To encourage additional users participating in the governance process of the Internet Computer we suggest adjusting the rules for the minimum dissolve delay and dissolve delay bonus for neurons.
In particular, we suggest that the minimum dissolve delay for voting should be set to 7 days (instead of 6 months) and the dissolve delay bonus should be extended by a linear function with values between 0 and 1.0625 for the time between 0 and 6 months.
As a consequence, new users will be able to try out the governance process due to the lower minimum dissolve delay, while still keeping the incentive for users staking for longer periods due to much higher voting rewards for long-term staking.
Background
The voting power of a neuron is computed as the product of the staked amount, the dissolve delay bonus and the age bonus.
The dissolve delay bonus is a value between 1 and 2 and a linear function of the dissolve delay (which has a maximum value of eight years). The current minimum dissolve delay for making a neuron eligible for voting and receiving voting rewards is 6 months.
Currently, a neuron with a dissolve delay of 6 months has a dissolve delay bonus of 1.0625. A neuron with a dissolve delay of 8 years has a dissolve delay bonus of 2.
For a detailed description of the Network Nervous System and the determination of voting power please refer to this article.
With a lower barrier to entry, we believe that more retail participants will be able to experience the entire workflow of staking ICP, casting votes and accruing voting rewards Our hypothesis is that the proposed change described in the next section will significantly increase the number of community members participating in the IC governance. We also believe that over time some of these community members will start committing to longer staking periods that offer larger voting rewards.
Proposal
To encourage additional users participating in the governance process we suggest that the minimum dissolve delay for voting should be set to 7 days instead of 6 months.
Given that we would like to keep the current incentive to stake for longer time periods greater than 6 months (which fosters long-term thinking for the participation in governance), the dissolve delay bonus between 0 and 6 months should be much lower compared to longer periods. As a simple solution we suggest that the dissolve delay bonus should be extended by a linear function with values between 0 and 1.0625 for the time between 0 and 6 months. From 6 months to 8 years the dissolve delay function should be unchanged as we do not intend to change the existing reward structure for staking beyond 6 months. The new function is illustrated in the following chart.
For a newly staked neuron, this would result in APYs depicted in the following chart. The values for 7 days and 1 month are new (previously the APY was 0% as no rewards were given) and the values for 6 months and 8 years are unchanged.
With respect to a 51% attack on the voting power of the internet computer, we believe that the proposed change is not relevant. If an attacker has 51% of the voting power, then also the minimum dissolve delay can be adjusted. Thus an attacker would stake for 8 years (instead of staking for a shorter period) receive a dissolve delay bonus of 2 and then change the rules.
With respect to the implementation, we consider this to be a security critical feature as it has an impact on voting rewards and thus the minting of ICP. Therefore it is planned to be reviewed with DFINITYâs security team.
Alternatives considered
With respect to extending the function for the dissolve delay bonus to the time between 0 and 6 months, we also considered concave and convex alternatives. A concave (respectively convex) approach would provide higher (respectively lower) voting power and APY compared to the proposed linear function. Given that the precise choice turned out to be irrelevant for a 51% attack as outlined in the section Security, we concluded to use the simplest approach via a linear function.
We also considered using a linear dissolve delay function without a change in slope at the 6 month point. This would either imply a fundamental change of the dissolve delay function beyond 6 months (which would be a fundamental change to the overall tokenomics) or a very high dissolve delay bonus for periods below 6 months (which would weaken the incentive to stake for longer periods). Both of these alternatives were considered to be not desirable.
About Me
I am Nikhil Ranjan working as a Senior Developer Relations Engineer at DFINITY. I am focusing on DEFI and Tokenisation on ICP.
I donât believe it will attract many new users to the NNS, the APY is too low, exchanges offer higher APYs for ICP with less effort for the user.
It introduces potential risks to governance, 6 month is an appropriate amount of time to lockup cause usually proposal are actioned upon in that period of time, so if someone votes against the networkâs best interest, he isnât able to liquidate the stake before negative effects start to happen.
If APY for existing staker wonât change where will the required tokens come from? Increased yearly inflation?
7 days is just too low as a minimum lockup period, it would mean giving away free tokens and voting power to users who donât really care about ICâs future and just want to earn a couple bucks.
Idk how itâs going to turn out. I do think itâs worth trying. Given the significantly reduced multiplier I think this is a safe approach.
In this case the stakeholder would need a significant amount of VP to really influence anything. And the rewards at 7 days would be negligible. So i think it meets their intent of providing users a low-risk option for participating in governance.
You underestimate how many people donât care about governance and just want to see their balance go up, as an IC maxi Iâd rather get more ICP and ignore governance altogether than contribute a raindrop in a game where whales have barrels of water.
Not necessarily, let take Proposal: 48623 - ICP Dashboard as an example, the proposal is about to be published on the NNS, whales know it will be a close match, so they buy couple millions of ICP just to increase their chances, proposal ends and they dump the tokens.
Maybe Iâm missing something but this is whats stated in the proposal
From 6 months to 8 years the dissolve delay function should be unchanged as we do not intend to change the existing reward structure for staking beyond 6 months
People probably donât care about governance, but they care about money. We need to align incentives to encourage them to participate.
7 days is still a long time to risk millions of ICP knowing there are other people who are not staked who can dump on you while your token is locked. Perhaps it should be more than 7 days but 6 months is a huge commitment that many are not willing to make.
Iâm not sure that a second linear scale is needed, beyond the additional complexity it introduces. If 7 days stakers had 1.0001x voting power, that seems fine to me. Otherwise, why is anyone going to stake for 7 days if the resulting voting power is 0.001x or something similar? Is the proposal intended to allow people to demo governance, or meaningfully participate on a short-term basis?
Agreed but with that in mind would you rather stake on the NNS and get 0.5% APY or on Binance with higher APY and no need to self custody? Especially as of now with the low security of Internet Identity staking on the NNS for such a low APY isnât worth it.
Iâm in favor of short term staking with periods from 7 days to 6 months but think voting (and higher rewards) should be a privilege reserved for those staking at least 6 months, especially for governance proposals. If someone wants to experience voting, they could stake 1 ICP for 6 months and not start the dissolve. That would let them participate and see how the rewards pay out in relation to their activity, knowing that longer staking means greater rewards. They may then choose to increase their stake and/or staking period or they may choose to dissolve and cash out. Itâs low risk for them to get their feet wet, and no risk for the NNS (yes, I realize there is low risk for the NNS already).
Enable short term staking between 7 days and 6 months with variable APY, which also would continue to provide rewards for those who have staked much longer but are in the final 6 months of their dissolve. No voting, no increased voting rewards.
@nikhil.ranjan as the author of this proposal, since your intent is to get community feedback from the proposal and iterate. I thought Iâd pasted some reactions and questions from the community for you to incorporate when possible:
@nikhil.ranjan as the author of this proposal, since your intent is to get community feedback from the proposal and iterate. I thought Iâd pasted some reactions and questions from the community for you to incorporate when possible:
This user would like to see more information on the drawbacks of proposal
Youâve stated in the past the security concerns associated with awarding VP to neurons with dissolve delays less than 6 months. This make me curious why youâre suggesting to keep the dissolve bonus at 1 for 7 day lockups?
I disagree, what youâre proposing goes against one of the premises of the NNS, we get rewards cause we vote on proposals, I donât see why short term stakers should be rewarded for doing nothing.
Youâve stated in the past the security concerns associated with awarding VP to neurons with dissolve delays less than 6 months
I would also like to know why Dfinity chose to do 6 months minimum lockup in the original design and only now has decided to make this change.
The way I see it, ICP staking was originally designed to do 2 things:
require voters to have skin in the game and reward those who are risking more
create a sort of deflationary mechanism by removing tokens from circulating supply.
The proposed change goes against both.
Honestly to me it seems like a desperate attempt to get more tokens in the NNS, but whatâs the point if the lockup period is low? Also is it cathering to that many people?
Holders who want to receive interest on their tokens have better options, holders who want to participate in governance can lock a much smaller sum and get higher VP.
I also doubt there are many holders who care about governance that havenât staked yet cause the lockup is too high, itâs anecdotal but the ones Iâve spoken to are more worried about variable APY and constantly changing tokenomics than 6 months lockup.
My personal anecdata (which one is welcome to dismiss away) is that there is a simple UX blocker for a lot of non-stakers where they want to go through the mechanics of staking to see the whole process from start to finish (from locking to voting to spawning to dissolving to disbursing) before staking to make sure they grok it.
This is equivalent to âlet me send someone 0.01 ICP, make sure they receive it, before I send them the next amount.â
I would probably be in favor of this proposal, as it is low risk and could potentially encourage more staking. However, one important drawback of this proposal that isnât being discussed is it would instantly increase the amount of voting power on the network, thus reducing the APY for all stakers, and increase it in neurons that have low incentive to participate in good faith governance.
There is currently approx. 24M ICP that is dissolving on the NNS with less than a 6 month dissolve delay. These are mostly genesis neurons that have chosen to dissolve. They currently receive 0 vp. In addition, there is 2.6M ICP that is locked for less than 6 months. These are genesis neurons that were never claimed (and thus are still locked) and have an age bonus of about 1.15. They currently also receive 0 vp. Should this motion pass, approx. 18.4M voting power would be granted to these neurons, approximately 4.4% of total voting power.
Canât this be resolved by making tutorials or by staking 1 ICP for 6 months? I could understand if it were a year ago, but 1 ICP isnât that expensive currently, if they just want to see how it works there are better ways than changing the staking mechanism imo.
