Road to Zilliqa 2.0 - Adjusting staking rewards for long-term sustainability

The Zilliqa infrastructure team has submitted a proposal for discussion on the Zilliqa governance forum that would see the staking annual percentage rate (APR) adjusted to approximately 8%.

This proposed adjustment to staking APR is part of a number of consensus reward changes that align with the roadmap for the deployment of Zilliqa 2.0.

Zilliqa 2.0 will bring a more efficient, flexible, and faster network architecture that offers support for dynamic updates and more control to developers.

This adjustment aims to reduce the inflationary characteristics of ZIL and ensure the sustainability of the Zilliqa blockchain’s native token as the network moves towards a long-term goal of zero inflation.

Staking rewards are earned by Staked Seed Nodes (SSNs) for their essential role in processing information and serving data access to users on the Zilliqa network. ZIL holders are able to delegate the ZIL in their wallet to SSN operators, who then return staking rewards to holders after taking a small commission for this service.

The total supply of ZIL is limited to 21 billion. At the current rate of reward distribution ZIL is inflationary, which means the network will eventually exhaust the supply of ZIL that can be distributed for mining and staking rewards.

Reducing the inflation of ZIL fosters a healthier token economy for the Zilliqa network and improves the long-term outlook of its value within the ecosystem. A zero-inflation or deflationary system is a common standard within the blockchain industry, as it ensures a sustainable and valuable token economy.

This initial proposal would lower the staking APR from its current rate of approximately 13% to a rate of approximately 8%, which is more in line with industry standards and would help to balance the burn and reward rates - ultimately moving towards a zero inflation environment for ZIL.

This adjustment would be completed over the course of 15 months by gradually reducing the share of total rewards received by SSNs within the network. The share of total rewards received by SSNs would be reduced from 40% to 25% at a rate of 1% per month.

Mining rewards will not affected by this proposed change and will remain at existing levels.

This proposed reduction in staking rewards entails a decrease in block rewards, as the ZIL comprising the 15% reduction in staking rewards will be conserved in the unallocated ZIL pool. The ratio of mining to staking reward share will increase to maintain existing mining reward levels.

It is important to note that staking rewards may be increased again in future after the goal of zero inflation is achieved. This process would be completed through further governance initiatives and proposed changes would be discussed on the Zilliqa governance forum.

The central concept behind this proposed change to staking APR is to move towards zero inflation and ensure long-term sustainability of the ZIL token ecosystem as we move towards the Zilliqa 2.0 network refresh.

Have your say on the proposed adjustment to staking APR on the Zilliqa governance forum.

If the proposal receives enough support, it will be submitted as a proposal on Snapshot, where gZIL holders will be able to vote on whether it is implemented.

Overhauling consensus rewards for Zilliqa 2.0

The network overhaul will see Zilliqa adopt a Proof-of-Stake consensus mechanism and an improved sharding system that will deliver lower block times and faster transaction processing.

Ahead of the shift to Proof-of-Stake, existing reward mechanisms will need to be rebalanced to ensure all node operators and stakeholders in the network enjoy a seamless transition that preserves their contribution to the blockchain.

As development of Zilliqa 2.0 progresses, mining rewards will be made fairer and the cost of running a mining node on the network will be reduced.

We are  exploring a number of solutions related to mining and staking rewards as part of the Zilliqa 2.0 roadmap.

These include offering the ability for SSN operators to act similarly to miners through a staking mechanism, delivering a genuinely mixed Proof-of-Work and Proof-of-Stake system.

As the shift to pure Proof-of-Stake progresses, we also plan to provide support for miners to become stakers through a seamless transition, ensuring they have the ability to retain their role and weight as validators on the network.

Proof-of-Stake is one of many landmark changes coming in Zilliqa 2.0 that will greatly improve the usability and flexibility of the Zilliqa blockchain.

We hope these changes will allow Zilliqa 2.0 to deliver a flourishing network that offers reduced CO2 emissions, increased security, an improved long-term outlook for ZIL thanks to zero inflation, and reduced costs for running a node on Zilliqa.

For more information on what to expect from Zilliqa 2.0, read our full interview with Zilliqa CTO Richard Watts.