NNS Proposal: Change Dissolve Delay Bonus and Age Bonus Parameters

Arthur Falls
Arthur Falls
11/24/2021

Summary: A group consisting of Wenzel Bartlett (@wpb), Kyle Langham (@Kyle_Langham), Alex Mucalov (@ayjayem) (DFINITY Forum handles) has submitted a proposal to change the voting reward economics of the NNS. The changes include:

  • Increase the relative voting power and rewards for an 8 year neuron from twice that of a 6 month neuron to 8 times.

  • Increase the speed at which neuron age bonus is acquired and the size of the bonus.

Proposal: The Forum post is high quality and well supported. Discussion has been thorough and spirited. A Medium post outlines the proposal more completely. 

Rationale: 

  • Attract sufficient new participants into the NNS offset the dissolving stakes of current participants.

  • Encourage current participants to remain committed long term to the IC.

  • Address conflict-of-interest risks that may prevent the IC from executing its mission long term (many seed neuron holders did not volunteer to be part of the governance of the IC and the dissolution of their neurons is a signal that they wish to divest ie. they are not committed to the IC).

  • More ICP is leaving the NNS than is entering. This is associated with sell pressure and a lower price.

Concerns: 

  • The 6 month lockup required to receive rewards offers little incentive to begin staking. This proposal will further reduce this incentive, reducing the options to 8 years or nothing.

  • ICP tends to be locked up for 4 years or less, or ~8 years. There should be smoother locking across the range, this is not helped by more polarised incentives.

  • It is unclear if the proposal is trying to increase participation in NNS governance, improve distribution of rewards, or lock up more ICP.

  • This proposal is very drastic and changing the economics of a currently stable system entails risk.

  • The premise that more ICP locked in neurons is better is flawed. Among other things, this leads to less market liquidity & greater centralisation of token holdership. At this time, greater liquidity and a lower ICP price may be better for the future health of the IC.

“This smells of premature optimization, where without the capability of obtaining empirical measurements . . . we are trying to optimize a system.” - Lastmjs

Discussion: The impression of cycle_dao is this is a fantastic proposal that we disagree with. The authors have empirically identified trends in the NNS which they perceive to be potentially associated with negative outcomes. The proposal is fair, and puts the majority of voting power in the voter group disaffected by its acceptance.

However, it is not clear that increasing incentives for long term lockups is optimal for the health of the ecosystem. It can be argued that this will inhibit onboarding more NNS participants and grow the holdings of a zealous few. This outcome would consolidate control of the IC.

It can be argued that short term lockups are a threat to the security of the NNS, as they are not incentivised to vote in favour of the long term success of the IC. We argue that 6 months to 4 years is a sufficiently long term incentive in the crypto world.

Conclusion: The rationale for the proposal is good, but at this time the cycle_dao believes more data should be collected before changing the core economics of the NNS

The Proposal to Change Dissolve Delay Bonus and Age Bonus Parameters should be shelved for 6 months during which time ICP tokens have time to circulate in the market and unlocking/onboarding trends have a greater chance to emerge. This will provide an opportunity for broader community consultation and more data for modeling. After this period, a proposal could be submitted based on the conditions at the time. cycle_dao will vote No on this proposal today.


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