I’d like to propose some changes to staking rewards to improve the balance of the Zilliqa ecosystem.
The total supply of ZIL is limited to 21 billion. Both mining and staking rewards are distributed from the pool of unallocated ZIL at a constant rate, while ZIL is burned into the pool in proportion to the gas burn, which is currently less than the issuance of rewards.
Zilliqa provides a considerable staking reward (approximately 13%) and exhibits inflationary characteristics.
Without intervention, the Zilliqa network will eventually exhaust its supply of ZIL for mining and staking rewards.
To address this concern, as an initial measure, we propose a reduction in the staking reward to align more closely with industry-standard levels. As network activity increases, this adjustment should aid in balancing the burn rate and reward rate, ultimately achieving the long-term goal of zero inflation.
Our initial proposal entails lowering the staking annual percentage rate (APR) to approximately 8%.
Staking Seed Nodes (SSNs) currently receive 40% of the total rewards within the network.
We propose a gradual reduction of this percentage from 40% to 25%, decreasing at a rate of 1% per month. The commencement date for this reduction will be announced following the completion of software testing. The remaining ZIL will be retained in the unallocated ZIL pool, and mining rewards will remain unaffected.
We propose that, following the attainment of zero inflation within the Zilliqa network, the possibility of increasing staking rewards be reconsidered through additional governance initiatives.
Let me add a clarification on the impact of this proposal on mining rewards:
The proposed reduction in staking rewards also entails a reduction in block rewards i.e., the 15% are not added to mining rewards. Mining rewards remain unchanged. The new ratio between mining rewards and staking rewards will be approx. 70% to 30% instead of the current 60% to 40%.
I feel like there are plenty of other ways to reduce the inflation. Mining rewards greatly outweigh staking rewards, and yes, they do a lot more work for the network, but reducing their rewards would have a much larger effect. I vote no on reducing staking rewards.
We need to actually reduce the fees down to L2 solutions in order to stay competitive and become user-friendly.
In the future I would like to see the situation where gas fees are more attached to USD price algorithmically and never exceed 0.02$ at maximum per any smart-contract irrespectively to Zil actual price.
Blockchain stores transaction data forever. If you allow anyone to make a smart contract transaction for $0.02, people will start sending tons of them and it will clutter the state. When state grows, the cost of running the node grows exponentially as well. Zilliqa can end up in a state when there is no operators to run the node.
Even now, cost of running 2400 consenus nodes is close to $5m a year. Consensus nodes are operated by miners and Zilliqa Foundation. Staking nodes are not part of the consensus at all.
Does that mean that if zil price reaches 0.5-1$, we will end up paying 1-3$ per a simple swap, anyway? How is that competitive to other PoS L1s and L2s that have a relatively much lower gas fees for such things?
Staking nodes are getting disproportionally more rewards than mining nodes weighted by the cost of running. To run staking node you can use cheap hosting and end paying $40 a month, they do not play any role in consensus, so if something goes wrong, blockchain will continue to operate normally. There is no slashing of stake as well, staker can only lose future rewards, which is not big deal for many of them. In my experience, stakers do not check performance of the nodes often.
On the other side, mining nodes actually run the consensus. Cost of running such node is significantly higher as well as operation requirements. Node operators need to run many nodes so they end up with a cluster, otherwise it does not make any financial sense. 99% of consensus nodes are deployed to AWS in Oregon, AWS is very expensive comparing to regular hosting offers. Miners can’t leave AWS because it will significantly decrease they rewards.
When there is an outage of mining nodes, it can easily lead to stuck of the blockchain which happens several times a year. Remember a network recovery around a month ago?
Mining rewards are security and operation budget of the network, This is very important to keep Zilliqa secure and online.
Staking system does not bring any value to the blockchain and the community. 40% of inflation just goes to rich ZIL holders which make them reacher in exchange of 2 weeks unstaking period and RPC API endpoint which usually no one uses.
Think of this, Zilliqa paid around $15m last 365 days to stakers(ZIL = $0.017). Cost of running staking(RPC API) nodes are around $30,000 a year, everything else goes to token stakers, while stakers are usually the richest token holders. Just imagine what kind of protocols we would have on chain if Foundation will be able to spend a fraction of this money to fund teams?
I would be so happy to vote on decreasing gas fees when ZIL price hits $0.5-1. Nowadays ZIL price is $0.017. On-chain activity is poor because there are just few nice protocols over there. Estimating the current state, it’s unlikely that ZIL price will hit $0.5-1 any time soon. Other L1s and L2s TVL and on-chain activity are tremendously higher than ours. I propose to focus our community on reviving the chain first and then start thinking of $1 per ZIL again.