From January 16, 2024, staking rewards will begin to be reduced in line with the staking reward reduction proposal passed through a formal governance vote last year.
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.
Zilliqa currently provides a considerable staking reward and exhibits inflationary characteristics, which means that without intervention the Zilliqa network will eventually exhaust its supply of ZIL for mining and staking rewards.
On July 31, 2023, a proposal to reduce staking rewards on a monthly basis was voted on by the community and passed by majority vote with 112% of the required quorum. This adjustment aims to reduce the staking annual percentage rate (APR) to approximately 8% over a period of 15 months.
This is accomplished by reducing the share of the total rewards within the network received by SSNs from 40% to 25% at a rate of 1% per month. Mining rewards are unaffected by this change and the remaining ZIL will be retained in the unallocated ZIL pool.
This reduction in staking rewards aligns Zilliqa’s reward mechanisms more closely with industry-standard staking reward levels and will aid in balancing the burn and reward rates to ultimately achieve zero inflation on the network.
Read more about this reduction in staking rewards on the Zilliqa governance forum.
Staking reward reductions and APR changes
Following the release of Zilliqa v9.3.0, it is now possible to implement this proposal and reduce staking rewards in line with the proposal passed by gZIL holders.
The first reduction in staking rewards will occur on January 16, 2024, with the staking reward value being reduced to 34%.
This initial adjustment retroactively accounts for the approved reduction of rewards by 1% per month following the proposal being passed last year. On February 16, 2024 and for every month thereafter, this value will continue to be reduced by 1% until staking reward levels reach the target value of 25%.
These monthly adjustments will have an effect on the Annual Percentage Rate (APR) earned by ZIL stakers, reducing this value over time until the percentage of total rewards allocated to SSNs reaches 25%.
Below is an approximate breakdown of how the monthly reduction in staking rewards will affect APR, assuming a fixed supply of staked ZIL.
At the current rate of staking reward reductions, the target value of 25% will be reached in October 2024.
It should be noted that the proposal allows for staking reward levels to be reconsidered and possibly increased once zero inflation is attained within the Zilliqa network. As with this proposal to reduce reward levels, any further changes to staking rewards will be discussed and voted on through Zilliqa’s decentralised governance platform.
Adjusting staking rewards according to the schedule above will gradually aid the Zilliqa network in moving towards zero inflation and ensuring long-term sustainability of the ZIL token ecosystem.