Introducing Halving of Mining Reward in Zilliqa to Accelerate Transition to Proof-of-Stake
Summary:
This proposal aims to introduce a mechanism similar to the ‘difficulty bomb’ to progressively reduce mining rewards, thereby accelerating the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS). By implementing this mechanism, we intend to:
- Gradually decrease mining rewards by 50% in the first month starting from October 2024, followed by another 50% reduction in the subsequent month, continuing this pattern until reaching 12,5% of the initial amount.
- Encourage miners and the community to support and accelerate the transition to PoS.
- Reduce the immediate sell pressure on the ZIL token caused by miners liquidating their rewards.
- Reallocate resources to enhance network security, ecosystem development, and community incentives.
Rationale:
Accelerating PoS transition:
- Zilliqa is actively developing a new consensus mechanism. Implementing halving mechanics creates a sense of urgency, encouraging stakeholders to prioritize and accelerate the migration.
- Reducing PoW incentives aligns the interests of miners and validators towards adopting PoS, ensuring a smoother and more collaborative transition.
Resource reallocation:
- Resources from reduced mining rewards will be reallocated to strengthen PoS network security by expanding the set of reputable validators, conducting audits, and other related measures.
- The vast majority of resources will be allocated to ecosystem growth: supporting development initiatives, protocol enhancements, and community incentives.
Mitigating miner sell pressure:
- Miners often disengage from the ecosystem and tend to sell their rewards immediately, exerting downward pressure on the ZIL token price.
- A gradual reduction of mining rewards can help stabilize the token’s value, making it more resilient and better aligned with its utility.
Proposal details:
Implementation of halving mechanism:
October 2024: Introduce a change in the reward structure that effectively reduces miners’ rewards by 50% retroactively counting the total amount of mining rewards calculated on a monthly basis.
November 2024: Implement an additional adjustment to reduce rewards by another 50%, resulting in miners receiving 25% of their original rewards.
December 2024: The 3rd iteration will reduce rewards to 12.5% of the initial amount, allowing miners to continue operating while incentivizing the transition to PoS.
Technical implementation:
The halving mechanics can be implemented without a network upgrade. The implementation involves monthly adjustments to the base_reward_in_percent, node_reward_in_percent and lookup_reward_in_percent fields of the reward control contract specified in ZIP-24 (ZIP/zips/zip-24.md at master · Zilliqa/ZIP · GitHub). The value of base_reward_in_percent and node_reward_in_percent is divided by 2 and added to the lookup_reward_in_percent. The resulting lookup_reward_in_percent represents the amount that will be sent to the verifier node, which transfers the staking rewards (currently 25%) to the SSNList contract and burns the rest (the mining rewards saved).
Impact on miners and network security:
Miner operations:
As mining becomes less profitable, miners are encouraged to support PoS or participate in staking. They will continue operations and be rewarded by the protocol until the transition to PoS in Zilliqa 2.0 occurs.
Network security:
Leverage guard nodes and prepare validators to ensure network security during the transition. Additionally, provide documentation and support to assist miners in transitioning to staking within the PoS.
Resource allocation strategy:
The reduction in mining rewards will result in a surplus of ZIL tokens, which can be reallocated in various ways to benefit the ecosystem
Ecosystem development fund: Establish a fund to support new and existing projects, protocol upgrades, and innovation.
Community incentives: Reward active participants, such as developers, validators, and users, who contribute to network growth.
Potential gZIL utility: Consider allocating a portion of the resources to be managed by gZIL holders.
Accelerated transition to PoS:
Community mobilisation: The halving will incentivize all stakeholders to prioritize the transition.
Reduced dependence on PoW: Gradual phasing out of PoW minimizes disruption and allows for smoother adoption of PoS.
Ecosystem development:
Innovation funding: Reallocated resources can fund projects that enhance network functionality and user experience.
Community engagement: Incentive programs can boost active participation and strengthen the community.
Stabilized token value: Reduced sell pressure may lead to a more stable or appreciating ZIL token price and stimulate the ecosystem growth.
Risks and Mitigations:
Risk: Miner Exodus Leading to Network Instability
Mitigation:
Enhanced security measures: Strengthen guard nodes and validator infrastructure ahead of reductions.
Communication: Provide clear timelines and support to miners for transitioning roles.
- Support the proposal
- Do not support the proposal
- Needs revisions