/min distribution |
---|---|---|---|---|

Depósito 1 | 10 | 41% | 103.31 | 70 |

Depósito 2 | 8 | 33% | 82.64 | 70 |

Depósito 3 | 5 | 21% | 51.65 | 51.65 |

Depósito 4 | 1 | 4% | 10.33 | 40 |

Depósito 5 | 0.2 | 1% | 2.07 | 40 |

| 24.2 |
| 250 | 271.65 |

In this example, you can see how the total sum to be distributed, considering the maximums (70 tokens) and the minimums (40 tokens), add up to more than the 250 tokens available to distribute. Specifically, 271.65. That is, 21.65 extra tokens.

#### Scale-down factor

In order to adjust the distribution in cases where this situation occurs, what is made is **a percentage adjustment to the distribution of all deposits, multiplying the total tokens to be distributed** (maximum, minimum or already defined) by the following factor:

In our example, "Scale-down factor = 250 / 271.65 = 0.92029206

That is, we will multiply the total number of tokens to be distributed by this factor, so that the existing distributions are adjusted in the same proportion for all deposits, leaving the table as follows:

Nombre | Theoretical distribution (day) | max/min distribution | Final Distribution |
---|---|---|---|

Depósito 1 | 103.31 | 70 | 64.42 |

Depósito 2 | 82.64 | 70 | 64.42 |

Depósito 3 | 51.65 | 51.65 | 47.53 |

Depósito 4 | 10.33 | 40 | 36.81 |

Depósito 5 | 2.07 | 40 | 36.81 |

| 250 | 271.65 | 250 |

**Once the "scale-down factor" is applied, the proportionality sought between what a large deposit receives and a small deposit is maintained, while respecting the total daily tokens available for distribution. **

The greater the difference between the theoretical distribution and the max/min distribution, the greater the adjustment that must be made. That is, a smaller number of tokens than expected will be received by the different deposits.

#### Why do maximums and minimums apply to Layer 5 distributions on Ethernodes?

Why do maximums and minimums apply to Layer 5 distributions on Ethernodes? The motivation is very simple. Large investors, institutional or professional, have less sensitivity when it comes to receiving additional rewards for their investments. The impact it generates on the total invested is practically irrelevant.

In turn, the small investor looks for specific incentives when selecting where they want to make their deposits so that they generate profitability.

Through this system, **we ensure that a small or medium investor has access to relevant additional incentives, without practically impacting the profitability of large Ethernodes deposits**. With numbers it is clearer:

Let's imagine a scenario with two clients:

Client 1 has a deposit worth €1,000,000 - 99.0099% of the total

Client 2 has a deposit worth €10,000 - 0.99% of the total.

In total, there are €1,010,000 deposited. With a profitability of 3%, the data would be the following:

Client | APY yearly | APY Monthly | APY Daily |
---|---|---|---|

Client 1 | 30.000€ | 2.500€ | 82,19€ |

Client 2 | 300€ | 25€ | 0.8219€ |

Now, let's imagine that we distribute an Airdrop through Layer 5 for a period of 30 days with a value of €3,000. That is, €100 per day. With this data, the impact on both clients represents an APY increase of 0.3 points (3.30% annual APY).

Applying the correction factors and with the maximum and minimum distribution limits, the absolute values do not vary too much, but the result does. In our example, let's imagine that of the €3,000 in value to be assigned, it is determined that the minimum to be received for client 2 is €200 in total. That is, Customer 1 would receive a total of €2,800 of the value of the Airdrop. In this scenario, the data would be the following:

**Client 1:**To be received without adjustment: €30,000 APY deposit + €2,970 APY airdrop

APY without adjustment: 3% deposit + 0.3% airdrop

To be received with adjustment: €30,000 APY deposit + €2,800 APY airdrop

APY with adjustment: 3% deposit + 0.28% airdrop

**Client 2:**To be received without adjustment: €300 APY deposit + €29.70 APY airdrop

APY without adjustment: 3% deposit + 0.3% airdrop

To be received with adjustment: €300 APY deposit + €200 APY airdrop

APY with adjustment: 3% deposit + 2% airdrop

As you can see, removing 0.2 tenths of profitability from the airdrop to client 1 - slightly less than 7% percentage-wise - has a positive impact on an increase of up to 6 times the profitability of the small client.

That is why at Ethernodes we apply this innovative distribution mechanism and, we believe, fairer with the small investor.

#### How are the time windows of Layer 5 Airdrops and the maximums and minimums to be distributed determined?

For the moment, distributions are made on a discretionary basis at the discretion of the Ethernodes team, prioritizing appeal to new users. At Ethernodes we have the objective of creating a plural, transparent and open platform, in which any client feels valued. We want to leave behind the feeling of small and medium investors that their deposits have a lower value than that of the large players.

That is why, although the criteria are discretionary,** we will apply the distributions, along with their maximums and minimums, taking these considerations**!

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