The Great Celo Halvening Temperature check

Overview

Following a recent Forum post from cLabs, the community is requested to weigh in and vote on Celo's new tokenomics for the new L2 era.

A "Yes" vote will denote agreeing to implement "The Great Celo Halvening" as described in this forum post. A "No" vote will denote not agreeing to the "The Great Celo Halvening". An "Abstain" vote will denote neither agreeing to nor disagreeing with either option, but instead will help to achieve the minimum needed level of quorum needed to pass a resolution.

Proposal Description

Reward Realignment:

Staking Rewards:

Staking rewards will continue to incentivize CELO holders to participate in governance and elect reliable node operators. The proposed staking reward rate is approximately 1.8-2%, with the exact number depending on factors such as the price of CELO and total staking participation. This represents a reduction from the current rate of around 3.77%. This rate balances the need for governance participation with the goal of reducing long-term token inflation.

Validator Community RPC Provider Rewards:

Validators transitioning to running community RPC nodes will receive an annual reward of 30K cUSD (previously 58K cUSD) to maintain high performance and uptime. For more details on this structure, please refer to the validator engagement proposal.

Inflation Reduction:

To promote sustainability and address long-term concerns about token supply, adjustments to rewards and ecosystem contributions are designed to lower CELO token inflation. The proposed changes will halve the inflation rate from approximately 2% today to around 1%, aligning with the network’s hard cap of 1 billion tokens and ensuring long-term economic health.

Transaction Fee Allocation:

The transition to L2 necessitates changes in how transaction fees are allocated. Currently, 80% of transaction base fees are burned, and 20% are directed to the carbon offset fund. Under the proposed L2 tokenomics:

1. 10% of transaction fees will continue to support the carbon offset fund, maintaining Celo’s environmental commitment. With the current spending levels, the network was achieving offsets approximately 43x over its emissions, allowing this adjustment to reallocate resources toward operational needs while still maintaining a very robust offset strategy.
2. 90% of transaction fees will be directed toward funding key network operations, including:
   1. Data Availability
   2. Layer 1 Fees
   3. Sequencer and Batcher Operations, which may be outsourced from cLabs in the future Revenue sharing with the OP-Stack as per the Superchain Ecosystem requirements. This new fee allocation balances the network’s sustainability goals with its operational requirements in the L2 environment.

Carbon Offset Fund Adjustment:

The carbon offset fund has consistently reported a surplus, offsetting emissions by approximately 43x the network’s carbon footprint. Given the anticipated reduction in the network’s carbon footprint due to the L2 upgrade, contributions to the carbon offset fund will be reduced by 50%. This adjustment ensures that Celo continues to be carbon-negative and maintains its commitment to sustainability.

Proposed Changes

No on-chain changes, this is a temperature check proposal.

Verification

This command should show no transactions:

$ celocli governance:show --proposalID 209 --node https://forno.celo.org

Risks

As there are no on-chain actions performed at the time of executing this proposal, no risks arise in the short term.

Useful Links

• Original proposed tokenomics: https://blog.celo.org/understanding-cgld-allocation-estimated-circulating-supply-over-time-f08a063a23ad
• Executed by: 0xj4an-work