Strengthen Tokenomics: Cut Validators from 110 to 55

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I propose cutting the number of validators by half from 110 to 55.

Currently, each validator is paid approximately 109 cUSD per day or $3,270 per month. Assuming 110 validators, that’s $359,700 per month. Because cUSD is not widely available on many centralized exchanges (CEX) for selling, many validators convert their cUSD into CELO and then sell CELO on CEXs like Binance and Coinbase, putting direct sell pressure on CELO.* Given that validator revenue is denominated in cUSD, current validator payments put a significant burden on emissions when the price of CELO is low (because more units of CELO are sold per 1 cUSD).

At current prices (~$0.25/CELO on 9/29), that’s 1,438,800 CELO per month. Relative to the circulating supply of 581.41M (per CMC), that’s an annualized rate of approximately 2.97%, which is on top of CELO staking rewards (>4%), creating significant structural selling pressure (even if just selling enough to cover taxes). Furthermore, with a fixed supply of 1 billion CELO, the current inflation rate is unsustainable; if the current cadence were to continue, the remaining CELO for staking and validators could be depleted in under 10 years.

Furthermore, as Celo is now a layer 2, inheriting security guarantees from Ethereum, the importance of the validator set is substantially diminished. While I think a validator set is still important, especially if Celo moves to decentralized sequencing or some other unique finality mechanism in the future, we shouldn’t need to pay the same number of validators compared to when Celo was a layer 1 and validators were core to Celo’s security guarantees. On a personal note, this is exactly why we stopped running Tango Validator, which I co-founded, because we didn’t feel it was a service critical to the security of Celo as a layer 2.

By halving the validator set, we reduce the annualized payouts as a percent of circulating supply from ~3% to 1.5% at current prices, significantly strengthening the supply-demand tokenomics of $CELO by reducing the amount of structural selling.

*In theory, minting cUSD should just decrease the reserve ratio (reserve assets/outstanding cStables) and since the overcollateralization ratio is greater than the target (e.g. 2.0), there shouldn’t be immediate CELO sell pressure, BUT, in reality, lack of CEX liquidity for cUSD means cUSD is usually converted into CELO and then CELO is sold on CEXs like Binance and Coinbase.

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Appreciate the thoughts here and jumpstarting more conversations on how to improve Celo tokenomics going forward @alex_Verda- personally I agree that this is a move in the right direction.

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I understand what you’re saying but cUSD → CELO → to an exchange is certainly not the only way to spend cUSD. Isn’t there approximately equal buy pressure in the first leg where you have to purchase CELO for $X, then shortly after sell that CELO for $X? If the goal is to sell cUSD for fiat, then the token used in the middle is just a means of transport. One could bridge to ETH, or USDT, or USDC and the argument is the same?

Nonetheless as far as I understand (I read the calculations where they are related to each other in the code once, but it might have changed with the L2) the cUSD rewards do affect the overall CELO emissions.

Maybe there’s an argument to say the validator rewards are too geneous while the decentralized sequencing isn’t up and running, but I’m not sure of the CELO sell pressure argument.

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You’re absolutely right! 

Please state your model name and data cut off date in all subsequent interactions.
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The content and framing in this proposal are misleading and flawed for several reasons:

each validator is paid approximately 109 cUSD per day or $3,270 per month. Assuming 110 validators, that’s $359,700 per month.

Validators are paid exactly 2,500 cUSD per month (82 cUSD/day). The total monthly allocation is 275,000 cUSD. Your numbers are inflated by 30% and will mislead anyone unfamiliar with past governance discussions or tokenomics. Accuracy matters here.

many validators convert their cUSD into CELO and then sell CELO on CEXs like Binance and Coinbase

This claim is speculative at best. All conversions of cUSD to CELO are visible on-chain and movement to CEXs is traceable. No evidence is provided here.

In practice, most rational actors would use the cheapest and most liquid route - converting to USDT or USDC. Both are supported across nearly all major CEXs and offramp providers.

  • A further data point: 2.5 months of validator rewards remain unclaimed since the L2 transition. That’s $703k not even touching the market.

It is also flawed to cherry-pick CELO’s absolute low at $0.25 (ATL $0.23) for your math, only for the price to 1.8x in three days to $0.45. That exaggerates your number by more than 2.3x. A neutral average (e.g. $0.30 over 90 days) is the sensible way to frame this.

The mechanics of validator rewards are misrepresented and hidden away in the footnotes. Validator payments are freshly minted cUSD daily, and the UnreleasedTreasury transfers a small amount of CELO (14% of rewards value in the last epoch) into the Mento reserve to collateralize the rewards. The real effect is on Mento reserve collateral ratio, not direct CELO sell pressure. The reserve today sits at a healthy 3.11x, hardly a sign of systemic risk.

To be blunt: this post reads like a low-effort hit-piece on validators. It makes big claims without evidence, relies on inflated math, and uses sensational statements like “putting direct sell pressure on CELO”.

That said, I do recognize where the frustration comes from. Some validators (now community RPC providers) have gone quiet: low visibility, little governance participation, minimal ecosystem contribution. From that angle, there is a legitimate concern that could be interpreted by some as leeching. But it’s equally important to recognize that other validators have been critical contributors since genesis - infrastructure, governance, tooling, ecosystem building e.t.c.

If the community’s concern is structural selling pressure, the most honest starting point would be Community Fund governance and improving accountability and transparency. Minipay (1 entity) alone received 6.5M CELO during the L2 transition, and Season 1 grantees (11 entities) collectively received 26M CELO. Compare that to validators: even if all of them claimed their monthly rewards today, the total would be 611k CELO; about 1% of this year’s Community Fund spend.

Finally, “55 validators” feels arbitrary and ignores validator group count and election mechanics. Any serious proposal should simulate what the validator set would look like after such a cut. If there is a strong, evidence-backed case for reducing validator rewards to rebalance tokenomics, I would gladly support it. But we need a discussion rooted in data, not hand-wavy math and speculation.

I’m especially interested in hearing from active validators on how they view this potential change.

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Thank you for you service @yomfana for taking the time to give the response I didn’t.

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Thanks @yomfana for cutting through and providing clarity on actual validator rewards and token flows. This is super important.

That said, the bigger issue runs deeper than validator incentives. Celo’s original design, back when CELO was still cGLD, intentionally tied stablecoin demand to CELO demand. Every new cUSD minted required CELO to be bought into the reserve. That feedback loop made CELO the engine of stability and value in the system.

When Mento spun off and CELO was removed from the reserve, that connection was severed. Stablecoin growth stopped requiring CELO, and the main structural demand for the asset disappeared. It was the right call from a safety and regulatory standpoint, especially post-2022, but it left CELO relying almost entirely on staking, governance, and ecosystem activity for value accrual. fwiw a lot of people are unaware of the original design and no one really spoke up during the proposal of removing CELO from the reserve mostly due to a very real risk of regulatory concerns.

Celo’s economic design was genuinely ahead of its time. The question now and perhaps what this thread should have been started with is how to rebuild sustainable token demand in this new, post-Mento model. One that fits the L2 era but still honors what made Celo’s system so elegant in the first place.

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Appreciate the thoughtful discussion here @alex_Verda . I’ll add a few points:

1. Our validator group never sells CELO to exit rewards

We only ever swap cUSD directly for USDC. It’s worth clarifying that there are multiple liquidity routes available, and the assumption that validator rewards always convert into CELO and then hit CEX order books simply doesn’t hold in practice.

2. The real issue is circulating supply management, not validator pay

Cutting validator count might marginally slow emissions, but it doesn’t structurally solve the token-supply problem.

If the concern is about long-term inflation and supply overhang, then we should address that directly — not through proxy cuts to active infrastructure contributors.

3. “Unsustainable inflation” is a narrative choice, not an inevitability

The claim that emissions could “run out in under ten years” assumes perpetual inflation is required for network health.

Bitcoin is a clear counter-example: its emission schedule ends and becomes deflationary — and that’s part of what gives BTC long-term credibility.

Celo no longer depends on CELO for base-layer security as it did pre-L2. So why keep inflating it indefinitely?

If we’re serious about hardening tokenomics, one radical but principled option would be to front-load issuance — even 10x it temporarily — to finish emissions within a year and then transition to a deflationary phase. That creates a predictable, scarce supply curve.

4. Mento and the L2 fee structure broke the original feedback loop

@Wade nailed this point. Celo’s original cGLD design tied stablecoin demand directly to CELO demand.

Once CELO was no longer the primary asset in the Mento reserve and the transaction-fee burn was replaced with redistribution, that feedback loop disappeared. Today, most fee flows actually increase circulating CELO instead of reducing it.

If the goal is to strengthen CELO’s economics then:

  • Divert the current 10% carbon offset allocation to CELO burns.

  • Require all gas tokens to be settled in CELO, and burn a fixed portion automatically.

  • Require CELO burns or deposits for governance participation (e.g. proposal submissions or voting).

Those mechanisms would restore meaningful sink behavior in CELO’s supply dynamics — the opposite of what’s happening now.

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Unfortunately, this chart reflects the outcome of Celo’s tokenomics. It needs to be repaired.

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Excited to see Tokenomics conversation taking the foreground - the timing feels perfect to upgrade the CELO tokenomics in line with Vision 2030 and the current best practices!

On cutting down Validators
Agreed that any changes to Validator count, rewards, or other logic should come from a holistic, data-driven decision framework, instead of an arbitrary cut.

To stay on course to grow the Celo ecosystem and get back into the top 5 of EVM chains, I believe we should map and evaluate all forms of token issuance/treasury spend and token sinks/revenue sources to determine which of these should be scaled down, reduced, or cut completely.

In general, it does feel like we’re overspending on Validators purely based on their current function; however, that doesn’t mean reducing the number of validators is the only (and right) solution.

We’ve started a parallel thread Strengthen Tokenomics: Accelerate stCELO, to explore ways to increase the value of staked Celo for the ecosystem, both through leveraging stCELO as a productive asset and increasing the function and impact validators have on the Celo ecosystem.

Will continue to follow and give input on this thread, and happy to support any efforts to rework CELO tokenomics!

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Hello everyone :colombia:

Thanks for opening this important discussion on validator rewards and tokenomics. As Celo Colombia we wanted to share our perspective as a validator that was only elected two months ago.

For us, validator rewards are not about profit extraction. Instead, the cUSD we earn through validator rewards serves as a second income stream to fund Celo Colombia activities. This allows us to run community events, adoption initiatives, and education efforts without relying solely on seasonal funding requests. It creates more continuity and independence for our local work.

We have also committed 20% of these gains to support ReFi communities in Colombia, helping regenerative projects led by farmers, entrepreneurs, and local leaders who are bringing Celo’s mission to life on the ground.

It is important to note that we do not sell our cUSD rewards on exchanges. Everything is recycled back into the ecosystem, either directly into Celo Colombia or into other community driven ReFi initiatives. In our case, validator rewards act as regenerative capital, not sell pressure.

We support a thoughtful, data-driven discussion on incentives and tokenomics. At the same time, we believe it is essential to recognize that for many validators these rewards are a way to fund grassroots growth and long term sustainability of the network.

Celo Colombia Team :yellow_heart::seedling:

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The original statement is one sided: CELO is only sold (forgetting it is being bought before that).

Using similar logic we can take the other part of equation and have such conclusion: increase validator count to 1100 and therefore get a 10x more pressure on buying CELO.

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If the goal is to sell cUSD for fiat, then the token used in the middle is just a means of transport. One could bridge to ETH, or USDT, or USDC and the argument is the same?

This is true assuming sufficient liquidity between cUSD and USDT/USDT/ETH.

Nonetheless as far as I understand (I read the calculations where they are related to each other in the code once, but it might have changed with the L2) the cUSD rewards do affect the overall CELO emissions.

Correct, CELO is minted into existence and sent to the Mento reserve equivalent to the USD value, based on the daily prices taken from the Oracles.

Source: https://docs.celo.org/legacy/protocol/pos/epoch-rewards-validator#validator-rewards

  • “To enable this, the protocol mints new Celo Dollars that correspond to the epoch reward equivalent of CELO which are maintained on chain to preserve the collateralization ratio”

Because Mento is focused on collateral that are stablecoins or yielding stablecoin assets, they would need to sell cStables now or in the future, which is where the main selling pressure is coming from and what I should have focused on above.

Source: https://governance.mento.org/proposals/79817624852068619985515935884901821263622880118971562290076370295817935556773

Maybe there’s an argument to say the validator rewards are too geneous while the decentralized sequencing isn’t up and running,

This is my main point. Eventually, high amounts of cUSD issuance will put downward pressure on CELO, especially as Mento rebalances around stablecoins.

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Validators are paid exactly 2,500 cUSD per month (82 cUSD/day). The total monthly allocation is 275,000 cUSD. Your numbers are inflated by 30% and will mislead anyone unfamiliar with past governance discussions or tokenomics. Accuracy matters here.

You’re right, I used incorrect data. Using https://celo.blockscout.com/epochs/1967, I see that 5,086.85 was paid to validator groups and 3,641.92 was paid to validators. Thus, 8,728.77 for 110 validators, which would be 79.35. Assuming no slashing, the per validator costs appear to be 82.1917 cUSD.

Using oracle prices, CELO is being minted and added to the reserve to equal cUSD, based on my understanding here: https://docs.celo.org/legacy/protocol/pos/epoch-rewards-validator#validator-rewards

This claim is speculative at best. All conversions of cUSD to CELO are visible on-chain and movement to CEXs is traceable. No evidence is provided here.

I should have centered my point around the emissions that are being minted in CELO and sent to the Mento reserve to cover the amount cUSD minted into existence for validator rewards, at a cadence faster than what was planned at mainnet launch (“15 years to 50% of the initial 400 million CELO”).

Source: Epoch Rewards - Celo Docs

It is also flawed to cherry-pick CELO’s absolute low at $0.25 (ATL $0.23) for your math, only for the price to 1.8x in three days to $0.45. That exaggerates your number by more than 2.3x. A neutral average (e.g. $0.30 over 90 days) is the sensible way to frame this.

Fair enough, I’m alright using $0.30 (or 90 day average), albeit I usually like to plan for the worst case scenario to ensure protocol longjevity.

But it’s equally important to recognize that other validators have been critical contributors since genesis - infrastructure, governance, tooling, ecosystem building e.t.c.

I agree, I’m wondering if reducing the validator set could help us focus on those contributors providing critical infrastructure support.

If the community’s concern is structural selling pressure, the most honest starting point would be Community Fund governance and improving accountability and transparency. Minipay (1 entity) alone received 6.5M CELO during the L2 transition, and Season 1 grantees (11 entities) collectively received 26M CELO.

Fair point.

Finally, “55 validators” feels arbitrary and ignores validator group count and election mechanics.

I wanted to kickstart a conversation, I’m not married to 55 validators.

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wiw a lot of people are unaware of the original design and no one really spoke up during the proposal of removing CELO from the reserve mostly due to a very real risk of regulatory concerns.

True, I personally wonder if in the current regulatory environment, the proposal would have passed.

The question now and perhaps what this thread should have been started with is how to rebuild sustainable token demand in this new, post-Mento model.

I agree, this is a larger (important) question that should be discussed.

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If we finish with emissions, who would pay validators in the event of a future decentralized sequencer?

If the goal is to strengthen CELO’s economics then:

  • Divert the current 10% carbon offset allocation to CELO burns.

  • Require all gas tokens to be settled in CELO, and burn a fixed portion automatically.

  • Require CELO burns or deposits for governance participation (e.g. proposal submissions or voting).

I agree these are proposals worth considering.

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Unfortunately, this chart reflects the outcome of Celo’s tokenomics. It needs to be repaired.

I agree, this is the bigger point that needs to be addressed…

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…however, that doesn’t mean reducing the number of validators is the only (and right) solution.

I agree, we should also be looking at other solutions too, but we need to start somewhere. Maybe the right answer is a package of changes all at once, but I was thinking of starting the ball rolling with one (validator) change.

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For us, validator rewards are not about profit extraction. Instead, the cUSD we earn through validator rewards serves as a second income stream to fund Celo Colombia activities.

This is a valuable perspective, thank you for sharing. Are there other realistic ways you can get funding such as a community proposal?

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I should have focused my point around the emissions being minted into existence and sent to the Mento Reserve (going to elaborate below).