Stacks Halving Schedule: Reports and Recommendations

[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.