Tokenomics Review and Recommendation: Introduction of Token Locking and Treasury Funding for MINA

MIPs (Mina Improvement Proposals)
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Summary

After thoroughly reviewing the current Mina tokenomics, this proposal introduces a token locking mechanism for staked MINA tokens and establishes a decentralized treasury for the Mina Protocol. By incorporating token locking, we aim to stabilize staking rewards and encourage long-term staking commitment. Additionally, the creation of a treasury will fund ecosystem development, ensuring sustained growth and decentralized governance.

Motivation

The current staking model lacks a locking mechanism. This new approach will help us transition to consensus mechanisms that enable instant finality, all while preserving decentralization.

In tandem, the creation of a decentralized treasury, replenished through the redistribution of excess native emissions, will provide a robust financial foundation to support ecosystem growth and developer incentives.

The key goals are to create a more predictable reward system for stakers, strengthen the network’s economy, and drive sustainable ecosystem development.

Specification

  1. Token Locking: Implement a multi-tiered locking system

  2. Treasury Funding: Excess staking rewards (above 10% APY) will be redirected to the community treasury, which will be governed by the community via decentralized governance.

Rationale

The proposed changes ensure that long-term participants benefit from higher rewards while maintaining protocol inflation at current or lower levels. The community-managed treasury will provide ongoing funding for Mina ecosystem development, with decisions made by governance.

Ultimately, locking the tokens can have economic impacts:

  • Token value accrual: When staked tokens are locked, they are removed from the circulating supply, which has potential economic advantages due to the increased scarcity of the tokens, often leading to value accrual.
  • Lower Staking Ratio: A locking requirement may decrease the overall participation rate in staking.
  • Higher Rewards per Staker: With fewer participants, the same percentage rewards are distributed among a smaller group, potentially increasing individual returns.

Proposed Changes

  • Maintain Current Inflation Rate: Keep the inflation rate at 720 tokens per block, but optimize the use of excess emissions.
  • Redistribution Mechanism: When the current inflation rate exceeds the amount required to maintain a 10% APY based on the staked amount, the excess emissions are to be redistributed.
  • Predictable Revenue: this can lead to more consistent rewards and better management of inflation, providing predictability in revenue distribution.

Redirection of Excess Emissions

  • Treasury Allocation: The excess emissions will be directed to the protocol’s treasury. This will strengthen the financial foundation of the network, creating a reserve for future needs such as funding development, community grants, and other strategic initiatives.

Phase 1: Community Feedback on Overall Recommendation and Parameters (towards development of an MIP with specific recommendations)

  • Target APY Emissions Threshold: define the threshold at which excess emissions are triggered for redistribution (around 10%).
  • Recalculation Interval: establish the frequency at which the emission redistribution mechanism will be recalculated (Every epoch).
  • Define the different locking durations and their corresponding rewards, with higher rewards for long term locks.

Phase 2: Implementation

  1. Develop and implement the necessary protocol upgrades to enable token locking and the redistribution mechanism.

Phase 3:

Governance initiation for treasury fund allocation.

Watch the community call for more details https://www.youtube.com/live/lhBCfVmUnqk?feature=shared

Please share your Feedback:

  • What are your thoughts on introducing a token-locking mechanism for staked MINA tokens?
  • Should excess staking rewards (above 10% APY) be redirected to a community treasury?
  • How do you feel about rewarding long-term token locks with higher staking rewards?
  • Is the proposed 10% APY emissions threshold reasonable for triggering redistribution?
  • Is there anything else you’d like to add?

If you prefer to provide feedback in our discord server here is the Survey: Discord

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Hi

I’m mainly agree for the proposal but still have some comments;

Token Locking Mechanism
I’m supporting the locking mechanism and agree that it will decrease total staking ratio. But in the presentation showed revenue will be predictable. Actually this is not fully correct because block generation is based on VRF and as a validator if you are creating more blocks, you have more chances for each slot and missing blocks or orphaning blocks impact much lower than small validators.
Majority of times, if small validators miss a block or if their block be orphaned, they are potentially paying quite low amounts of rewards for epoch. Their only chance is more sampling, meaning that they should continue block production to find lucky epochs.
Predictable revenue is only possible if all staked tokens are more or less distributed to all validators equally. Otherwise, Locking will not add any benefit for revenue predictability.

From a validator perspective, less amount of token delegation means that low delegation rewards. Due to this, Validator should increase their commission for each block production. When we consider commission and health of the network, There should be a min commission for each validator.

I don’t think we should have a target APY . We should have target inflation. Due to the locking mechanism, if users prefer to not stake their tokens, Total APY will be high per user and I think this will be an incentivization mechanism to delegate their tokens. similar to a honey pot. If a user starts to delegate their tokens because of the high APY, staking ratio will increase and their APY will reduce. I believe it will be balanced somewhere. with this concept actually APY can reduce the inflation rate. as long as APY is higher than inflation rate, it should incentivize users for delegation.

At the same time, we should find a way to stabilize EPY. Currently EPY is quite volatile especially for small validators.

For the duration of token locking;
We cannot have lower than 1 epochs because of ouroboros.

The Dynamic Fee
Current Fee mechanism is already dynamic but just choosing by the end-user. I don’t think having a protocol based fee will benefit the supply or network. But i agree to have min fee on the network.
From that moment, our focus should be on low circulation and There is no validator that will be rich with high TX Fee’s. I believe all fees should be burned directly.

Or maybe we should discuss no TX fee (or zero fee) but having high snark fees. Because zero snark fee is definitely not incentivizing snark workers. Validators prefer to keep down their snark nodes. When we start to see a lot of applications on the networks, We’ll need so much snark and there should be incentivization about it.

Token burning
We should have a special place/section for token burning and should be well described in tokenomics why there is no burning or why we need to burn.
because We all understand that not all users are experts for tokenomics or crypto currency. General mindset is basic economics concepts like supply/demand. Sometimes, it is hard to understand POS networks vs unlimited supplies.
Even if its not effective, we should definitely have a burning mechanism because it’s really impacting human investment decisions.

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My opinion is lanuch this on mainnet asap.
My question is if this needs a another hardfork,and if this needs a hardfork,is the codes be ready now.Or this doesn’t need a hardfork,just needs a zkapp?

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I think the economic model design team lacks skills and experience. Because their proposals are not attractive at all and will also disgust some people. This is a sign of lack of experience!

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@yAntPower I’d love to understand if there are other suggestions you feel should have been considered? ED can share their in-depth analysis performed across a wide range of options available and suitable for the protocol at this time.
Cc @FF_EconomicsDesign

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This would require a hardfork.

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Okk,so the codes is ready now?

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I think it would be great if there was a fee burning mechanism for every buy-sell and transfer, just like in meme coins.

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Regarding questions of whether the code is ready, and if this requires a hard fork: the proposed changes do require a hard fork. They have not been implemented yet. At this stage, this is a proposal, and we are looking for feedback from the community. Implementation will only happen after approval by the community.

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Shouldn’t we prepare the codes or implementation plan when proposal? What if we find it difficult to implement the codes or plan after the proposal is approved

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Understand your point @atombob but the foundation strives to ensure we are appropriately allocating our internal and external resources to work that aligns with the community sentiment. This is precisely why we are doing this check-in before ED continues to phase 2 of the study, which involves implementation analysis.

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This requires development effort and hard fork. Cannot be enable ASAP.

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The code changes for this should be relatively straightforward, and we do have experts on the protocol in the discussions. So we won’t end up in a situation where we vote on a proposal and then later find out it’s impossible to implement.

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Oh,this sounds cool,I am ok now

1 Like
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Block generation based on VRF.
Of course, it is convenient to calculate excess emissions for Every epoch.
In this case, the APY will always be less than the one we choose.
What’s wrong?
Let’s say we entered an APY of 10%.
In one Epoch we get 15%. The excess emissions will be directed to the protocol’s treasury =5%.
In the next Epoch we will get 5%. The excess emissions will be directed to the protocol’s treasury =0%.
APY = 7,5%

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The current staking model lacks a locking mechanism. This is a feature of Ouroboros. Do you plan to discontinue Ouroboros or make changes to the protocol?

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It’s true that Ouroboros, in contrast to some other proof of stake algorithms, does not require locking. But that doesn’t mean it’s incompatible with locking, and that introducing locking would require shifting to another consensus algorithm. This proposal does not imply shifting away from Ouroboros.
That said, we are not ruling out that Mina might move to another consensus mechanism in the future. For example, evolving a consensus mechanism that provides deterministic finality to work with a succinct chain could improve the user experience. But that’s not part of this proposal.

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  • Would the new locking mechanism be opt-in or opt-out? What will happen to people with cold wallets who are currently staking, but don’t check Mina very often?

  • What other use is there for Mina other than to stake and earn more Mina currently? The assumption that the staking rate will go down if there is a lock up seems to be based on a prediction that people will value a liquidity preference enough to not lock in. But there’s no reason to value a liquidity preference unless Mina can be used for something today. What is the persona we are targeting of a Mina holder who will continue to hold Mina after this change, and choose not to stake? I assume exchanges will be forced to unstake some portion of their Mina to serve their customers. Anyone else?

  • The only beneficiary of this proposal seems to be the foundation. The net result of this change will be less revenue for staking pools, more lockup, and potentially higher fees (as noted by Emre) for delegators, less rewards for short-term Mina hodlers who don’t want to lock up, less rewards for exchanges, more revenue for MF. I view sustainably funding MF as a positive, but the simplest way to do that would be to send MF 20 Mina per block. Compared to that simple system, what are the benefits of the complicated token locking proposal?

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Thanks, @mollie and @yAntPower, for your feedback.

To clarify our approach and how we arrived at proposing these specific changes, here’s some additional context:

One important consideration is that adjusting economic parameters on an already deployed and operational chain is a complex task. There is no perfect solution—each potential approach comes with its own set of advantages and drawbacks.

We explored various avenues, such as reducing token emissions, implementing burn mechanisms, adjusting the fee structure, and revisiting the staking program, all without disrupting consensus mechanisms, etc. Throughout, we carefully considered the impacts on the overall economy and the various contributors to the Mina protocol, including stakers and node operators.

After thoroughly analyzing numerous ideas, we concluded that many would be more effective if supported by strong network growth and adoption. This is precisely the focus of the future decentralized treasury: to stimulate that growth and adoption. To replenish the treasury without increasing inflation, we proposed locking staked tokens. This would reduce staking participation, enabling us to redirect some of the token rewards from each block to the treasury without lowering the APY for participating stakers. It also has economic impacts since it takes tokens out of circulation, which supports the token value accrual. We conducted several simulations to model reward splits under different scenarios, which we presented during the call.

Of course, there are many more details to this discussion, which could continue indefinitely, but I hope this provides more insight into our approach. We welcome any further suggestions or new ideas.

Thanks again!

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Thanks for your thoughtful comments!

  1. Locking Mechanism – Opt-in or Opt-out: The new locking mechanism would be opt-in, but it’s important to note that once implemented, staking rewards will only be available through locked staking. This means that token holders will need to stake and lock their tokens to earn rewards, which we believe will reduce staking participation, as some token holders who prefer liquidity may choose not to stake. This helps filter out “free-riders” and strengthens the protocol by incentivizing more committed participants. Unfortunately for people with cold wallets, they will have to check them a little more often and perform the action of staking/locking the tokens.
  2. Use of MINA Beyond Staking: While staking is currently a main utility for MINA, the introduction of a decentralized treasury aims to create new use cases and fund ecosystem development. As more projects and utilities are built on Mina, token holders will have more reasons to hold and use MINA beyond just staking.
  3. Target Persona of MINA Holders: The proposal is mainly targeting long-term holders who believe in the protocol’s growth and are willing to commit to locked staking for higher rewards. While exchanges may adjust their staking policies to maintain liquidity for their users, the intent is to reward those who support the network’s long-term success.
  4. Impact on Staking Pools & Delegators: Yes, this change will impact those not willing to lock their tokens, including exchanges and short-term holders. However, it benefits committed participants with higher rewards and helps fund the treasury for future growth, which ultimately supports the entire ecosystem.
  5. Why not direct funding to the Treasury?
    Simply sending 20 MINA per block to the Treasury might sound straightforward, but it wouldn’t be enough to sustain the decentralized treasury or the protocol’s long-term growth. The treasury needs substantial funding to support ecosystem development, community initiatives, and strategic investments. To do that, we’d need significantly more than 20 MINA per block, which would ultimately reduce rewards for all stakers across the board. The locking mechanism, on the other hand, aligns incentives more effectively—by redistributing emissions in a way that rewards long-term stakers while funding the treasury, without negatively impacting the protocol’s overall health.