Over the past few days, there have been 107 active validators running and it also means that the minimum to get a validator elected has come down from a high of 1.8m Celo to 20k Celo currently.
The reason is that the validator rewards have gone down by 55%, the annual rewards are close to $33k and it continues to go down further. The situation is not sustainable. Many of the small independent validators are coming from the Baklava Stake Off organised in 2019. The hardware requirement has more than quadrupled, all the business operation costs have gone up and maintaining a secured 24/7 operation in a high inflationary environment with regulation uncertainty is a challenge for many of us.
Background information
The chain was launched with 600m Celo at genesis in April 2020. The remaining 400m were reserved for epoch rewards. These epoch rewards are currently going to voting rewards, validator rewards, community fund and carbon offset fund. If we look at the circulating supply, we have a total of 690m Celo so that means that the chain has created new 90m Celo since genesis. This means our annual inflation rate has been less than 3.6% and current network inflation rate is 2.09%. There are about 40k new Celo minted daily. By looking at the code, there was supposed to be a linear reward of 200m over 15 years so that’s about 36.5k Celo per epoch and 13.3m Celo per year. As per the initial token release schedule, the community fund would have received 171m Celo over the span of 30 years. There was an assumption that if there are low voting rewards then people would not lock their Celo and this could be a security risk but reality is that people have been rather insensitive to the voting rewards and very few people know the current rewards. The community fund will be receiving an extra 120m Celo from the Mento reserve.
Proposal
We could work on the following 3 parameters to adjust the epoch rewards to make this change easier to implement while we transition to a Layer 2
Reduce community fund reward by 90% as it is in the process of receiving a total of 120m Celo from Mento
Reduce the Voting rewards by 50%
Return the validator rewards to the initial $75k that was planned originally
The epoch rewards should also go down to 30k Celo instead of the current 40k.
Looking forward to the community’s response to this proposal. We will be joining this Friday’s community call to discuss this. If the response is positive, we’ll assemble a CGP and on-chain proposal once this has been tested on Baklava.
The current voting rewards APR shown on epoch rewards is at 1.98% for epoch 1427 on the block explorer. I think that if we cut the voting yield by 2, we should be closer to 1.55%. The voter rewards are distributed to Locked and voting Celo and for the last visible epoch (1427), we can see there was 17.8k Celo distributed to 209m locked and voting Celo and cutting this in half would give an annual yield of 1.55%.
We have two goals in mind with this proposal:
a major one related to the validator rewards that needs to at least return to where it was in 2020
a minor goal of cutting the daily Celo emission if possible
We could leave the voting rewards as it is and, in this case, the daily Celo emission would remain at 40k Celo. This proposal acts more like a band aid for validators as we transition to a Layer 2 in the next couple of months.
Hi Dee, thanks for working on this proposal. The topic is super relevant and deserves more attention.
As mentioned during the Governance call last week, I would love to see a more detailed breakdown of costs for Validators, a breakdown of why Solo validators are valuable for the overall health of the Celo ecosystem, and a reduced increase of each of the parameters (ideally only touch one of the three parameters and explain why this one should be changed first).
Thanks for your input during the governance call. We’re fine-tuning the parameters and will try to address all the questions raised by the community. We’re trying to gather input from all the validators and we should have something ready for the next call.
We’ve tried to respond to the different feedback received during our last governance call. So here’s a general breakdown of a validator budget, the potential benefits of having a diverse set of validators and what has been the contribution to the ecosystem.
1. Validator budget
$1,000/ month in hosting costs - $12k/year
1/10th FTE for a devOps to keep on top of patches, VM upgrades, security - $10k/year
$500/month for 10 hours night shift on-call for weekdays - $6k/year
$500/month for 10 hours weekend shift on-call - $6k/year
$5,000/year in CPA costs
$2,000/year in legal/compliance costs
Assuming a total tax rate of 30%
Remaining: $23.8k/year for the validator assuming $75k per annum
When the money goes from the legal company to the individual, there is still payroll tax to be paid. This differs widely across the different countries and can go from 15% in the US to 70% in France. This factor has been ignored in this budget.
On the validator side, there is lots of unplanned/unpaid work that goes beyond running a validator for Celo. Validators do have growing expenses and the inflation won’t stop this year. In real terms, the purchasing power has decreased by about 63.67% from 2020 to 2024.
2. Benefit of having active/engage validators
During the recent inscription outage, Celo was one of the few blockchains that didn’t come to a halt. Validators rapidly upgraded their machine specs and many of us have been running with 8 core and 64 GB ram since then. Celo was able to withstand this load whereas Arbitrum had gone offline for 70 minutes and Avalanche had come to a halt.
We’re having regular governance proposals and it helps to have a diverse set of participants on it.
-We have a validator voting problem according to TheCelo - Celo data statistics provider, well compensated validators are more likely to pay attention to governance proposals and participate in voting.
-Additionally, the 24 hours halt in July 2022, shed light on a high level of validators concentrating within Coinbase. Perhaps, 14 validators at that time were being run by them. Incentivizing independent validators increases decentralisation which could be a benefit at the consensus layer.
In Celo’s history, validators have been one of the most active stakeholders. Here are some few examples:
They’ve been the first to initiate the use of the Celo community fund that went through several months of initial discussions and basically set the template for others to follow.
Many of the initial dApps were created by validators and are still currently maintained by them: Celo vote, Celo Desktop App, Moola Market, Celo signed map, CeloExtensionWallet etc.
3. Proposal on the parameter changes of the epoch rewards
We’ve adjusted the parameter changes and won’t be touching the voting rewards.
Effectively turn off the rewards multiplier logic (nails the multiplier to 1) to ensure that validator rewards do not get adjusted downwards going forward
Effectively turn off dynamic staking yield adjustments to keep the yield constant until the community decides to change it again via a CGP
I’ve worked with some stakeholders to draft an alternative solution to reward active (small) validator groups for their contributions to the Celo Network.
I would love to get your perspective on it and discuss it further in the next Governance call. Cheers!