The new rewards distribution proposal

Welcome to this week’s edition of the RHIZOME Wire!

A possible new economic design for ICON

This week, Scott Smiley of ICX Station posted a vision for the possible new proposal on how rewards would be distributed in the future — specifically once ICON 2.0 is up and running:

Now that we’ll be migrating to Batang we have much more freedom in terms of design. That is why I’m now proposing a much cleaner and straight-forward economic design for Batang with predictable inflation rates and clearly defined percentage breakdowns of where inflation is allocated. In our current system, it is impossible to say with certainty that “x% of inflation will be going to voters while y% inflation goes to validators” or “the amount of newly minted ICX per month is x”. The percentage breakdown and amount of newly created ICX per day constantly changes as more/less people delegate their ICX, meaning we have very little control of how we would like to allocate network resources and how much new ICX will be minted during any given period.

You’ll note that the terminology here has shifted away from “rewards” to “inflation”, which may or may not be an intentional effort, but over the past few months there has been a clear desire to make it known that inflation on the ICON network is driven by the distribution of rewards — and that there is no such thing when it comes to the way rewards impact inflation.

Here are the specifics on how the inflation would be allocated in the future:

IISS 3.1 will consist of several inflation pools with specific percentages of inflation allocated to each of them. The percentages assigned to each pool, as well as the size of the total pool, will all be able to be changed via a Network Proposal vote.

Variables:

  • i_global = Monthly inflation pool size in ICX

  • i_prep = percentage of pool going to P-Reps

  • i_voter = percentage of pool going to voters

  • i_relay = percentage of pool going to relayers

  • i_cpf = percentage of pool going to the CPF

Note: As a rule, i_prep + i_voter + i_relay + i_cpf + i_n must always equal 100%.

For context, our current inflation system looks like this:

i_prep = 17.15%

i_voter = 82.85%

And that’s it. The i_prep is currently the “Global Commission Rate” that is set collectively by P_Reps, and can technically fluctuate based on their desires (but hasn’t for a while). Meanwhile, i_voter is currently just based on the reward rate set by the original implementation of IISS. The total inflation amount is just the two added together.

So, under the new model, we’re adding two new ways to distribute inflation: relayers, and the contribution proposal fund, which will be used to distribute compensation on a per-project basis to help fund additional development and building on the ICON ecosystem. The relayers, meanwhile, will serve an important role in helping the network itself function once we migrate over to ICON 2.0.

So there are basically two questions with this new model: 1) how much inflation do we want ICON to have? and 2) how do we slice up this new pie?

For the answer to the first question, it’s a delicate balance. Of course, there are concerns that inflation can drive down the price of the project over the long-term. At the same time, by reducing rewards too much for either P-Reps, voters, relayers, or the CPF, we remove the incentives for those activities.

If we reduce the P-Rep reward too much, we risk losing node operators. If we reduce the voter reward too much, there’s less incentive to vote, and the network loses one of its more valuable marketing tools — the fact that our rewards for staking are among the highest in the industry.

We’ll need relayers for ICON 2.0, so there needs to be adequate incentive there, and if the CPF fund isn’t adequately funded, developers won’t have much incentive to build projects and DApps on the ICON network.

So finding the right balance between the level of inflation we think is necessary to sustain the ecosystem against our concerns about deflating the price will be a difficult debate and conversation.

As far as the second question is concerned, this will tie in similarly to the first question, but carries a bit more nuance.

In order to fund the relayers and the CPF, do we lower the P-Rep rewards but keep voter rewards the same? Or do we lower both? How much do we want to include into the CPF, and what do we think relayers need to receive in order to be adequately incentivized?

Of course, these numbers can be adjusted based on how well they’re working. Meanwhile, if it’s decided that inflation isn’t as big of a concern as we might think, this proposal could lead to increased inflation in order to increase the resources flowing into the network (if the community wants to go in that direction, of course).

Either way, whether we want to move forward with this proposal to begin with, as well as the details of it’s implementation, could have a big impact on the network moving forward, so we should all be looking to a productive discussion. If you'd like to provide your input today, be sure to join the discussion at the ICON community forum!


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