Summary. Mina’s tokenomics has been the concern of many community members, as evident by the number of posts on the MIP channel of Mina Research. The upcoming zkApp hardfork makes the issue even more pressing. In this MIP idea, instead of proposing a tokenomics model directly, we outline the importance, opportunity and difficulty to design a successful model for Mina, and propose that Mina Foundation should commission a thorough review and redesign of Mina’s tokenomics post hardfork, taking in account the critical aspects as outlined in this MIP.
1. Tokenomics is blood and bone to a blockchain
Tokenomics is as important as the consensus algorithm to a blockchain. On one hand, it contributes to the security of the chain by making attacking the chain more costly, on the other hand, it creates incentives for people to participate in the operation of the chain in various roles, from miners/block producers, to ecosystem builders, to users.
2. Pressing need for Mina’s tokenomics to be changed
2.1 Mina’s tokenomics is long outdated
Mina’s current tokenomics was designed prior to the mainnet launch, and supercharged rewards (24% APR) for unlocked tokens was introduced to temporarily incentivize token holders to stake Mina. It worked at the time, but supercharged rewards were planned to be wound down from 24% to 12% (equal to the APR for locked tokens) from Sep 2021 to Sep 2022. This did not get implemented, though, as the launch of smart contract was delayed, and the supercharged rewards continue to run at >20%. This hyper inflation has been a concern for the community for a long time. Even though an MIP has been passed to remove supercharged rewards after the planned hardfork, the inflation will still be 12% [correction, as per data from Gareth, the inflation after removing Supercharged Rewards will be ~8% considering current staking percentages]. In comparison, the inflation rates of major L1 chains, for example, Ethereum, Solana and Cardano, are all <7%.
2.2 upcoming zkApps will overhaul the structure of Mina blockchain
The hardfork will introduce zkApps as well as layer 2s on top of Mina. As a result, the Mina token’s utility will go from solely for paying for transactions, to multi-functions including paying for zkApp transactions, issuing custom tokens, and bridging to other chains and L2s. These added utilities provide a golden opportunity for a tokenomics overhaul. If designed perfectly, it will allow the Mina token to capture these wonderful value creations on top of Mina, which will then attract more talented builders and enthusiastic participants to the ecosystem, thus creating a positive spiral effect to grow the Mina brand, ecosystem and community.
3. Great tokenomics design will have to have leading experts’ input
3.1 Things to consider in the review and redesign:
A perfect tokenomics design needs to take considerations of all the following aspects and perhaps some more:
- Security of the blockchain
- Value capture.
- Incentives, for people to participate in and to build on top of the chain. It can only be achieved by striking a delicate balance between inflation and deflation mechanisms, and token prices.
- Utility with zkApps, eg custom token issuance (similar to ERC20 tokens using Ether) and settling the zkApp transactions on the base layer.
- Symbiosis with Layer 2s on top of Mina: ZekoLabs, Anomix etc
3.2 Proposed approach
To achieve all these design goals at the same time is obviously a multidisciplinary task involving many sub fields of computer sciences and economics. While MF and O1 have established themselves at the forefront of CS and zk, in our opinion the design of the tokenomics would benefit significantly from engaging with other leading experts encompassing the broad fields with proved successful experiences. Therefore, through this MIP, we would like to request that Mina Foundation commission a world leading team to conduct a comprehensive review and redesign Mina’s tokenomics. As far as the author’s knowledge, the following teams would be good choices (disclaimer: we are not associated with these teams in any way), but of course Mina Foundation can choose whoever they think appropriate for the task, or gather proposals or suggestions from multiple of them if deemed helpful.
- Gauntlet (https://www.gauntlet.xyz/ ) led by Tarun Chitra, are a leading expert team for tokenomics design. Coincidentally, Gauntlet also reviewed Mina’s original tokenomics upon mainnet launch in 2021.
- Delphi Digital. Most famously designed Axie Infinity’s tokenomics in 2021 which was a great success.
4. Initial responses from Mina Foundation and O1 labs:
We have had some positive initial responses from MF and O1 team members, for example Will Cove (MF) and Brandon Kase (O1):