The proposal aims to create a fair distribution model by allocating 50% transaction fees to the community pool and increasing proposer/validator rewards.
If voted yes, the following changes will be made:
- The ‘Community Tax’ will be increased from 0 to 0.5 (50%), which will ensure 50% transaction fees is distributed to the community pool
- The ‘Base Proposer’ and ‘Bonus Proposer’ reward will be increased from 0.01 and 0.04 —> 0.03 and 0.12 respectively, to increase the validator share of rewards
Challenges with the current distribution model
Staking is currently disabled on Terra Classic and may not get re-enabled until it can be verified that the chain will remain Byzantine Fault Tolerant (a single entity does not hold 2/3 supply). This may take a while to verify.
With staking disabled, the current distribution of transaction fees is as follows:
- 5% to validators/proposers
- 95% to delegators
- 0% to the community pool
Considering, less than 0.01% LUNC is staked, this is creating an unfair distribution of rewards which is not aligning the interests of the broader community.
Proposed changes to the current distribution model
In order to incentivise the broader interest, I am proposing 50% of the transaction fees to go to the community pool. The new distribution of transaction fees will look like this:
50% transaction fees to go to validators and delegators in the following ratio:
- 15% to validators/proposers of the block
- 35% to the existing delegators
The remaining 50% transaction fees to go to the community pool to be utilised as follows:
- 35% to be burned on a monthly basis via a Community Pool proposal
- 10% earmarked for Terra Classic ecosystem developers - airdropped on a monthly basis according to their TVL
- 5% to be retained in the Community Pool for core Terra Classic development
How this creates a more incentivised system for the community
Holders/Non-stakers: 99.9% of LUNC holders currently are non-stakers. Burning 35% transaction fees will not only help the LUNC & USTC supply issue, but will also create a deflationary economy, rendering LUNC & USTC a better store of value. Needless to say, this will attract new buyers to the ecosystem.
Validators: The current Base Proposer and Bonus Proposer Reward is 5%. The proposal will increase this to 15%. Given that 50% of this will go to the community pool, the net rewards to validators will increase to 7.5% (50% up from current levels).
Delgators/Stakers: The current return on staking for existing delegators is 4,340,031% per year. This proposal will see this reduce by a factor of ~2.71. However, despite this, the return on their staked LUNC for existing delegators will be 1,601,487% per year.
This is a super high return for a zero inflation chain which will dis-incentivise any existing delegator from unstaking/un-bonding their LUNC. As part of the original believers and security contributors of the chain, who lost a lot in the Luna crash, I feel such a high staking yield to the ~0.01% is justified until staking is re-enabled and security risks can be ruled out.
Developers: The 15% allocation to devs will ensure incentives to keep building on the Terra Classic chain, thereby growing transaction volumes and overall transaction fees that accrues to the network.
The proposal will be a parameter change proposal which will make the following changes:
This is a parameter change proposal and will be implemented automatically if passed.
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