Celo Tokenomics Discussion Thread

Governance
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This thread aims to accelerate the discourse around improved Celo Tokenomics, a topic that was re-ignited following the Strengthen Tokenomics: Cut Validators from 110 to 55 thread.

In a rapidly evolving, and arguably overcrowded, L2 market, it’s key for Celo’s tokenomics to evolve and continue to support Celo’s vision and the ecosystem’s sustainable development.

Some resources from other L2 ecosystems that are helpful in our framing:

The Decentralised Sequencer strategy of Celo

The decision concerning if, how, and when we implement decentralised sequencing sits at the core of the next version of the Celo Tokenomics. As such, it would be key for cLabs to share their latest perspective and recommendations related to Decentralised Sequencing for Celo Mainnet (@martinvol @marek tagging to ensure this thread is on your radar).

In addition, it would be valuable for CELO stakeholders and large organisations to share their rationale for or against decentralised sequencing.

An open call to discuss Celo

This thread is mainly an open call for any CELO stakeholders, large or small, to share their strategic perspective and concrete requests and ideas for the CELO token.

I also suggest that those interested gather and discuss these topics in groups. I’ve blocked an hour on Thursday, December 4th, at 11 AM ET for those who want to jam over a call. You can add that session to your agenda via this link.

Once we’ve received a high-level perspective from some of the key stakeholders, it would be good to form a concrete tokenomics working group with a specific timeline and scope so we can progress effectively. I’ve spoken with @WillRuddick and @alex_Verda already who both seem willing to play a role in a working group like this, but we will need more diverse skillsets and voices.

GPT Summary

I’ve produced a GPT summary of the threads and comments related to tokenomics that have been shared on the Forum in the past three months. I didn’t change the content of the export, and don’t have a specific preference or opinion on any of the output yet; this is just to provide an overview of some topics that have already been discussed.

Strengthen Tokenomics: Accelerate stCELO

Strengthen stCELO’s role as the primary liquid staking asset on Celo by expanding its governance utility and aligning staking rewards with ecosystem contributions.

This means:

  • Enable governance voting-power delegation for stCELO, so holders can fully participate in Celo governance.
  • Adopt contribution-weighted validator vote allocation, ensuring validator rewards and staked voting power flow toward the most ecosystem-aligned, value-adding validator groups.

Outcome:

Greater staking participation, deeper liquidity, stronger governance, and a more aligned incentive structure across Celo’s validators, developers, and users.

Proposal to Enhance CELO Token Value Amid Growing User Base and Transactions

Token Burning Mechanism:

Enhance the existing token burn process by linking it to transaction volume or stablecoin usage. For instance, given that 90% of commission fees are reinvested into the ecosystem, a portion could be used to buy back and burn CELO tokens, further reducing supply and potentially increasing token value.

Increased Utility and Incentives:

Strengthen CELO’s role within the ecosystem by introducing incentives for using it. Options include:

  • Fee discounts for payments made in CELO.
  • Higher staking rewards for CELO holders.
  • Revenue-sharing mechanisms for token holders.

These measures could encourage holding, reduce selling pressure, and drive greater engagement.

Validator Compensation in CELO:

Switch validator payments from cUSD to CELO to strengthen demand for the token, align incentives with ecosystem growth, and further integrate CELO as a core utility token.

Strengthen Tokenomics: Cut Validators from 110 to 55

veCELO and Voting-Escrow Mechanisms

1\. veCELO Expansion:

  • Build on early pilots with Support Streams Season 0 & 1, where locked stCELO is used to direct a portion of CELO/OP incentives.
  • Introduce a time-based lock element and integrate mechanisms for projects to burn CELO or provide native-token incentives to attract veCELO votes.
  • Include expiry decay & auto-burn: once a lock expires, only 95% of CELO unlocks, with 5% auto-burned as a “commitment tax.”

2\. veCELO as a Governance & Incentive Tool:

Align veCELO with ecosystem governance and reward allocation, creating a system that encourages long-term commitment and strengthens token value.

Token Burn Strategies

1\. Burn Flex / ETH Foundation Model:

  • Explore CELO burn strategies inspired by the ETH Community Foundation.
  • Make **burning CELO the ultimate flex**, linking it to visible ecosystem impact or governance influence.
  • Could be integrated with veCELO locks, project incentives, or other high-visibility mechanisms.

2\. Auto-Burn Integration:

  • Combine with veCELO expiry decay (5% auto-burn) to create ongoing, predictable deflationary pressure.

Incentive & Staking Adjustments

1\. Rebalance Incentives:

  • Replace CELO emissions to validators with **MENTO-denominated rewards**, aligning protocol incentives with stablecoin usage rather than CELO supply inflation.

2\. Liquid Staking:

  • Reintroduce liquid staking (stCELO) to provide flexibility for stakers while still supporting ecosystem operations and governance participation.

This approach creates a cohesive tokenomics framework that:

  • Encourages long-term commitment through veCELO.
  • Introduces predictable deflation via auto-burn.
  • Rebalances incentives to strengthen stablecoin use and overall ecosystem sustainability.
7 Likes
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Great ideas, I fully support them, we need to start doing this, we are ready for these mechanisms

3 Likes
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Love all of these thoughts.

On the liquid staking side, cLabs is actively working to bring stCELO to mondo.celo.org so that we can do more with liquid staking.

Regarding the decentralized sequencing roadmap, here’s the quick update we’ve been sharing during the bi-weekly validator calls:

We continue to be excited about Espresso, primarily because by leveraging a sequencing service that’s shared across other Ethereum-aligned chains, Celo can benefit from the network effects that come with adopting such a service. Espresso is currently focused on two products: economic finality and, longer term, censorship resistance.

Since Espresso is prioritizing economic finality for now, the initial integration (slated for Q1) will mainly focus on bringing ~1–2 second economic finality back to Celo after the L2 transition. The goal is to continue making Celo an amazing place for payments and real-world use cases, where fast finality is extremely important (since half of each trade tends to happen off-chain and cannot be rolled back if the on-chain half is reverted).

The longer-term plan, which is subject to change as it’s further out, is to leverage Espresso’s PBS roadmap, which will use auctions to give third parties the right to sequence a block (by paying the centralized sequencer). This would effectively decentralize sequencing because anyone could bid for the right to produce blocks if the centralized sequencer were to censor transactions. Importantly, this would not require another consensus layer on top of the one Espresso uses for finality, and critically, it would not redirect “good” MEV away from the Celo community to Espresso’s validators.

It’s also worth emphasizing that Celo’s design today, especially after next week’s Jello hardfork, is already quite decentralized (as with any self-respecting L2). If the centralized sequencer censors transactions, anyone can simply bypass it by posting transactions directly to Ethereum.

All this is to say: our current validator set may not be strictly necessary for decentralized sequencing, aside from running Espresso nodes directly. Additionally, any implementation of auctions would be further out (subject to Espresso’s PBS roadmap). Once Espresso opens up its validator set beyond the permissioned group it has today, Celo validators will be able to register to validate on Espresso. In theory, we could also divert a portion of CELO rewards to these validators to complement their Espresso token rewards.

Let me know if this helps clear things up or if anyone has any questions.

7 Likes