Aligning with Bitcoin Halving and Incentives after Nakamoto

[brittanyy]

As the Nakamoto upgrade is going live there is a timely proposal that requires attention from the Stacks community.

STX halvings occur every 4 years like Bitcoin, however the current software implementation uses Stacks blocks to approximate the Bitcoin halving (instead of Bitcoin blocks). This has led to a drift over time as not every Bitcoin Block has a corresponding Stacks block. Therefore, instead of halving exactly with BTC, the STX halving will likely occur in Dec 2024 (not synced with BTC halving).

Because of this, the upcoming halving will cut the incentives for miners and signers by 50%, right after the Nakamoto launch and sBTC is launching. These two launches are the most significant upgrades to the network and changing the incentives and economics for network participants at a time that the network is already going through updates could have negative consequences for the growth and decentralization of the Stacks blockchain.

To summarize: We don’t want to change the system while the system is changing.

Aligning STX halvings with BTC halvings will not only strengthen the connection the Stacks L2 has to Bitcoin, but also synchronize the economic adjustments of both assets, reducing changes in incentives for miners and signers at each halving.

Finally, from previous community discussions, it’s clear that maintaining the current Year 2050 total supply of 1.818B STX is something we’re all aligned on, and so any adjustment to the schedule needs to achieve that as well.

Below is a proposal that achieves these three goals:

(a) Align Stacks halvings precisely with the Bitcoin halvings, by linking Stacks halvings to Bitcoin blocks instead of Stacks blocks

(b) Ensure that adequate incentives are available to miners and validators/signers right after Nakamoto and sBTC launch. Maintaining adequate incentives is especially critical to the security and decentralization of the network at the early bootstrapping days of sBTC.

(c) Ensure that the year 2050 supply of 1.818B does not change.

Below are the full details on the proposal and the timeline

Proposal Details

Projected Supply Impact

As a result of these proposed changes, the projected STX supply in January 2050 will be 1,779,628,415 STX, which is less than the current projection of 1,783,063,600 STX and well below the widely accepted 2050 supply cap of 1.818 billion STX.

Next Steps

This proposal is both time-sensitive and critical for the future of Stacks, requiring broad community consensus to move forward. Given its impact on all STX holders, the activation bar will mirror the rigorous requirements of previous major hardforks like Stacks 2.0 (SIP-015) and Stacks 3.0 (SIP-021).

Three key criteria must be met to signal sufficient support for this SIP, representing Stacked STX holders, non-Stacked STX holders, and miners. This inclusive approach invites all participants, even those who do not typically Stack, to vote—broadening participation beyond past practices.

Voting Timeline

Voting will take place during reward cycle 97, estimated to begin on November 11, 2024, and end on November 26, 2024. This window ensures that any decision made can be implemented before the originally scheduled halvening on December 27.

For Stackers

To activate this SIP, the following voting conditions must be met:

• The total amount of Stacked STX participating in the vote must be at least double the amount locked by the largest Stacker in the previous cycle, to ensure no single entity dominates the vote.
• Of the the participating Stacked STX, at least 80% must vote in favor (“yes”) for the SIP to be approved.

This voting process is iterative, and feedback from the community will help refine the process for future decisions. Not voting will be considered an acceptance of the final outcome, whichever way the vote goes.

Deadline for Consensus

A SIP vote should be finalized by December 7, 2024, allowing node operators sufficient time to implement the necessary updates before the December 27 halvening. Delaying this halvening is essential to prevent disruption to Nakamoto signers and sBTC liquidity while ensuring the long-term supply goal of 1.818 billion STX by 2050 is maintained.

[Gina]

Thank you for sharing and this initiative, Brittany! I’m supportive – makes sense to continue aligning with Bitcoin + maintain consistent miner rewards as we adjust to the Nakamoto upgrade.

[friedger]

The voting section is missing the non-stackers and miners.

How shall liquid stackers vote?

In the future, smart contracts like MIA treasury or liquid stacking contracts could stack much more than individual holders. Then we should review the twice-as-much requirement. E.g. Stacking DAO controls 50m stacked stx while spread across several contracts.

[HeroGamer]

Hi @friedger

1. For Non-Stackers (people just holding free floating unlocked STX balance their wallet), if we follow the typical voting eligibility, then it would be
   they would vote via stx.eco as well, same way as SIP-028 laid out: sips/sips/sip-028/sip-028-sbtc_peg.md at main · andrerserrano/sips · GitHub

2. Miners text from SIP-015 - is probably more of a signalling mechanism rather than a vote?
   #For Miners
   There is only one criterion for miners to activate this SIP: they must mine the Stacks blockchain up to and past the end of the voting period. In all reward cycles between cycle 45 and the end of the voting period, PoX must activate.
   @jwiley what do u think?

3. Fair point on the “amount locked by the largest Stacker in the previous cycle” since the nature of stacks network has evolved.
   Any suggestion on this?

[Tycho]

From the perspective of running a liquid stacking DeFi protocol, it would be important to keep emissions high for some time to STX stackers. A halving of those emissions would mean that staking rates drop to ~4% from 9% which would put STX on the backfoot versus other ecosystems (emerging L1/2s are closer to that 9% rate usually)

[friedger]

The emissions (more precisely excess value) are shared between miners and stackers. I doubt that it is just like emission halved = rewards halved

Can we get some better calculators?

[Tycho]

emissions halved means rewards halved under the assumption that miners are rational economic actors in a competitive market operating at roughly break even (which they have historically) - not sure it would require more advanced calculators

[jonastgerber]

Thx Brittany! Fully support, feels like a no-brainer to me

[J21]

Very good plan! Full support!

[diwaker]

Strong endorse! What I like:

• ensures strong incentives in the short-term to support sBTC and Nakamoto
• minimal change in overall emissions envelope in the medium term
• actually reduces 2050 supply from the 1.818B estimates from before

Lest anyone think this is a hasty proposal, this has been a long standing discussion in the community for over a year. This thread from Nov 23 has a lot of great discussion and this current proposal picks up right where that thread left off: “We recommend waiting until after the Nakamoto release to prepare a SIP or take any further steps.” Right on cue

Thanks @brittanyy !

[fiftyeightandeight]

From the perspective of (most of) the stackers and miners, that we want continuity of coinbase in light of two (arguably) most important updates to the chain would be acceptable, at least to reduce any unknown unknowns, provided this does not create inflation of the total supply and is executed properly.

The ALEX community itself held and approved of a governance vote in April this year to delay the ALEX emission halving for 2024, for the same reasons of supporting Nakamoto and sBTC.
I remain in favor of the emissions schedule adjustment.

[jude]

I appreciate all your feedback on this!

I’d also like to hear from people who don’t work full-time on Stacks or Stacks-adjacent projects. An emissions change affects everyone who holds STX, and the SIP (like any other) would require their vote as well.

Any thoughts?

[vicnicius]

@brittanyy

(b) Ensure that adequate incentives are available to miners and validators/signers right after Nakamoto and sBTC launch. Maintaining adequate incentives is especially critical to the security and decentralization of the network at the early bootstrapping days of sBTC.

I can’t talk for the whole community, but my two cents as a humble community member with limited knowledge in blockchain economics: My appeal towards Stacks has much to do with aligning with the Bitcoin ethos. It is also much more a long-term commitment than a recent opportunity I found. From that perspective, interfering with the halving schedule sure drifts away from what brought me to Stacks in the first place, so it should be very well justified. And from all I could grasp—with my limited knowledge—is that there’s a concern with how market dynamics would play out in the short term. It would be nice if someone could put it in plain language what are some of the adverse outcomes in the short, mid and long term in as plain language as possible. Is it an existential threat? Is it concerns about how the market would react in the short term?

From the original post, reason A is not a strong enough reason to want to modify the halving schedule and reason C wouldn’t even have to be discussed if we don’t change anything. Reason B, which I quoted above, has no technical bearing. It is only a concern from a dynamic economic perspective, and I would love some clarification so I could confidently say that “voting against this proposal would pose a threat to the blockchain I’d like Stacks to be in 5-10-20 years”. Why can’t we just let the market play out as it sees fit? If we believe Nakamoto brings the value we believe it brings, shouldn’t it give us enough confidence that things will play out well in longer time horizons?

P.S.: I did go through the reports in the other threads but didn’t feel this confidence yet, but I could naturally be missing something.

[PeaceLoveMusic.btc]

My general feedback based on a few conversations (just a few)I’ve had around the Stacks community is that there is a concern that this isn’t necessary and might lead to future efforts to delay halving again for an excuse that might sound good but isn’t necessary. The concern is about setting precedent.

I think people COULD support it, but why it is needed is not quite clear enough to get the full support we usually have for critical SIPs.

I don’t mind driving the vote for it on DeOrganized, but I’m not sure what the hook talking points are.

It would help to know more specifically what problems this proposal solves. I’m not sure it’s clear, here. Is the concern that halving the supply won’t sufficiently put enough upward pressure on price (as designed) to maintain proper incentives?

Are there miners/signers that are saying that they need this to keep operating?

[brittanyy]

Hello - thanks for bringing up these questions here! I worked on the Emissions Report with the 7th Avenue group last year so I wanted to summarize some risks the independent researchers brought to light from the original report to hopefully help address your questions.

If you have more, please let me know or join us on the Friday SIP call to discuss IRL.

Summary answers to your questions

Why now?
The sBTC launch and halving are within weeks of each other, that creates a risk to the success of sBTC to change the system as the system is changing. Specifically, the miner rewards while miners are supporting a new upgrade. If there was more time between the launches, we may have a better idea of the potential impact if at all, since the halving is imminent, there is only delay it or learn the impact as it’s happening. We forsaw this last year, but did not have confirmation how much time would be between the Nakamoto launch and the halving.
In December ’23, the Stacks Foundation recommended: “Summary: We recommend waiting until after the Nakamoto release to prepare a SIP or take any further steps. This SIP is working to do that, since the Nakamoto release just launched and the launch of SBTC is on the near horizon.”
Source: Stacks Halving Schedule: Reports and Recommendations - #32 by blocks8

Is it an existential threat?
The risk is that with halved incentives, there may be fewer miners who can mine profitably. If the number of miners goes from 15 to 7, that doesn’t disrupt the chain, but it may weaken the strength of the miner network during a time of transition.
The timing of this halving is the issue. Since it’s so close to the launch of sBTC creates a risk to the success of sBTC. As 7th Avenue Group put it, “It’s in Stacks’ best interest to consider solutions that will allow it the most time and flexibility to thrive as it grows. An emissions schedule that decreases mining incentives too early, or too quickly, may artificially hinder Stacks’ growth and potential.”

Can we let it play out and see what happens?
There isn’t a precedent to restore emissions once they are halved. Delaying a halving was seen as the better solution instead of cutting and then having no way back. For reference, BTC is 14 years old and has larger emissions than Stacks halved emissions 4 years in. We’ve learned a lot since the original design, and we’ve seen the Stacks upgrades improve the system in many ways. Changing the emissions halving date seems to create a better environment for success of the chain in terms of emissions, miner rewards, and halving timings.
From the report, “Only four years into Stacks existence, it will be emitting a smaller portion of its supply than Bitcoin does at 14 years in. This minimal emissions budget so early on may not be ideal for Stacks, particularly in light of the specific risks and issues we discuss in the Emissions Report. Given all of this, we believe it would be reasonable for the Stacks community to prioritize the first criterion – that is, seeking to extend the period for which 1000 Stacks are emitted for as long as reasonable.”

Is it a slippery slope? Does one change mean many changes in the future?
As the last report pointed out, It is important to remember that no token emissions changes can be made without explicit community vote and SIP process. The current view is that this change was foreseen last year and a lot of research has gone into it to right size it to the network’s future. Additionally, when we first researched this change, it may not have been necessary if Nakamoto had more time post-launch before the halving. Since we only have a few weeks between the launch and this imminent halving, it’s the answer to WHY NOW and possibly, why it may never be needed in the future. But, if there were ever another reason to make a change, it could only happen through the support and vote of the community.

=========================================

REFERENCE
[The following was taken from the previous Emissions forum post and includes direct quotes from the emissions report]
Emissions Report

As laid out in the 7th Avenue Group Emissions schedule report , in the current Stacks halving emissions plan, in January 2025 the mining reward for Stacks miners will drop from 1000 Stacks per block to 500 Stacks per block if no changes are made. This reduction in mining rewards may have two major impacts.

First, it may decrease the number of opportunities for miners to be profitable, further reducing the total number of miners.

Second, it may create barriers to the potential success of sBTC by reducing the mining rewards. To mitigate these risks, they laid out the criteria to consider changes below.

7th Avenue Group recommendations: “It’s in Stacks’ best interest to consider solutions that will allow it the most time and flexibility to thrive as it grows. An emissions schedule that decreases mining incentives too early, or too quickly, may artificially hinder Stacks’ growth and potential.”

Additional information for the 7th Avenue Group report:

• We do believe that there is greater risk allowing the current halving schedule to continue as originally implemented, as opposed to making some adjustments that could allow for increased runway, and Stacks ecosystem maturation, at the current 1000 Stacks per block emissions rate.

• Only four years into Stacks existence, it will be emitting a smaller portion of its supply than Bitcoin does at 14 years in. This minimal emissions budget so early on may not be ideal for Stacks, particularly in light of the specific risks and issues we discuss in the Emissions Report. Given all of this, we believe it would be reasonable for the Stacks community to prioritize the first criterion – that is, seeking to extend the period for which 1000 Stacks are emitted for as long as reasonable.

[brittanyy]

Thanks for these questions! I just added a reply to @vicnicius that may address your questions too.

It’d be great to have you join Friday’s SIP call as well!

[PeaceLoveMusic.btc]

I will be there

[friedger]

Miners, Stackers and Signers share the value of the emitted Tenure rewards (previously known as Block rewards). If we don’t change the emission schedule, we might see

• less miners (at the time of writing 5 miners were reported on https://hub.stx.pub/)
• less APY in stacking rewards because miners and stackers share the excess value of the tenure rewards (at the time of writing at a ratio of 14:86 based on https://friedger.github.io/mining-calculator/)
  . Rewards per slot would go from 976,633 sats to 466,407 sats at the current sats/stx price.
• less signers because they are paid by stackers and stackers have less to share. Current market rate is ~5% (similar to fees by pool operators)
• less sBTC treasury signer because there are less signers. Currently, it is assumed that sBTC treasury signer are a subset of signer. There is no incentive to run a sBTC treasury signer on the protocol level.

The market could play out the halving. The uncertainty of the market actions could reduce the adoption of sBTC in the short term while this SIP does not change the long term goals of a low emission by 2050.

[Werner1]

I see this wasn’t posted here yet. Last weeks Stacks Improvement & Innovation call on X:
https://x.com/StacksOrg/status/1854916148761882903

From about 16 min. into the call Brittany address some of the questions here and additional ones that came up during the space. I thought it was insightful, even after already listening to the call a week earlier that also focused on explaining the content and urgency of this SIP.

On telegram I see investors/traders who have some doubts about the need because we’re in a bull cycle and prices are going up. Is it really needed? We won’t know, and when we do know it may be too late. I see this as a precautionary measure.

I’m uncertain if this SIP is entirely necessary. My main concern is its potential impact on trust, especially since we need to put this through a vote relatively quickly. However, the activation criteria are not exactly lenient: SIP029 requires an 80% majority “Yes” vote and a minimum of 80 million Stacked STX to be voting. Miners vote by mining in and past the voting period. If we meet those conditions, even if not everyone is fully aware of the vote, it should still give us a good sense of how Stackers and Miners view the proposal. Admittedly, this feedback would come primarily from the most active participants, but they are generally the best-informed and likely representative of the community’s core sentiment.

I think miners and stackers are likely to vote for this proposal because it keeps their rewards more predictably: ~as they were.

Short term traders may prefer a halving to reduce inflation in the short term.

But if sBTC doesn’t get the runway it needs, that could be a huge problem for the growth of Stacks. That is why I am in the yes camp. It is very important we get as much sBTC in Stacks as possible. Getting BTC capital in Stacks and being able to use it in smart contracts, existing and yet to be invented protocols, that will fuel the bitcoin economy.

[fluidvoice]

I think the vast majority of short-term traders care only about day/week/month price and do not pay ANY attention to annual token inflation and probably don’t even know what it is.