[FINAL] Validators rewards - change in epoch parameters

Governance
1

Hello everyone!

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.

Thank you for your time.

@Thylacine @roman @Patrick @Dee

12 Likes
2

Hi,
What is the impact on individual holders who have staked Celo?

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3

Hi,

Thank you for looking into it.

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.

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4

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 in advance! Cheers!

5

Hi Luuk,

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.

Cheers!

1 Like
6

Hello everyone,

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.

Concrete proposal on epochrewards.sol parameter changes: Celo EpochRewards: Propsed Parameter Changes - Google Sheets

  • This should result in
    • Push validator rewards to 75k cUSD / year
    • Reduce Community Fund rewards by roughly 90%
    • Leave voting yield unchanged
    • Additionally, these parameter changes:
      • 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

Thank you again for all your feedback and looking forward to the next governance call on Thursday 25ft of April.

2 Likes
7

Hi @Dee,

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!

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Hi @LuukDAO

Thanks for the proposal. I’m gathering feedback from the validator community and looking forward to discuss this further with you.

1 Like
9

Following our recent governance call and additional discussions regarding the two proposals, we are planning to implement the following changes:

  • Reward multiplier will be reduced from 1 to 0.78 from the original proposal, returning it to the value it was two years ago. This adjustment is based on historical data and aims to stabilize our economic model in response to current market conditions.
  • To account for the total of 150m Celo being transferred from Mento, we will significantly cut down the emissions to the community fund.
  • We will freeze the emission to locked voting Celo at its current rate. This will have the advantage of maintaining consistent yield and prevent further decreased that has occurend in the past for the locked voting Celo

We have already conducted initial tests on the Alfajores testnet, and the results have been encouraging. We plan to do further testing on baklava before submitting this for mainnet.

2 Likes
10

I’m personally ok to support this proposal, as long as there are actual math on validator costs.

2 Likes
11

Hello everyone,

As I’m not able to edit the first post, here’s the final proposal that will be submitted for a governance vote:

Overview

This proposal seeks support to change the epoch parameters in Celo. The reason is that the validator rewards have gone down by 56%, the annual rewards are close to $33k and it continues to further go down.

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 is set to receive a total of an extra 120m Celo from the Mento reserve.

Proposed Changes

This proposal is to revert back and freeze the reward multiplier to its previous value two years ago. The following changes will be implemented:

  • Validators Celo Epoch rewards will be adjusted from the initial $75k to $58.5k (0.78*$75k) and the reward multiplier will be freeze and brought back to 1. This will stabilize validators rewards around $58.5k
  • To account for the total of 120m Celo being transferred from Mento, this proposal will significantly cut down the emissions to the community fund
  • We will freeze the emission to locked voting Celo. This will have the advantage of maintaining consistent yield and prevent further decreased that has occurred in the past for the locked voting Celo

Edit: We’ve received feedback from one of the approvers that the yield could decrease by 9%. The 3.7% is the current overall staking yield on locked Celo but this is an average that’s affected by all validators scores. At present, a validator with a perfect 100% score has a compounding yield of 4.13%. With this change, his yield will decrease to about 3.77% but it will also cease to decrease further over time.
The formula for calculating 4.13% is (1+ (0.000252*0.441))^365 == 1.04139475603
The formula for 3.77% is (1+0.0001015*1)^365 == 1.0377

Verification

This command shows the proposal:
celocli governance:show --proposalID 178 --node https://forno.celo.org

Risks

The contract change is regarded as low risk as this proposal only changes the value of the different parameters without changing the underlying logic. The stability and safety of these changes have been confirmed on testnet.

This proposal aims to complement the Retroactive Validator Rewards Program that was put forward shortly afterwards. As a result, the reward multiplier has been deliberately kept below 1 to maintain balance during this transitional phase.

This proposal serves as a temporary measure to provide relief to the validator community. However, it is crucial that we engage in a broader and more comprehensive discussion concerning the reward and incentive structures affecting all stakeholders (Validators, Celo holders and even stablecoin holders). This discussion is especially pertinent as we prepare for the transition to Layer 2, which may necessitate a reevaluation of our overall tokenomics to ensure long-term sustainability for the protocol economics.

Useful Links

Multiple discussions have been held around this topic over the course of 4 years:

@Thylacine @Patrick @Dee

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Thanks for collating the history of everything here. I think it’s healthy for governance simply to put this forward for voting after many rounds of discussions.

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Congrats Validators about the approved proposal :raised_hands:

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