Concordium’s Tokenomics Redesign: A New Dawn in Staking Part #3
The Concordium blockchain is undergoing a major redesign in its tokenomics model to increase its appeal and attract a broader spectrum of Web3 players. In the previous article (Part 2) of this ongoing series of tokenomics changes, we layed out the penalties and cool downs for dishonest and faulty behavior, motivated by security and efficiency reasons while simultaneously aligning Concordium with industry standards.
Now, we will showcase the delegation changes that will be put in place to ignite an even more dynamic blockchain network.
Validators choose their pool delegation commissions
With the tokenomics update, validators will be able to choose themselves the delegation commissions in their pool, instead of the fixed 10% commission that is currently in effect. This commission is the amount of the rewards that the delegator pays to the validator running the pool. For example, if a pool has two members, the validator with 1M CCD and one delegator with 500K CCD, if the commission is 10% and the rewards for the day are 300 CCD, then the delegator gets their share (⅓ of 300 CCD) minus the commission (minus 10% of 100 which is 10 CCD), so they get 90 CCD as rewards. The validator then gets 210 CCD (their share which is 200 plus the commission of 10 CCD).
All pools are unique in the sense that the actual value they provide to their delegators vary a lot. There are some technical on-chain parameters such as the variance of the rewards influenced by the size of the pool and uptime that affects the performance of the pool, and then other off-chain parameters such as performance dashboards, OTC trading options, etc. Pools now have a way to differentiate themselves on pricing, by either increasing or decreasing the commission percentage from the standard 10%. For delegators, this means the possibility to earn more by choosing a pool with lower commissions or paying a validator fairly for the added value they offer. A validator can set the pool commission to anything between 0–100%. Remember that a delegator can change pools at any time, without any cool-down or losing rewards in the process.
Since there are two types of rewards — namely block rewards from minted CCD and transaction rewards from transaction fees — every pool has two delegation commission values (block commissions and transaction commissions), which can be set individually by the validator running the pool. Note that with the upcoming changes, finalization rewards have been removed and block rewards correspondingly increased. So if a validator decides to keep the block commission at 10%, the delegators will get 90% of the new block rewards, which corresponds to 95.3% of the old block rewards, i.e., a block commission of 10% after the update is equivalent to a block commission of 4.7% before the update. Doing a similar calculation, we find that a 10% block commission before the update is equivalent to a 15% block commission after the update.
More details on how rewards are calculated can be found in our Tokenomics One-pager.
Passive delegation commission
Passive delegation is an innovation of Concordium. It provides rewards to the delegator equivalent to what one would get if one were to split one’s stake amongst all pools proportionally to the pools’ stake. This mitigates the risk of picking a validator that performs poorly or goes offline. But this extra security comes at a cost, since the passive delegation commission is currently set higher (12%) than the fixed pool commissions (10%).
With the upcoming tokenomics changes, the passive delegation commission will be increased to 25% in order not to compete with validator services in providing delegation.
Currently, the maximum ratio between the total stake in a pool and the stake of the validator is set to 3 — we call this the leverage bound. In order to allow non-custodial staking service providers to expand their business and increase decentralization, the leverage bound will be increased to 6.
The leverage bound is not being completely removed, because in a proof-of-stake blockchain, it is important that a validator has a significant amount of their own funds committed via staking. A validator with next to no own stake, but a huge weight in the consensus protocol due to lots of delegation would risk absolutely nothing from attacking the system, but would have a lot of weight for such an attack.
The changes described above all require new tools for the validators and delegators to reap the benefits. In this section we briefly cover what tools are currently in development and planned for the future. More detailed information will be released along with each tool.
One of the most important things for a delegator is to receive a notification if the commissions in their pool change. In the long term we plan on having notifications in the wallets. But due to the complexity of this, it cannot be done on time for the tokenomics changes. Instead, two different notification services will be provided to delegators.
An email notification service is currently under development, where users can sign up to receive an email when a pool commission changes.
One of our ecosystem participants is the Dutch Concordium Explorer (concordium-explorer.nl), who will add a feature to his Telegram bot to send notifications for such events. The Concordium Foundation appreciates and values the efforts made by ecosystem participants to adjust the user experience to the changes presented by the Foundation.
Another crucial feature for all stakers is to be able to easily find (and advertise) the delegation commissions of different pools. CCDscan will be updated so that the staking page has a column for delegation commissions allowing the pools to be sorted by commissions. For simplicity, CCDScan will only show block commissions on this page. Transaction commissions for each pool can be found by clicking on the corresponding pool.
Apart from the terminology change and removal of finalization rewards that was mentioned in the first article on the tokenomics changes, the wallets need to provide the validator with the interface to change their pool commissions. Updates are being rolled out for all wallets to provide this. Note that the legacy wallets will not support this feature. A validator should run their pool using either the browser and mobile wallets to be able to freely set delegation commissions. The legacy wallet update will fix the delegation commissions at 10% — instead of the maximum value possible, which is what the current version does. All validators will have to update their wallets to change the commissions.
The tokenomics changes are parameter changes and will all be done at the same time with the other parameter changes announced in previous articles. This is tentatively scheduled to take place between December 7th-11th 2023.
Updates to the wallets, CCDScan and the notifications services will be released when they are ready over the next weeks.
In summary, the delegation changes present a comprehensive protocol upgrade. The focus is on incentivizing long-term commitments from high quality staking service providers, offering tangible benefits to delegators and making it more attractive to them while simultaneously drawing new participants into the Concordium ecosystem.
Read more about our tokenomics HERE