# Taxation Structure

Polylastic will utilize a tiered taxation structure to bring benefits to the overall product and ecosystem. In order to ensure it is both incentivizing for holders but not oppressive for users, we have created a formula to compute network tax dependent upon the transfer amount.

The network tax taken will remain modest in relation to the amount transferred but still sufficient to stimulate growth and reward the ecosystem. It will work as follows:

X -> Amount of tokens to be transferred.

FORMULA(X):

IF (X < 100)

NETWORK_FEE = 0.02 * ELSE

NETWORK_FEE = SQRT(X) / 5

In testing, this formula has demonstrated optimized scaling for fees on transfers both large and small; with the network fee computed directly against the amount of tokens being transferred.

Creating a tax structure which brings benefits to the product and ecosystem, while painless for the users, is accomplished through a mathematical formula that computes network tax depending on the transfer amount.

The premise for the realized network tax taken was to keep the percentages small irrespective of the amount being transferred while still significant enough to reward the ecosystem for both additional development and rewards.

Mathematical equation for the network tax is the following:

Since the network fee is computed directly against the amount of tokens being transferred, we can consider the same ratio is going to be if we use $ units.

Example:

X -> Amount of tokens to be transferred, assuming it is a decimal number

X_USD -> Representing how much 1 X is worth USD (typical exchange representation)

NETWORK_FEE = FORMULA(X)

NETWORK_FEE_USD = X_USD * NETWORK_FEE

Assuming most of the transfers will be within values shown in the table, this will offer a good idea of what transfer taxes will look like within the Polylastic ecosystem.

This optimizes taxation fairly as flat fees are ideal for small transfers since the fees have little variance i.e., they are always small in comparison to the transfer amounts. A more, potentially systemic issue could occur on larger transfers. On a larger transfer a flat fee will have a nominal delta, however comparing the flat fee on a 50 versus 5000 transfer is significant. The fee taken is tangible but certainly fair by percentages. Per the model, the fees taken are always small from a percentage standpoint but still more than enough to support the project. Computing the fee formula on the blockchain can be very costly and gas intensive. For transfers of less than $100, the formula fee computation will make no noticeable difference, as it will be denominated in cents. In order to optimize transfers in terms of gas costs, a fixed formula for lesser amounts was ideal.

Regarding what these fees will do for the network, consider:

Funding the cost of ongoing development

Designating LPs rewards

The allocation of staker rewards

That project supporters can be rewarded from pooled fees

The overall benefit for tokenomics and utility

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