Restore Community RPC Rewards to 40% & Strengthen Alignment - DRAFT

[Dee]

Authors: @willruddick @kamikazechaser @Chainvibes @Stakecito @Dee
Type of Request: Network Decisions & Protocol Improvements

Summary

This proposal seeks to restore Community RPC rewards to 40% (approx. $12k/year per node) immediately and it establishes a set of guardrails to be enacted via follow-up proposals:

Immediate change

• Restore rewards to 40% now to preserve the operator layer during this transitional period.

Follow-up proposals

• Six months after implementation, submit a proposal to increase the minimum CELO requirements for validators/groups from 10k to 20k to reinforce long-term alignment.
• Return rewards to 100% once CELO price recovers and remains above a defined threshold: $0.53 for more than 1 month.
• Reduce rewards back to 0% only in a severe downside scenario (proposed trigger: $0.053).

Motivation

Context

Since early October, our governance energy has been monopolized by a single objective: cutting expenses by 50%. We heard arguments regarding sell pressure, runway protection and the utility of Community RPC nodes. While feedback was abundant, much of the dissenting technical context was waved away in favour of immediate cost reduction.

A core disagreement in the discussion has been how (or whether) Community RPC rewards impact CELO price. Some participants argued that reducing rewards meaningfully reduces sell pressure and extends the runway. Others argued the relationship is indirect, context-dependent, and currently not supported by shared data.

This misunderstanding persisted through December, exemplified by comments suggesting that cutting spend would “hopefully” cause Celo to go up.

What we can say with confidence is: Community RPC rewards are paid in cUSD, and the downstream effects on CELO supply/price depend on broader system behaviour (including reserve management by Mento and market conditions). Given this uncertainty, the decision to set rewards to 0 should not be treated as a “simple win”; it should be treated as a high-impact structural change that warrants guardrails and review.

We have not sufficiently assessed the risk of zeroing out rewards and effectively disbanding the operator set. The loss is not just “compute capacity,” which can indeed be bought from vendors. The real loss is the removal of deeply embedded technical stewardship from people who have focused on Celo for over five years.

@kamikazechaser summarized this loss perfectly:

Grassroots Economics has directly contributed critical technical value to the Celo ecosystem… We also identified and helped surface a critical sequencer issue that prevented smart contract deployments on Celo for nearly 17 hours… We operate as a challenger on Celo and were prepared to participate in any future protocol improvements.

The point is: RPC providers deliver far more than compute power. When they are deeply invested in the chain, they provide technical feedback loops, early detection of failures, protocol hardening, and informed governance participation. By eliminating Community RPC nodes, we also eliminated these feedback loops, this institutional knowledge, and ongoing technical stewardship.

Proposal #271 passed with very mixed signals (260 voting addresses, 57% abstain, 7% No with 241 addresses and 36% Yes with 5 addresses). High abstentions and highly concentrated voting power relative to the number of participating addresses suggests many participants either didn’t support the direction strongly, didn’t have time to evaluate implications, or felt their vote wouldn’t change the outcome. As @marek puts it:

I haven’t fully wrapped my head around all of the implications. While the outcome saves the ecosystem a big chunk of cost, it’s clear that it has some negative consequences as well.

Furthermore, the proposal text regarding “No” votes vs. “Abstaining” was contradictory. It stated:

‘No’ votes will not be counted for the purpose of picking a winning choice; therefore, voters can explicitly abstain by voting ‘no’ on all three options.

This was clarified later in the forum but that contradiction may have affected how people voted and it reinforces the point: this was prepared in haste.

Cost-cutting is easy. Building demand is hard. And we keep choosing the easy thing. If we want “savings” without governance collapse, the answer is not zeroing rewards. It’s restoring incentives and tying them to the network growth so holding CELO becomes both rational and easy to explain.

Celo is viewed as a governance token but what happens when the key stakeholders originally envisioned as symbolic political parties within Celo disappear? In the original design, validator groups weren’t “vendors.” They were closer to political parties: durable coalitions with reputations, incentives and constituents (individual validators), elected via a D’Hondt-style seat allocation. That structure created pluralism, continuity and accountability over time. You don’t get that from swapping in Forno or Alchemy.

For years, a diverse set of long-lived operators actually did the hard work of governance: showing up, debating tradeoffs, responding in emergencies and carrying institutional knowledge. When rewards are set to 0, the message becomes: “thanks, you’re just a disposable cost line.”

The Strategic Danger of “Zeroing” Rewards

That’s strategically dangerous because you’re not just cutting spending, you’re hollowing out the very stakeholder layer that made Celo’s governance credible in the first place.

1. Who’s going to do the governance work?

This ecosystem was diverse and global because people showed up: calls, proposals, coordination etc. If you replace that with “just buy RPC from vendors,” you are trading a living network for a service contract.

2. Decentralized governance isn’t real at ~10% staked.

As soon as the proposal #271 passed, 20m Celo have been unstaked, that’s an immediate 27.7% reduction and now only 72m Celo are staked out of over 700m circulating Celo. It weakens governance security, coordination and it invites more apathy.

3. Reputation matters.

Celo was one of the few chains where outsiders believed decentralization wasn’t just a press release. That trust is an asset. We’re liquidating it for short-term uncertain gains. You don’t get that reputation back by saying “we’ll fix it later”.

4. Regulatory survivability

We are dismantling the infrastructure we will legally need this year. The regulatory landscape has completely shifted. With the “Genius Act” signed in the US (July 2025) and MiCA fully active in the EU, the “safe harbor” for centralized sequencers is evaporating. Regulators are moving to classify centralized sequencers as “matching engines” or CASPs (Crypto-Asset Service Providers), subjecting them to banking-style compliance that a permissionless chain cannot meet.

To avoid geoblocking in Europe or exchange classification in the US, Celo will be forced to decentralize its sequencer, likely by the end of this year or next. Who runs that decentralized sequencer? It requires a distributed, technically capable operator set.

If we zero out rewards and disband our operators now, we are firing the very workforce we will desperately need to re-hire in a few months to keep the network legal. We are saving pennies today to create an existential compliance crisis tomorrow.

5. The “sell pressure” frame is going to backfire

Zeroing rewards doesn’t reduce sellers but it creates new ones. For years, operators functioned as a demand sink: they accumulated and held CELO because they had a long-term role in the network. When rewards go to zero, the incentive flips. Operators are pushed to shut down, unwind their positions and eventually sell what they can. Today, group and validator CELO is still locked (6 and 3 months), a constraint that made sense when we had a critical security role. But there’s now a proposal on the table to remove those time-locks as unnecessary for an L2. If that passes, we should expect a wave of unlocks and a real risk of added sell pressure as operators exit.

It is also important to address some of the misconceptions that appeared on the previous threads:

1. “L2 means we don’t need to pay for security anymore”. False. After the transition to layer 2, the operator set already voted unanimously to halve rewards to ~$30k/year, about a 60% drop from the original $75k paid in 2020. Community RPC rewards have never matched validator pay. The system already absorbed a major reduction; zeroing it out is an overkill measure not an optimization.

2. “The market doesn’t value decentralization”. If that’s the claim then let’s be honest that decentralization was just branding. But if we still claim it’s an ethos, we can’t treat it as optional the moment budgets tighten.

Specification

We would like to propose a credible compromise. It matches the original intent of saving expenses but it also balances this with a reversible decision when runway justifies this and it avoids all the damaging reputational risks. It keeps the lights on, keeps the operator set alive.

Link to spreadsheet

A) Restore Community RPC rewards to 40% immediately.

• Rewards at ~$12k per RPC node annually (per current model)

• Total annual expense: ~$1.32M (with 110 nodes)

• Runway impact: ~20 years at this level

Yes, operators will still struggle but this keeps the ecosystem from hollowing out during a temporary phase. This reduces spend materially versus the prior level (~ $3.3M/year) while preserving the operator layer during the L2 transition.

B) Revert to full rewards when price recovers.

With CELO at $0.42, restoring full rewards should not worsen the runway (still ~25 years in the current model). But for good measure, let’s add a 25% buffer: trigger full restore once price stays above $0.53 for over a month, giving ~29 years runway.

C) Revert rewards to 0 only under extreme downside.

If CELO hits $0.053 (over 50% below the Binance ATL of $0.1089), rewards revert to 0 even if the runway is still ~10 years so this is a true emergency brake.

D) Increase validator/group CELO requirements to strengthen alignment (phased).

Six months after this proposal is implemented, a new governance proposal will be posted to increase the minimum CELO requirement for validator groups and validators from 10k to 20k CELO. The goal is to strengthen long-term alignment and demonstrate that RPC node operators are a real source of demand. This change would create buy pressure for ~2.2M CELO rather than encouraging operators to sell their stake.

Detailed Budget

The financial impact is calculated as follows:

• Annual Cost (40% Rewards): ~$1.32M USD ($660k per season)
• Comparison: This is a material reduction from the ~$3.3M/year level (100% rewards for RPC operators) and the original $8.25M/year paid to Validators
• Runway Analysis:
  • Current Price ($0.1233): 20.04 years runway.
  • 90d Avg Price ($0.1716): 25.37 years runway.
  • Deep Bear ($0.0866): 15.23 years runway.

If we want Celo to remain a diverse, global, mission-driven network, we should avoid irreversible damage to the operator layer during an incomplete transition (not just another cheap L2 endpoint). Vote YES to restore Community RPC rewards to 40% with clear guardrails and review triggers, so we can design the long-term model with evidence rather than crisis dynamics.