When a stake is opened, its SWAPP principal is burned and converted into shares. These shares represent the stake size and length as well as, indirectly, how early the stake was opened. The amount of shares a newly opened stake gets is determined by a global “INTR$T price” tracked in the SWAPP contract, as well as a percentage bonus based on the length of the stake. This share price only increases, hence staking earlier is better than later.
Stakes earn interest daily through the SWAPP supply inflation, as well as from other stakes’ penalties paid. The SWAPP supply inflates at about 4% per year. Three quarters of that inflation (i.e. 3% APR) is distributed daily to all active stakes, in proportion to their shares as compared to the total share pool. The remaining one quarter (i.e. 1% APR) is distributed daily to the CM referrer shares in the same proportional manner.
Depending on the length of the stake, a bonus amount of shares will be generated on top of the amount determined by the staked amount of SWAPP and current share price. This bonus scales linearly from slightly above 0% for a one day stake, to 25% for a 5 year stake, and then to 30% for a 42 year stake. For instance, a stake with a length of 1.5 years will generate1.5 * 5% = 7.5% bonus shares.
The share price starts at some predetermined value denominated in SWAPP per share. Whenever any stake is closed, the contract calculates a ratio of that stake’s total return (principal + interest – penalty) to its shares. If this ratio is greater than the current share price, then the share price is immediately set to this new, increased value.
The share price can only increase over time, albeit fairly slowly. This ensures that earlier stakes get more shares than later stakes of the same amount of SWAPP. This share price increase mechanism also prevents users from being able to compound their interest with a sequence of smaller stakes in order to try and outperform a single long stake of the same size.
On the start of the fifteenth day of the Circulation Epoch, the share price will be automatically increased by 10% as a one-time event. This creates a very strong incentive for users to open their stakes during the first two weeks of the Circulation Epoch. Waiting until day fifteen to open a stake will mean you get roughly 9% less shares than you would have on the previous day, for the same amount of SWAPP staked. In turn, that means roughly 9% less interest earned by the stake.