LRC-3 (Block Reward Restructure)

[KeeJef]

Overview

I'm creating this issue to strictly define what options the Loki team and Loki foundation has raised in unison with, LIP-5 @CryptoFirefly raised this same issue in #9 but the choices presented were not exactly in line with those that are being proposed by Loki Foundation or Loki Project team right now.

With the introduction of LIP-5 Service Nodes will fully take over block creation which means Miners will no longer have a role in the Loki ecosystem. This naturally raises the question of what we should do with the 45% mining reward that currently goes to miners. The Loki team and Foundation has been discussing 2 distinct proposals.

Proposals

1. 1. The 45% mining reward is never created and the existing rewards (50% Service Node and 5% Loki Foundation) are re-balanced, so each block distributes 95% of rewards to Service Nodes and 5% to the Loki foundation. This change would result in an overall reduction of new Loki being created by 45%

   Loki per block (9/10/2019) approx would be 14.736 for SNs, 0.736 for LF. (95% SN, 5% LF)

2. The 45% mining reward is given to the Service Node network, this means each Service Node reward would increase 45% to replace mining. This would mean 95% of the rewards go to Service Nodes and 5% goes to the foundation. The emissions curve would remain the exact same with the same amount of new Loki being created as now.

Loki per Block would be approx (9/10/2019) 26.6 for SNs, 1.41 for LF (95% SN, 5% LF)

*Note: transaction fees will also be paid to Service Nodes

Other questions

If you have any additional suggestions as to how to restructure the block rewards then you are free to make them here aswell.

There is an additional bonus question, which is when should this block reward restructure occur? Should there be a hard cut over where miners are eliminated immediately when PoS is enabled? or should we continue paying miners until we are sure PoS is stable and working live on mainnet? If ambitious we could decide to commit to a decreasing schedule now which slowly reduces the miners rewards overtime, reallocating that reward to Service Node operators.

Please write your feedback as a comment below, if you support either of the major proposals please signal that as such.

[Haafingar]

Even simpler, just assign the miner reward to exit nodes now. There are no valid exit nodes, so nothing now, and when they come online, the economic and social aspects are accounted for.

I actually hadn't thought of this. This is worth consideration...

[KeeJef]

@William-E-Coyote Service Node checkpointing is already enabled, the issue is we cant remove the mining reward before Pulse #9 is finished because we need someone to create blocks and order transactions, we could cut some of the mining reward now without it affecting anything too much. But if we removed the whole mining reward new blocks would not be created.

[Lucifer1903]

@KeeJef He said now but I think he meant when pulse is implemented.

[William-E-Coyote]

Just trying to start a discussion for future emissions that include Exit Nodes (EN). I understand that there are many unknowns about how EN are going to effect the network, yet it is known that EN will make a dramatic change to the emissions schedule. Any accurate prediction needs to include the understanding that EN will cause considerable changes to the emissions schedule.

I like the idea of just shifting the mining rewards to EN. Simple and easy. Other ideas may be: 1) Shift the mining rewards to a wallet which would be used to incentivize EN at a later time. 2) Go with present plan B and state that you will shift the remainder of the mining rewards to EN. 3) State that you are interested in starting conservatively and will shift the relationship of emissions to EN as necessary to support the network. 4) All three of these work together.

I appreciate the open communication and professionalism of the team and community.

[pailakapo]

@KeeJef He said now but I think he meant when pulse is implemented.

Yes, by “now” I meant when the plan being discussed is executed.

[CryptoFirefly]

Reading the various comments on the thinking for Exit Nodes (ENs), does make sense to have a slightly longer term vision on the emission. If for the ENs we need to again increase the emission then we may want to re-think the 20 Loki proposal now and let the emission curve stay as is and never change. Rather think of more ways to burn loki for inflation concerns.

One of the thoughts after thinking and reading on getting the right incentives for the ENs is to do the following

1. We do not know the right answer on what's right for ENs, so we admit that and park the item. But not exclude it completely from the assessment and economics.

2. Keep emission at the rate we think we'll able to also reward the ENs and SNs to keep a healthy network and baseline that one time.

3. If 20 Loki emission may be too low to split between SNs and ENs, (5% for LF), then we need to probably keep the final emission at 28 loki as is and not change the emission curve at all now.

What we could do is come up with a dynamic policy on re-allocation of the emission in %'s and we model and switch based on what's required.

While we wait for Mining to be dropped completely, we could start with giving a higher share to SNs now, maybe 75 SN: 5 LF : 20 Mining to begin with as role of miners would be dropped soon, so we can give that indication now probably along with launch of BLINK when SNs take on more work.

When POS is launched, we goto 95 SN : 5 LF (if the EN's are still a little while away on launch of POS).

Once ENs are launched, we arrive at the best model for SN : LF : ENs, (keeping LF at 5%).

EN's to earn more yes, but we need to model how many ENs are needed and model correctly.

E.g. if we want 10% of the nodes should be ENs, then we model to have ENs earn in range of twice to thrice of the SNs, but the split across would then look like 75% SNs : 5% LF : 20% ENs.

We could have 2 reward Queues, separate for SNs and ENs. Lesser ENs means, they earn more often than SNs.

• So if we have 1000 SNs and 100 ENs, each day, the ENs would actually earn 3 times of the SNs in the above example, as 75% is divided among a 1000 SNs, while the 20% per block goes to a 100 ENs.

Per day earnings on a 28 Loki emission with 1000 SNs & 100 ENs would be SN - (720 x 28 / 1000) x 75% = 15.12 Loki per day EN - (720 x 28 / 100) x 20% = 40.32 Loki per day (i.e. x 2.66 of SNs) LF - (720 x 28 / 1) x 5% = 1008 Loki per day

So big question is the risk reward ratio among SNs and ENs, and the % splits across should only be used to manage that keeping emission curve as-is.

[KeeJef]

After reading and thinking a lot i think both options will have similar long term effects, but i want to make a few points which i think are true even though they might contradict each other

• Assuming a fixed demand for Loki, transferring new rewarded Loki from miners to Service Nodes is likely to decrease Loki sold on the open markets in the short term (Based on the assumption that Service Nodes tend to either restake or hold Loki - or at least dispose of their Loki more slowly) This should naturally lead to an increase in Loki price on the open market in the short term.

• Decrease in the overall new Loki produced (rather than a reallocation) would have the permanent effect of decreasing Loki supply, leading to reduced selling pressure. This is likely to make Loki more attractive to external parties looking to buy or stake coins.

• An increase in the block reward given to Service Nodes is likely to encourage greater allocation of funds into the Service Node network. Once a 55-60% lockup ratio is reached, this increase in allocation is likely to diminish as the upfront cost of allocation becomes a barrier to capturing elevated returns.

• Decreasing the Loki block reward more slowly dilutes the premine

• Unless change is absolutely necessary sticking with a pre-agreed upon economic scheme is better than changing, which can lead to uncertainty about future economic guarantees.

I still have not decided what i think, although i'm leaning towards option 1 (Remove miners reward and do not reallocate to anyone, 14.73 total block reward)

[Lucifer1903]

@KeeJef are you leaning towards option 1 from the start this discussion (15 loki per block) or option 1 from Simon’s paper (28 loki per block)?

[pailakapo]

With an eye toward exit node rewards the miner reward going to service nodes short term makes the most sense.

Im not sure the 20 loki per block has enough room for exit node reward while leaving non exit nodes room for profit. Probably does, but its less certain.

[William-E-Coyote]

Overview:

This discussion goes back to the social contract. LOKI has stated its emission schedule. Changing the emissions schedule is changing the social contract. Although the social contract for LOKI is a bit more flexible than say BTC it still reduces confidence in the project whenever you make a change.

Exit Nodes are an important part of the project. It has never been clearly stated how EN will change the emissions schedule, therefore this has always been a time bomb in the social contract. I recognize that the previous idea was to give EN twice as much emission per node than a SN.

Pulse is a addition to the ecosystem that removes mining. When the project first began there was not any way to circumvent mining. Pulse allows mining to be circumvented and this increases security.

Because Pulse removes mining, this will be a clear change to the emissions schedule and the social contract.

Present:

Exit nodes are in development and scheduled for mid 2020. Pulse is in development and scheduled for mid 2020. Perhaps you could roll out both of these technologies together.

If you roll out Pulse before EN, you create a strong effect on the significance of emissions. Either you increase the amount for SN or remove the mining emissions and decrease the total emissions. Reduction in supply should create a higher price of coin. Either way, LOKI SN stakers win. Therefore this is a great problem to have if you are a SN staker or just a LOKI Holder.

If you Roll our EN before Pulse, you have a three way split and reduced emissions to present SN stakers. Then you still have to decide what you will do with emissions when you implement pulse. Not the best idea.

If you roll out both together, this is a much more complicated hard fork, but you can just shift the mining portion into the EN. You may also want to shift the percentage between EN and SN emissions. You can even just give 2x SN emissions to EN and see how it goes for a while before you further shift the percentages.

Conclusion:

Regardless what you choose to do, Pulse will improve the network. SN operators and stakers will make more money. Yes, the social contract will have to stretch a bit, but you cannot implement Pulse without stretching the social contract. Pretty much everyone wins except for the miners and they will just switch to another coin.

[Lucifer1903]

I agree with @William-E-Coyote, it's a good idea to implement pulse and exit nodes at the same time.

[William-E-Coyote]

Another Idea

After thinking about it for a while, maybe starting Exit Nodes (EN) before Pulse would work. Instead looking at the three way split as a problem, maybe it could be a solution.

You can slowly shift mining emissions to EN. If you know you are going to reduce mining emissions, why not do it gradually. Start with 20-50% of mining emissions and see how it goes. This gives you the ability to make further adjustments if necessary and implement Pulse when it is ready.

We really have no idea what is going to be necessary to support EN. More importantly, we really have no idea how users are going to use LOKI.net. If the project has poor adoption, then we have a problem. If the project grows beyond our wildest dreams, we have another problem. Regardless, we won't know until we get there. When we get there, we may have to shift the emissions to meet the demands of the users. And I really appreciate that the Team and Foundation opens up these discussions to the public before making a decision.

I still think that it really doesn't matter which way you decide to go on this situation. Everyone will be a winner.

Happy New Year!!

[dwarner5522]

I posted on Telegram but figured I would post here as well. My idea is to keep emissions the same but distribute the block reward as follows:

During the interim (before exit nodes are ready) Distribute each block reward - 90% SN, 10% LF - This should increase the number of SN operators and also gives a 5% boost to the foundation.

Once Exit Nodes are ready the reward is as follows: The reward split for a Standard SN would be: 60% SN, 40% LF.
The reward split for an Exit Node would be 90% SN, 10% LF.

So the LF gets a 5% increase regardless but makes out better if none of us make our SN's exit nodes. The investors make out better if we take greater risk and turn our SN's into Exit Nodes.

I know some people do not like the fact that the LF would be taking that high of a percentage, but I think that could give a needed boost to help marketing and overall development of the various platforms. The other option would be to just burn 30% of the reward when it's a Standard SN. This way the foundation always just gets 10%.

[William-E-Coyote]

Another idea.
Do we need Exit Nodes (EN)? Presently we have Sessions messenger. Sessions is a SNApp that runs on the LOKI network and developed by the LOKI team. There is no reason that another developer will use the LOKI network to create their own private messenger app. Actually, the LOKI project is designed to promote this activity.

The strength of the LOKI.network will be to build an infrastructure of privacy SNApps. If LOKI is branded in such a way that it almost literally means privacy, it will become a trusted source for developers and users.

If we have EN, anyone could use any messenger app and increase their privacy. Furthermore, anyone could use any internet service with increased privacy. This would increase the traffic over the net, but not really help build the LOKI.network. It seems very plausible that an individual could use the LOKI.network for a BitTorrent client and claim it was the ultimate private BitTorrent client. And they would be correct. This BitTorrent client could use a significant amount of resources over the LOKI.net.

So for now, perhaps we should not offer Exit Nodes and we should build our own privacy network full of useful SNApps. Perhaps in the future, this could change, but for now, it is difficult to see the importance of Exit Nodes.

Maybe I am incorrect... totally understand. But just throwing another idea into the hat. I am actually pretty jazzed about Pulse and would prefer it to happen sooner than later.

[Lucifer1903]

I guess a good question would be how are exit nodes going to provide value to the network. It's easy to see the value it provides to users but what premium services is it going to provide to burn coins? Will these coin burning services be enough to offset the coin emissions rewarded to service nodes? We currently have plans for coin burning service in respect to Session and the internal lokinet websites. However I have yet to see ideas regarding coin burning services for exits to the clear-net

[Lucifer1903]

That being said I think if premium services can be provided for exit related traffic then the freemium model is the best option to increase Lokinet's market share.