This proposal seeks support to change the epoch parameters in Celo. The reason is that the validator rewards have gone down by 56%, the annual rewards are close to $33k and it continues to further go down.
The situation is not sustainable. Many of the small independent validators are coming from the Baklava Stake Off organised in 2019. The hardware requirement has more than quadrupled, all the business operation costs have gone up and maintaining a secured 24/7 operation in a high inflationary environment with regulation uncertainty is a challenge for many of us.
The chain was launched with 600m Celo at genesis in April 2020. The remaining 400m were reserved for epoch rewards. These epoch rewards are currently going to voting rewards, validator rewards, community fund and carbon offset fund.
If we look at the circulating supply, we have a total of 690m Celo so that means that the chain has created new 90m Celo since genesis. This means our annual inflation rate has been less than 3.6% and current network inflation rate is 2.09%. There are about 40k new Celo minted daily. By looking at the code, there was supposed to be a linear reward of 200m over 15 years so that’s about 36.5k Celo per epoch and 13.3m Celo per year.
As per the initial token release schedule, the community fund would have received 171m Celo over the span of 30 years. There was an assumption that if there are low voting rewards then people would not lock their Celo and this could be a security risk but reality is that people have been rather insensitive to the voting rewards and very few people know the current rewards. The community fund is set to receive a total of an extra 120m Celo from the Mento reserve.
Edit: We’ve received feedback from one of the approvers that the yield could decrease by 9%. The 3.7% is the current overall staking yield on locked Celo but this is an average that’s affected by all validators scores. At present, a validator with a perfect 100% score has a compounding yield of 4.13%. With this change, his yield will decrease to about 3.77% but it will cease to decrease further over time.
The formula for calculating 4.13% is (1+ (0.000252*0.441))^365 == 1.04139475603
The formula for 3.77% is (1+0.0001015*1)^365 == 1.0377
[
{
"contract": "EpochRewards",
"function": "setRewardsMultiplierParameters",
"args": [
"2000000000000000000000000",
"0",
"0"
],
"value": "0"
},
{
"contract": "EpochRewards",
"function": "setTargetVotingYield",
"args": [
"101500000000000000000"
],
"value": "0"
},
{
"contract": "EpochRewards",
"function": "setTargetVotingYieldParameters",
"args": [
"500000000000000000000",
"0"
],
"value": "0"
},
{
"contract": "EpochRewards",
"function": "setCommunityRewardFraction",
"args": [
"10000000000000000000000"
],
"value": "0"
},{
"contract": "EpochRewards",
"function": "setTargetValidatorEpochPayment",
"args": [
"160273972602739000000"
],
"value": "0"
}
]
These changes have been tested on Alfajores testnet
This command should show the proposal:
celocli governance:show --proposalID 178 --node https://forno.celo.org
The contract change is regarded as low risk as this proposal only changes the value of the different parameters without changing the underlying logic. The stability and safety of these changes have been confirmed on testnet.
This proposal aims to complement the Retroactive Validator Rewards Program #1 that was put forward shortly afterwards. As a result, the reward multiplier has been deliberately kept below 1 to maintain balance during this transitional phase.
This proposal serves as a temporary measure to provide relief to the validator community. However, it is crucial that we engage in a broader and more comprehensive discussion concerning the reward and incentive structures affecting all stakeholders (Validators, Celo holders and even stablecoin holders). This discussion is especially pertinent as we prepare for the transition to Layer 2, which may necessitate a reevaluation of our overall tokenomics to ensure long-term sustainability for the protocol economics.
Multiple discussions have been held around this topic over the course of 4 years:
Miscellaneous: