Stacks Halving Schedule: Reports and Recommendations

[diwaker]

Thanks @blocks8 for starting an important and timely discussion. The report is comprehensive and thoughtful.

I found this finding in Section 1.2 of the report pretty interesting:

“We found that based on the rate of creation of Stacks blocks and more accurate timing for halvings, the 2050 supply appears to be closer to around 1.787 billion Stacks tokens rather than 1.818 billion. Which means that, if all else is to remain the same, we’d estimate that the 2050 supply would be about 31 million fewer tokens than had originally been projected.”

Further, it’s good to remember that assets with an uncapped supply, looking at the total supply on an arbitrarily chosen date (like 2050) has limited utility – one needs to consider multiple other factors in assessing the trade-offs of different emission schedules.

All of which to say, I very much support optimizing for (1) and (3). If anything, I’d argue for pushing out the first halving even further out, but otherwise the proposal in Schedule D looks good as-is.

[acrossfire.btc]

A bunch of community members chatted about this on an X space today. I think overall the feedback was positive that these issues were being discussed in a mature way and there seemed to be an understanding of why this needed to be done.

Some comments/concerns voiced:

• Can these changes come a bit after Nakamoto after the ecosystem has had some time to adjust from the update. It appears there may be time for this as the expected halving date was Jan 2025.
• Would it be possible to add a lock up period for the additional emissions which could potentially shunt the effect of the additional emissions vs. what was previously expected. (This would understandably come with more complexity in implementation as well as may shunt the effects of the incentives we may be trying to create with miners in the first place).
• Some aspects of Nakamoto may alleviate some of these areas of concern and market forces may adjust for this change naturally. For example, reduced emissions may lead to higher absolute price of the stacks token which could nullify the difference in profitability of miners as 500 STX with reduced emissions could be equivalent to 1000 STX without the reduced emission after the price increase from reduced sell pressure. Additionally, the removal of bitcoin miner MEV in Nakamoto as exploited by some such as F2Pool may cause PoX rewards to increase enough to where we feel that the stacker incentives will be strong.

Overall the sentiment on the change was positive and in alignment with the recommendation of 1 and 3 being prioritized, but these were just some topics discussed.

My personal take is that this change makes sense and I feel like we should move forward with whats best for the ecosystem, my only reservation is that we do not make this a habit and we try to make this the final change to emissions if at all possible. We dont want to set the expectation that tokenomics is something highly maleable in STX that can change on a whim no matter how important those changes might be for more growth and security.

[m0bb]

I’m admittedly not a distributed systems expert but have been taking the time to go through the reports. As an investor on the markets side, we appreciate the thoughtfulness, civility and overall process going on regarding a critical issue for the protocol’s long-term token economics and look forward to the discussion on Friday.

[xan]

Echoing what others have said, but for the foreseeable future optimizing for criteria 1 and 3 make most sense. The fact that this can be done at the moment with what I see as minimal impact on criteria 2 makes it all the more important. This can much better set the network up to capitalize on growth that comes in the next year or two, without mining and therefore network security becoming a central point of concern.

Will add more comments to this thread as I have more time to play with the model and go through the report again, but as of now I’m in full support.

[diegomey.btc]

Thanks for bringing this up, I do see it as a high-priority topic. I’d like to share my 2 cents.

Firstly, it’s evident that there’s flexibility regarding emissions, especially considering the 2050 supply projection isn’t being met and has previously been revised by us, the Stacks community.

While I appreciate the idea of aligning STX emissions closely with the BTC halving schedule, I recognize this as a secondary benefit rather than a primary goal - but for the sake of correlation and branding, this is a plus.

I support the proposed emission schedule that extends the current rewards till mid-2028, followed by quadrennial halvings. But, I think we should stick to our guns on not bumping up the total supply. Just because we’ve got room to increase it doesn’t mean we should, right?

My backing for this proposal primarily stems from the risks outlined in the reports - particularly, the potential increase in mining centralization and the challenges it might pose to the success of sBTC.

To sum it up, I’m leaning towards giving a thumbs up to focusing on criteria 1 and 3 - as long as these changes are driven by community consensus, and with a clear interest in why key stakeholders are supporting and benefiting from it- they will not adversely impact STX community perspective on the tokenomics.

[MVX]

I don’t see why moving the halving to 2028 would make sense. The halving reduces supply, which should naturally drive up the price according to forecasted cycles. Usually, this price increase is significant enough that the rewards in USD terms outweigh the benefits of maintaining usual block rewards.

In my opinion, the issue isn’t with the halving; there’s a different problem leading to the low number of miners. For instance, we still lack mining pools that would allow people to use their BTC to earn extra yield. Additionally, the DeFi ecosystem on STX is underdeveloped, which might change with the Nakamoto update and hopefully with the introduction of EVM and rust subnets. This could make mining STX more appealing.

Lastly, changing the tokenomics drastically, like altering supply frequently, undermines trust in a predictable future for the currency.

[Algorithm]

I want to extend my appreciation to the entire Stacks community for actively engaging in protocol decisions, a practice I believe empowers the community over a select few leaders.

While I find the proposition in the report commendable, it raises concerns for users and builders, even for miners. Although maintaining block rewards at 1000 STX until 2028 can foster network growth and resilience, I don’t believe it entirely addresses the mining rewards issue. It seems we aim to solve challenges for miners while simultaneously providing value to users and builders, ensuring the profitability and appeal of Stacks mining and the lasting value of Stacks tokens for network health and expansion.

My suggestion is to consider a DYNAMIC EMISSION approach after the first halving in 2025 until the second halving. This approach can enhance miner profitability, positively impacting the market price for users and builders. Dynamic emission allows flexibility, enabling both small and large miners to secure a block honestly based on their bid, with block production potentially rewarding more or less than 1000 STX, depending on a minimum Bitcoin bid. Real-world and blockchain data can guide the determination of minimum and maximum block rewards.

After the second halving:

1. Maintain the dynamic emission till 2050 with the 1.818 Billion cap

Or

2. The block reward can be reduced by 50%, given the maturation of the network and the anticipated significant growth.

[Hadan-ALEX]

ALEX Lab Foundation: A Dapp Builder’s Perspective

TLDR: We’ve carefully read through both the “Review of Mining Emissions and Risks of the Halving” and the “Halving Proposals: Final Draft” reports commissioned by the Stacks Foundation and authored by Jesse Soslow for the 7th Avenue Group. Our perspective, as Dapp builders on Stacks, is that we are in favor of the emissions schedule being adjusted, however we are against any inflation of the Stacks token supply. Excluding inflationary solutions while optimizing for delaying the first halving and mirroring Bitcoin’s halving schedule, leads us to support Schedule A in the “Halving Proposals” report.

No Inflation

The “Halving Proposals: Final Draft” proposes 4 different schedules for adjusting emissions. The report itself favors “Schedule D” which skips the 2025 halving, follows a 50% halving schedule from 2028 onwards, however the 2050 fully circulating supply is estimated to be 1.87 billion Stacks, a 2.8% increase from the originally projected 1.818 billion.

Although the report argues that this amount of inflation is “minimal” the truth is that we believe even modest token inflation would cause irreparable damage to the reputation and perceived value of Stacks. For us Schedule D, despite its apparent simplicity, is simply a non-starter because “printing money” to fix its problems would turn Stacks into digital fiat and make a mockery of claims of respecting the foundational principles and ethos of Bitcoin.

Stick to the Bitcoin Halving Schedule

Having ruled out Schedule D, that leaves A, B and C. These three schedules do not inflate the overall circulating token supply, however the trade off is that each has a “complication” that alters either the emission schedule of halving percentage from that of Bitcoin. Which then, is the “least complicated” to explain to the existing and future community of Stackers?

Schedule B, would have the first 50% halving in 2028, then 2030, 2032, 2036 and 2040. The inconsistency of halving occuring 2030 is strange and unmoors Stacks from mirroring Bitcoin’s halving schedule.

For this same reason, Schedule C which would only delay the first halving for ~1 year to late 2025 / early 2026, with the next halving in mid-2032 also seems strange and divorced from Bitcoin’s rhythm.

The extension of the halving deadline for 1 year doesn’t really provide that much more time for Stacks to grow and mature. It seems to be a bit of a gamble that we’ll see a bull run with ATH in 2025, which isn’t a guarantee. History doesn’t always repeat itself but it often rhymes. If there isn’t a bull market until 2026, Stacks in late 2025 / early 2026 may not be all that different than it was at the beginning of the year.

Our Preference for Schedule A

By process of elimination, we are left with Schedule A. Schedule A skips the 2024 halving for Stacks, but follows Bitcoin’s schedule from 2028 onwards similar to Schedule D.

The catch however, which differentiates Schedule A from the inflationary Schedule D, is that avoiding inflation requires “halving” of 60% instead of 50% in 2028 and 2032.

Delaying the first halving until 2028 allows for a greater likelihood of capturing a bull market cycle than the one year extension provided by Schedule C. If by 2028 there hasn’t been a bull market or new ATHs, then crypto has either faded or evolved into something very different from what we currently understand.

In Conclusion

From our perspective as Dapp builders on Stacks, we favor Schedule A. We entirely reject Schedule D as token inflation would destroy the reputation of Stacks. The one year extension of the first halving deadline in Schedule C, doesn’t seem to provide enough time to assure Stacks is thriving or has benefited from a possible bull market.

Schedule B has an odd 2030 halving, making it our second choice after Schedule A.
Our final ranking: Schedule A > Schedule B > Schedule C > No change > Schedule D

[Frank_NRD]

Frank from NRD here - sharing my thoughts on this.

While this proposal could potentially be beneficial (not delving deep here) - this is definitely not the right time to push for vote for this initiative.

Stacks is at its most important juncture right now to deliver its long-awaited Nakamoto, which is and will be the cornerstone of Stacks’ growth - every market participant (incl. ourselves) is watching closely if Stacks will be able to deliver on its promise on time, in full. Having a revamp to another cornerstone of Stacks now (halving/emission) will only introduce new noise & dilute what matters to Stacks next 4 months - Nakamoto.

I suggest everyone to delay this discussion/vote until after a fully operational & functional Nakamoto. Then we might have new data points to look at in determining if we need to extend security budget.

One focus at a time - which only should be Nakamoto right now.

Frank (NRD)

[Tycho]

I agree with Frank here.

Would add that it’s good that the community has voiced clear support on this post for not changing the STX supply cap, which is valuable to investors to know as we go into Nakamoto. LFG

[cuevasm]

Yeah, I haven’t seen anyone pushing for a vote on this now. It is responsible to do the research well out in front of halving to leave ample time for discussion and further observation. FWIW, I’m in touch with Stacks supporters who are only able to pay close attention every 6 months to a year, so discussions (especially those around tokenomics) need time to filter through a very decentralized global community. I’m happy we have the benefit of this research now and can apply the framework to the information we’ll hopefully get this upcoming year.

[novariver]

Agree with this.

Nakamoto and SBTC upgrade are by far the most important objectives for the community to focus on, and it doesn’t make sense to risk slipping on timing for an emissions change (which can wait until the scheduled Jan 2025 halving).

This discussion is important, but moot because hopefully usage and miner dynamics will change materially after the Nakamoto and SBTC upgrades.

[muneeb]

Great discussion here! Some points and take aways for me:

• There seems to be a lot of support for not changing 1818M 2050 supply. I respect that. I think a lot of Stacks L2 community members are also Bitcoin people and they like having that certainty and strong preference to never change that. I was personally more open to the idea but after this chat I’m convinced that not changing 1818M supply is the right call. So you all can count my +1 on that as well.

I think there are two other things here that are probably not getting enough attention:

(a) There is a halving schedule mismatch that was sort of not planned. There was an earlier idea to do Stacks halving when Bitcoin halvings happen but it never got implemented and now we have this Jan 2025 halving for Stacks (months after Bitcoin halving). I think there is value in correcting this and aligning the halvings to the Bitcoin halvings date as originally envisioned. That is a much simpler message for people to understand i.e., STX halvings happen with BTC halvings. But there can be important economic reasons here as well. I’m not a trader but several liquid funds now trade STX as a “higher beta BTC asset”. There are publish posts (e.g., the Hal Press thesis) about this. For such funds, it’s a simpler economic model that STX new supply goes down exactly when BTC new supply goes down and there are no weird periods in the middle where one asset has changed new supply rate but the other hasn’t. Aligning as closely to Bitcoin is generally good for a project that wants to build the best Bitcoin L2!

(b) I’m personally not concerned about miner centralization because of Nakamoto. Miners no longer have the ability to reorg as Nakamoto follows Bitcoin finality. Miners will work more like sequencers in Ethereum L2s (with obvious technical differences given different systems). I’m thinking more about incentives for signers. The BTC yield is the primary incentive for signers. That yield is at a 5-6% today given the 1,000 STX coinbase rewards. If that yield drops while the network is still in the bootstrapping phase to get more signers then that is not ideal in my view. I think a discussion around signer incentives for next 4 years (until next Bitcoin halving) is an important one to have. If there is a way to slightly tweak the emission curve so that the 2050 supply doesn’t change but the signer incentives remain at 1000 STX per block level until next Bitcoin halving then that is ideal in my view.

Hope these thoughts help contribute to this discussion. Looking forward to learning more from others!

[m0bb]

I very much appreciate the attention being given here to the potential consequences for investors and network supporters if we alter the total supply. We are a liquid fund in the space and STX has been our largest allocation outside of the majors since the start of the year.

While maybe the 2028 date seems far out, essentially doubling the expected emissions (500 per block to 1000) for that many years would have a significant impact on how we model the investment in the coming years as well as a potentially large impact on the trading price of the token in the short-medium term.

As many here understand, token price is significantly influenced by flows and liquidity dynamics, not just what people think the token will be worth 5 years out. To that end, I’m wondering if we could receive some more information about things like the following in order to better understand how this increase in emissions over the next few years might impact liquidity dynamics and how folks in my shoes evaluate the Stacks protocol as an investment:
-More specific information on how the foundation and early backers/founding team (many of which are here in the forum) plan to sell their allocations. Specifically what are these allocations that are being unlocked up through 2028 and what plans are currently in place to sell them? Obviously the foundation needs to sell in order to fund their activities. I’m sure the founding team (formerly Blockstacks, now at Hiro) still has allocations to sell in order to fund their present-day activities - many of which directly support Stacks, thanks for your continued efforts!
-Does the foundation currently have any market-making agreements in place with trading actors in the space to ensure adequate liquidity on exchanges, as most protocols in the space do. If yes, what are the details of these arrangements and has any work been done to evaluate the increased emissions on liquidity dynamics on exchanges? STX is a significantly less liquid token than others in it’s market cap range, so these questions are especially important
-Can we hear from some current miners about their thoughts on this proposal? The present narrative is that this change is important to ensure miners continue to participate in securing the chain, but admittedly I have not been following these specific discussions about why the current emissions schedule is unsatisfactory or inadequate to maintain a secure chain. If someone could point me to these discussions, that would be helpful, up until now this is just being assumed as a given and articulated by non-mining actors. If these don’t exist publicly then now is the time for them to come out and make their case!
-Do we have any data on the propensity for miners to hold vs sell STX? Any estimates on what proportion of emissions are sold in a particular time period? We have very good data about this relating to Bitcoin.
-Has there been any consideration of some type of burn to offset the increased emissions over time? This can be determined at the protocol, or at the level of initial allocations - eg a haircut of the foundation’s allocation - or a number of other possibilities.

I’m sure I’ll think of more questions relating to liquidity dynamics but this is a good start! Thanks for everyone’s awesome contributions here! Looking forward to hearing everyone’s thoughts!

[m0bb]

it would be great if we could hear from those actors here - both other investors that you mention and the miners. it’s important to bring these conversations that are being had behind closed doors forward to the entire community in order to prevent the appearance of decentralization theater. if they’ve formed strong enough opinions to the degree that they think a change is required at the protocol level, i’m sure they’ve collected data and done an analysis. it would be great to see that and evaluate it.

[MattySTX]

Sharing a summary of some of the thoughts and discussions from the economics CAB.

As mentioned in the spaces call, the questions at hand are not independent, and should not be framed as independent choices - they are a chain of conditionals.

1. Should the currently scheduled halving be delayed?
2. If No, stop here. If Yes, this change alone would increase the circulating supply at the arbitrary point in time of 2050. Thus, should an additional change be made to keep the supply that is circulating at 2050 constant?
3. If No, stop here. If Yes, then how should the emissions schedule be changed such that more tokens are emitted in the near future, while fewer are emitted in the mid/distant future such that by 2050 the same total is emitted (as if none of these changes were made)?

We cannot answer questions 2 or 3 until we address question 1.

Personally, I see no strong evidence to alter things and delay the halving, especially before Nakamoto upgrades play out. My personal reasoning is based on:
i) Nakamoto changes will bring unknown changes to mining activity (so deciding to act would be acting on known unknowns at best, if not acting on unknown unknowns)
ii) the general bias imo should be against intervening with supply policy, not for intervention, especially for a Bitcoin adjacent chain (i.e. it sets a bad precedent to modify this when there is no clear and present danger)
iii) the argument in support of delaying the halving seems to primarily be that it’s important to promote the number of STX miners for the purposes of decentralization. This is an interesting thesis, particularly in light of the consensus changes Nakamoto introduces and how the decentralization of STX miners relates to chain security.

If I understand correctly, the Nakamoto change means that the Stacks chain inherits full Bitcoin security budget defense against re-orgs affecting blocks N-2 and back (i.e. reorgs deeper than 1 Bitcoin block). This property exists as long as anyone advances the chain and writes the Stacks block headers to Bitcoin.

In other words, with Nakamoto, the Stacks chain only needs 1 honest miner to advance the chain to inherit full Bitcoin security budget.

Even with 0 honest miners, malicious miners can not deep re-org the Stacks chain without re-orging Bitcoin itself. “All” they can do is either:
a) attempt a 1 block deep re-org (my understanding is that even this to succeed would require a majority of stackers colluding as well since Nakamoto miners produce/propose blocks but blocks must ultimately be approved by stackers)
-or-
b) censor or freeze the chain (i.e. as with most PoS chains, unlike PoW chains, the primary threat is a liveness failure, not a safety failure)

Thus, even with 100% malicious miners, deep history is safe, and even with just 1 active honest miner the Stacks chain is live.

Given the above, a desirable trait of Nakamoto is that the Stacks chain is highly resilient to malicious miners - it cannot be deep re-orged without attacking Bitcoin itself and it can advance as long as just a single honest active miner exists!

Unless my above understanding of Nakamoto is incorrect, to me this calls into serious question the objective of increasing the number of honest STX miners. Under Nakamoto, Stacks only needs one honest miner, and historically even when STX prices denominated in USD and/or BTC have fallen by 50% or more (similar in economic terms to a halving of emissions), miners have reduced their bids but still remained active.

I’m very open to new evidence and arguments, but based on my understanding above, it seems unwise to make any alterations, and roughly speaking the Economic CAB reached a consensus on this conclusion.

[jude]

@MattySTX

Given the above, a desirable trait of Nakamoto is that the Stacks chain is highly resilient to malicious miners - it cannot be deep re-orged without attacking Bitcoin itself and it can advance as long as just a single honest active miner exists!

Attackers would try instead to acquire >30% of the locked reward slots so they can trigger a liveness failure.

[Werner1]

I agree with this, thank you for sharing MattySTX.

I appreciate having this conversation long before the actual halving. Even if we change the emission schedule and announce a year in advance I believe to many users will be unpleasantly surprised in the years after.

I think being predictable is more important than making minute changes to emissions for unknown benefits.

Another risk?
In these alternative emission scenarios the long term block rewards is reduced to as little as 9.375 STX per block (Schedule A). Will that provide enough of a security budget, how? That is a huge difference from 125 STX per block.

From other token studies we know that small difference in inflation rate (4% vs 2%) likely have less influence on token price compared to number of users for the network, exchange rate BTC/STX or how much is being stacked, etc. Perhaps relative emissions should be kept constant? Or is that thinking to much like a central bank? I think there is an inherent risk in framing Stacks emissions as “halve with Bitcoin”… emissions on Stacks will not stop, they are required even when the ones on Bitcoin stop.

More predictability and more time to adapt if needed
If halving every 4 years might cause to much of a shock and hence increased risk, why do we insist on halvings every 4 years? Why not reduce emissions by 16% every year (= approximate halving every 4 years)? Analyzing how miners change their behavior over time would be more gradual and predictable. If rewards are ever found to be inadequate (to retain miners) we could reconsider emission changes based on that empirical analysis/evidence.

[larry]

@MattySTX

ii) the general bias imo should be against intervening with supply policy, not for intervention, especially for a Bitcoin adjacent chain (i.e. it sets a bad precedent to modify this when there is no clear and present danger)

[blocks8]

Emissions followup and next steps

Hello Stackers! It’s been amazing to hear so many perspectives on the emissions research. Thank you for engaging and providing your input!

I’m writing this post to provide Stacks Foundation’s current recommendation based on all the research and feedback we’ve received. Please note, the recommendation is distinct from the recommendation provided by 7th Ave Group which was summarized in the initial forum post. We encourage others to share their perspective as well as replies.

Stacks Foundation

Summary: We recommend waiting until after the Nakamoto release to prepare a SIP or take any further steps.

Why?

• The majority of the community urged waiting until launch to decide so we can run more updated models.

• We’ll be able to run updated models post-launch to have more confidence to keep 2050 supply the same.

• It would still allow plenty of time in the back half of 2024 to research and support a governance vote before the January 2025 halving date is upon us.

What other things should we consider in future decisions?

At the Stacks Foundation, we are generally against recommendations that increase 2050 supply from the original 1.818B projections and would likely be interested in solutions that delay the Jan 2025 fork to allow more time to gather data, but for those changes to not impact 2050 supply overall.

Given Stacks’s close tie to Bitcoin, there may be an advantage to sync the Stacks halving date to the next Bitcoin halving and to keep them on the same schedule. This would further align Stacks with the Bitcoin narrative, which makes it easier to see that Stacks become more scarce in mining as Bitcoin becomes more scarce.

Last, we are encouraged to see other proposed solutions to address the miner decentralization concerns that are not related to tokenomics - including R&D around decentralized mining pools, Nakamoto upgrade rules that encourage more miners, and the possibility of bootstrapping signers.

Fundamentally, the decision-making framework laid out in the 7th Ave Group research reports remains a good guide as we see the network through the Nakamoto and sBTC launches.

What’s next?

We encourage the community to continue to share ideas and research ideas to this forum post to continue the discussion. It’s important that we can have healthy, productive conversations and entertain possibilities well before they become a potential problem, growth blocker, or before it’s too late to act.

If you’re interested in some of the potential solutions to encourage more miners, we’d also encourage you to look into some of the other research areas. More information can be found in the SIPs github.