Zilliqa Incentive Layer

Summary:

The Zilliqa whitepaper is stating block rewards shall decrease over a period of 10 years. Almost three years after mainnet launch, the block reward is still a fixed number, i.e. 204,000 ZIL. This proposal suggests implementing decreasing block rewards starting at 31 Jan 2022 - the 3rd anniversary of Zilliqa mainnet launch.

Abstract:

The current DS Block reward is 204,000 ZIL ( Zilliqa Block #1610500 | ViewBlock ) and a DS epoch is about 57 minutes ( Zilliqa Block #1610600 | ViewBlock ). This results in an issuance rate of 60 ZIL per second or 1.89B ZIL per year. The current ZIL supply is ~15.3B ZIL. The maximum supply is 21B ZIL.

With the current issuance rate, the remaining tokens will be fully distributed within the next three years. The proposal assumes that three years will not be enough for Zilliqa to mature in a way that rewards can be paid only by transaction fees. This is why we have to lengthen the reward distribution by reducing the issuance rate.

The proposal suggests a simple approach that results in an issuance rate of 0.5B ZIL per year starting at the 5th year. The 3rd and 4th years shall be used to linearly decrease the issuance rate from 1.89B ZIL to 0.5B ZIL.


Figure 1: Proposed ZIL Issuance Rate

Motivation:

The motivation has been stated clearly in Chapter VIII of the Zilliqa Whitepaper [1]:

ZILLIQA has a finite supply of 21 billion ZILs. The smallest
unit being 10−12 part of a ZIL. Each final TX-Block comes
with a block reward that generates new tokens. The block
reward will be spread over a period of 10 years decreasing
over time. We aim to mine roughly 80% of the tokens in the
first 4 years and the remaining 20% in the next 6 years. The
token emission will be “smooth” in the sense that the block
reward does not reduce drastically after a certain number of
blocks. The smooth reduction in the block reward means that
the network hashrate can be expected to be stable as the reward
reduces over gradually over time.
After 10 years, we expect to have reached significant scale
both in terms of the number of nodes in the network and users
executing transactions. By then, we expect the market to have
stabilized upon certain rates of transaction fees to fully sustain
the running of the network without a need for new tokens
entering the system as rewards.

Specification:

  1. Starting from January 31, 2022
  2. Reduce DS Block reward by 7.5 ZIL each DS epoch for the next 20,000 DS epochs.
  3. After 20,000 DS epochs, the new DS block reward will be 54,000 ZIL

The new issuance rate will be ~0.498B ZIL per year.

PRO:

  • Lengthen the reward distribution allows the Zilliqa ecosystem to further grow in the meantime
  • Smooth decline in reward issuance avoids any non-linearity effects
  • Reduces sell pressure on the market ( Bitcoin halving effect )
  • Increasing ZIL price due to reduced sell pressure potentially compensates miner reward reduction

CON:

  • Less mining rewards could result in reduced miner interest, potentially compromising the security of the network

FACTS:

  • Reduced block rewards affect both, miner rewards AND staking rewards

References:

[1] https://docs.zilliqa.com/whitepaper.pdf

Vote on Zilliqa Incentive Layer Proposal
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To my knowledge there are two potential implications of this proposal worth considering:

  1. This will reduce both miner rewards AND staking rewards

  2. Zilliqa mining is currently subsidised to a certain extent by eth mining so a reduction in miner rewards too early could reduce the viability of some miners, potentially compromising the security of the network.

1 Like

Potentially this is a good proposal, but it would good to understand:

  • if rewards for staking were to be reduced too
  • whether miner would not be too impacted (would a probable price surge cover their losses?)
  • what the Zilliqa Core thinks of this (Amrit, Ben, Jun, Milan ???)

Hi @will_speaks,

thank you very much for your reply.

  1. You are right, this proposal will reduce the rewards of both, the miners and the stakers. I believe this is only fair.

  2. In a few years, ZIL will be worth either a lot or nothing. If it’s a lot, miners will be fine. If it’s nothing, miners will not care anyhow anymore.

Hi @Cianfresco,

thank you for being around and participating in the governance process!

Yes, the block reward is shared by miners (60%) and stakers (40%). By reducing the block reward, both will be affected.

Most Zilliqa miners are doing dual mining with Ethereum. Zilliqa is a lucrative side business for them. I don’t think anything will change as long as we have Ethereum PoW. IMHO, the transition from PoW to PoS of Ethereum might have much more effects on Zilliqa hash rate than the implementation of this proposal can have. Also, as you pointed out, rising ZIL price will also help to keep Zilliqa mining attractive.

I’m sure Zilliqa team will be around here soon to provide their thoughts on the proposal. @maqstik @MilanZilliqa @junhaotan

Cheers,
Julian

Hi, you will need a poll option for people to vote for or against the idea for minimal of 3 days. Check if this can be assigned a Zip by the team to then put up for voting.

Hi @ZillinkPower,

before setting up a poll I wanted to receive more comments and input from the community on the proposal. Once you set a poll you can’t change the content of the proposal anymore.

Cheers,
Julian

1 Like

That’s great! As long as we know what’s at play.

Thanks for bringing this up. Looking forward to the Dev’s input as reliance on miners and stakers would also be an important point of incentive to maintain network etc.

I have no idea on the impact in terms of overall sustainability on the infrastructure and agree moving ETH to POS will impact much more vs this change.

1 Like

I support declining inflation for both staking rewards and mining. If we cut staking rewards I’d also like to see the unbonding period removed or drastically shortened though. Lower % apy plus a 12 day unbonding would not be very enticing for new users.

Wow Julian - nice pickup out of the whitepaper. I like it, and makes sense, and is to the vision set out in the whitepaper. I also support declining inflation.

The main question for me - if this is in the whitepaper - is it something that needs to go through a vote?

@Drew im also with you about the unbonding period, but that I believe is already being discussed in here? its better off to not confuse/compound lots of things into 1 proposal.
Im not sure why it never progressed, but it should do in some fashion.

1 Like

Hi @Drew,

I agree with @darthgus that we should not confuse too many different topics into one proposal. Let’s go one by one. The proposal below is about early unstaking, I think we should discuss about it there:

Hi @darthgus,

thank you for the nice words.

Why do we even have to vote for this? Well, you have valid point there. I think it is more about the HOW and not IF this should be implemented.

Cheers,
Julian

First of all I would like to thank all of the amazing humans who have had a role in bringing Zilliqa to life. Secondly I’m not sure why this topic has not been brought up sooner. My problem is with the onboarding of new ways to spend your crypto and how more people will find utility in some and hodl others.How will Zilliqa compete going forward? I have been an investor for about two years now so I’ve reaped many benefits that Zilliqa has sowed. I would love to keep going forward with this project to see how it matures, but in all honesty I feel there is a disconnect from milestones delivered and price appreciation from said goals. Is this a bi product of the high inflation rate? Idk for sure. I’m not sure if deflating the issuance going forward will help this project gain traction going forward. I for one feel better about getting your total supply in to circulation as soon as possible. That’s when you’ll get true price discovery. Good luck to all that have read this. You are way ahead of the “curve”.

Hi @hefdiddy,

thank you for your comment.

If we continue the rewards at the current rate, the total supply will be reached in less than three years. This would be a total of 6 years of operation. At this point, all necessary rewards have to be covered by transaction fees.

In fact, Ethereum achieved to gain enough traction within the last 6 years to reach this state. Conservatively speaking, I would not bet Zilliqa can grow at the same pace as Ethereum as it is missing the first-mover advantage in the smart contract platform field.

Considering this, I tend to disagree with you and stick to my proposal to lengthen the reward distribution by reducing the reward issuance - as of course already indicated in the white paper.

With that being said and after 1 week of discussion, I will:

  1. Add a PRO and CONS section to the proposal based on the feedback provided by you and
  2. Activate the informal forum voting.

Cheers,
Julian

Hi all,

I’ve initiated the forum vote on the proposal.

You have one week for voting to indicate your interest in the proposal. This is the basis for going forward to a snapshot vote.

Cheers,
Julian