PoX Consensus and STX Future Supply

We’re excited for the launch of Stacks 2.0. It will mark the beginning of Proof-of-Transfer (PoX) mining and Stacking (earning BTC) on the network. As Stacks core developers are working on the launch, a few issues have come up related to incentive structures for STX miners and stackers that we want to address and get community feedback on.

First, there is some outdated information out there with respect to the total STX supply. A subset of future app mining tokens and user incentive tokens may never be minted, so the year 2050 supply will actually be lower than the earlier 2048M number.

Second, Blockstack PBC wants to propose an adjustment to the mint schedule of Stacks mining rewards to better fit PoX consensus. The current mint schedule of STX mining rewards was created prior to the creation of PoX and Stacking, and in light of those changes, we should reconsider the incentives structure.

Our proposal below will lead to fewer tokens being minted overall but more tokens would be minted in the early years of mining to help better align incentives in the initial years.

Here is a summary of the proposal:

  1. The year 2050 supply of STX reduces from 2048M to 1818M as no new app mining and user incentive STX are minted and the future supply curve is adjusted for PoX consensus.

  2. Higher initial rewards for Stacking (earning BTC).

  3. An initial bonus mining period to kickstart miners and stackers on the network.

Now, let’s get into the details.

Future STX for App Mining and User Incentive

App Mining

Originally, we were anticipating that during the first 10 years of mining, 12 million tokens per year would be minted to support app mining rewards. We ran the App Mining pilot in 2019, which resulted in 300+ apps on the network. We paused the App Mining program in early 2020. We had allocated 40 million tokens to that pilot program and distributed approximately 10 million tokens to app mining participants. The remaining 30 million unallocated app mining tokens have been donated to the Stacks Foundation for their use in grants or to restart an app mining-like program.

We propose that the remaining 120 million tokens, originally meant for app mining, no longer be minted by the network. 30M STX is a large enough budget for the Stacks Foundation to use for experimenting with grants and new versions of App Mining in the coming years. There is little point in minting additional STX for app mining while the program is paused. The open issues with app mining remain to be (1) objectively fair distribution of app mining rewards; (2) privacy-preserving analytics to determine quality metrics for apps that respect users’ privacy; and (3) a decentralized way for the program to be administered. For more information on these issues, please see the post regarding the pause of the app mining program.

It’s better to decide now, before increased decentralization and the launch of Stacks 2.0, that the remaining 120M STX will never be minted . This way there will be no confusion about STX supply.

User Incentives

We had previously proposed that 40 million Stacks tokens be allocated for user incentives. Approximately 32 million of those tokens were awarded as part of the Blockchain.com distribution early this year when we added 300,000 STX owners to the Stacks blockchain.

We propose the remaining 8 million user incentive tokens will never be minted.

To ensure the decentralization of the Stacks ecosystem, it’s important that no single entity is responsible for running a program like user awards going forward. We don’t see a realistic decentralized way of operating this program, and therefore these STX should not be minted.

These changes — not minting the new app mining and user incentive tokens — will result in approximately 128 million fewer tokens being minted. Now let’s look at the next section to see how PoX consensus adjustment potentially impacts the year 2050 supply.

STX Mining Rewards for PoX Consensus

We originally set the Stacks mining reward schedule prior to the creation of PoX consensus and Stacking. As we’re implementing PoX mining and Stacking, we’ve realized the importance of having a significant amount of BTC flow through the system in the early years to help bootstrap the mining and Stacking systems, hopefully resulting in wide adoption. Having a significant amount of BTC flowing through the system early will hopefully result in a strong incentive for people to participate in both PoX mining and Stacking.

The original mining reward schedule was a relatively flat curve where 500 STX per block would be released during the first five years of mining, 400 STX per block would be released during the next five years, and 300 STX per block would be released for all years thereafter.

Following the creation of PoX consensus and Stacking, we believe that releasing more STX earlier on, and fewer later, would be beneficial to kickstart the system.

The updated proposal we want to share with the community is a release scheduled where 1000 STX per block are released in the first 4 years of mining, 500 STX per block are released during the following 4 years, 250 Stacks tokens per block are released during the following 4 years and, finally, 125 STX per block are released from then on indefinitely.

The 1000 STX per block change for the early years also results in higher BTC rewards for STX holders for participating in consensus after Stacks 2.0 mainnet launch.

Halving Synchronized with Bitcoin

You may notice that this schedule looks a lot like Bitcoin’s schedule, and that’s not by accident. The Stacks blockchain connects to Bitcoin, and we believe in Bitcoin for security and finality. By using Bitcoin as a clock for future halving, we roughly follow the schedule of Bitcoin where transaction fees are meant to eventually become more meaningful than newly minted tokens.

Further, we propose that we align the STX halving with the halving blocks of bitcoin for simplicity . Bitcoin halving is a known event and a reason for celebration in the community i.e., the protocol is working as intended and no one can change the supply. We share these values with Bitcoin and want to make it easy to remember when Stacks halving happens.

Initial Bonus Mining

We’re currently looking at adding an initial mining bonus for the Stacks 2.0 launch. The mining bonus will be structured in a way that it does not change the year 2050 supply of STX. One way to do this is by picking the Bitcoin block starting at which STX rewards will begin to accumulate (the reward start block). Once the reward block is determined we will know the exact supply of STX for year 2050. The STX block rewards that are “accumulated” prior to the actual launch of Stacks 2.0 (the launch block) will be added to some initial number of blocks (e.g., 10,000 blocks or roughly 10 weeks), in order to ensure added incentive for the start of mining initially.

The total year 2050 supply of STX will be determined by the reward start block. We propose to pick a block close to Nov 1st 2020 giving the year 2050 supply of STX to be approximately 1818 million STX. This spreadsheet gives details on the future minting schedule and uses Nov 1st, 2020 as the reward start block and Dec 15th, 2020 as an example launch block. (The date is just an example here, see this blog post for details on mainnet progress.)

Here is a graph of the cumulative number of tokens in circulation comparing the previous mint schedule and this new proposed schedule:

This updated proposed mining schedule would result in approximately 100M fewer mining STX minted by the year 2050, combining this with the 128M fewer STX that minted for app mining and user incentives, the total approximate the year 2050 supply will be 1818M (instead of 2048M).

Summary:

There are two changes:

a) No additional tokens other than mining . We’re proposing to not mint 128M STX originally allocated for app mining and user incentives. The tokens that exist in the Stacks 2.0 genesis block are precisely the tokens that exist now, and no STX other than mining can enter the system.

b) Reduction in total STX for mining along with higher mint in the early years. We’re proposing to change the Stacks supply curve to give additional miner incentives in initial years while reducing the total future supply.

c) Miners get an “early mining bonus.” We introduce a limited mining bonus that gives early miners even more than 1000 STX/block in the early weeks of the system.

More specifically the new STX mining schedule becomes:

  • Years 0-4: 1000 STX/block
  • Years 4-8: 500 STX/block
  • Years 8-12: 250 STX/block
  • Years 12+: 125 STX/block

We’re looking forward to feedback and input from the Stacks community and STX holders! Given that the the Krypton Phase 3 of testnet went live last week, it’d be great to finalize these proposals in the coming weeks — thank you!

8 Likes

Looking at this for the first time and this makes a ton of sense to me and seems well thought-out. No other comments from me.
Patrick Stanley - Founder, Freehold

3 Likes

Agreed. This proposal makes sense and is needed. One comment - you mentioned higher initial rewards for Stacking in the initial summary (point 2), but I don’t see any mention of what the actual increase is. No other comments.

Xan Ditkoff - Founder, Daemon Technologies 地灵科技

2 Likes

Good point! So that’s the reverse side of higher mining rewards i.e., higher rewards for stackers as well. I think what’s needed here is a calculator/spreadsheet for potential Stacking rewards/yield (BTC that you earn) and then people can plot the stacking rewards between old and new proposal.

I might edit the post to add this info as well.

Thanks for your support!

3 Likes

This proposal looks good to me. It makes sense to reward early miners more for their early support of the system.

Larry Salibra - Founder, New Internet Labs Limited

+1 to a calculator

1 Like

I think this plan serves the growth of our ecosystem well. Mining is a critical piece of our ecosystem and this rewards early adopters in a big way.

We’re overseeing 30M for app mining like rewards and that those can go a long way in supporting app development without the additional incentives. The additional 70M STX of the Foundation Treasury is being used for ecosystem development as well, so there are a lot of avenues for experiments and ecosystem funding already.

Brittany Laughlin - Executive Director, Stacks Foundation

2 Likes

I’m onboard with this new STX minting schedule. But, I did have one question – will burnt STX be re-distributed to miners, or will they stay burnt forever? Before PoX, we had some economic analysis that suggested that burnt STX should be re-distributed to miners – i.e. to encourage them to pick up name registrations – but I don’t know if that still holds. I can think of a good reason to not do this: burnt STX decrease the total liquid supply, which lowers the barrier-to-entry for Stacking.

1 Like

Thanks for the support, Jude and Brittany! It’s great to have the Stacks Foundation on board with this.

The mint-and-burn mechanism from the older paper is fully removed. If any STX is burned it’s burned forever. Looks like you’re supportive of that as well :slight_smile:

1 Like

Thank you , Very Great,

I am not a game theorist or token economist, so please apologize my naive post.

What I read from the proposal is that

  1. we should not confuse users about STX supply
  2. we don’t know how to incentivize users in a decentralized way.
  3. we want to encourage miners to participate early

This looks all good but not too innovative. Does this help the vision of a user-owned internet? Will early miners become new whales? Does it move the stacks chain from a utility chain for apps and users to an investment chain for crypto experts?

I don’t know the answers but I will think about it when I have more time…

Thanks, Friedger, for the comments! RE early miners becoming “new whales” the initial mining distribution is approx 4.3M STX per month in the initial years. Binance currently does 2-4M STX trading volume per day and even this trading volume is relatively on the lower side (compared to other projects in CMC Top-100). STX mining can be modeled as a BTC/STX exchange pair theoretically (miners are spending BTC and getting newly minted STX). Someone becoming a “whale” from such a small distribution is not possible in my view. Any aspiring whales would need to go buy up on exchanges, where there is more volume, and that is just a free trading market beyond anyone’s control.

It makes Stacks even more of a utility chain because anyone can mine on the network using Bitcoin in a fully decentralized way. You don’t need to be a crypto expert but need to understand the supply/demand and mining profitability etc.

A Korean translation of the above can be found here: https://bit.ly/2SCjSuF

3 Likes

Awesome to see the Korean translation!

Thanks to all who provided questions and feedback. After incorporating comments from everyone here and running it by some STX holders (discussions outside of this forum thread), we’re planning to adopt this updated minting schedule and economics. There is overwhelming support for it e.g., five independent entities (PBC, Freehold, Stacks Foundation, Daemon, New Internet Labs) expressed support in this thread. We will make this update in the future version of the Stacks whitepaper (that will replace the previous technical and token paper).

I’ll close this thread for now but if you have any comments or suggestions please feel free to add to our GitHub or find me on Discord!