TIP: 0023
Title: Increase block producer inflation on a one year schedule
Author: Douglas Horn, Goodblock <email: douglas@goodblock.io>
Status: Adopted
Type: Protocol
Created: 2018-10-16
Adopted: 2018-10-23
A one-year, fixed schedule of increased block production rewards of 4% for months 1-4, 3% for months 5-8, and 2% for months 9-12 should be implemented to better ensure sustainability for block producers at the beginning of the network until suitable TLOS price discovery and network maturity can establish a stable price.
The existence of the Telos Blockchain Network depends on the ability of block producers to operate their infrastructure and staffing requirements profitably. There is a high likelihood that the initial months of operation will find the amount of tokens Telos block producers earn at the specified 1% inflation will not be sufficient to meet this need. Should this happen, block producers will have to decide whether to produce blocks at a loss to keep the network alive, or follow their profit motive. It is crucial that the network keep block production profitable so that high caliber block producers will be enticed to support the network.
The Telos blockchain is maintained by up to 51 block producers and standby block producers and the health of the network depends on their being able to operate profitably. The market price of TLOS is unknown at launch and a low price could threaten the ability to maintain sustainable operations of block producers. With a token supply of about one-third that of EOS, Telos block producers are already earning 1% inflation based on a smaller token supply. While it is expected that in time the network value should equalize toward the additional network resources value of each TLOS token compared to EOS tokens, during the first year of the network, it is likely that TLOS tokens will have a market price well below their actual relative value. Of note, Telos block producers must meet minimum requirements higher than what is required of EOS block producers including participation in multiple networks.
During this crucial nascence of the network, it is important that block producers not fall into a trap of producing blocks at a loss. The result would be a shortage of high caliber block producers, which poses a threat to the network.
A conservative estimate for the break-even cost for operating a block producer is US $15,000-20,000 per month. This may be higher in some regions due to operating costs. As of this writing, top 21 EOS block producers earn an average of US $125,616 per month in gross revenues from block producing (average of 753.1 EOS per day X US $5.56 per EOS.) At 1% annual inflation, Telos block producers will earn approximately 7,700 TLOS per day for a block producer and 3,850 for a standby. For a Telos block producer to match what an average EOS block producer earns in one month, TLOS would have to be priced at about US $16.31. For a Telos block producer to earn the anticipated monthly operational cost of US $15,000-20,000, TLOS would have to be priced at US $1.95-$2.60 (at 1% annual inflation). While there is no necessity for Telos block producers to match the income of EOS block producers performing the same function, it is necessary for them to be able to break even in their operational costs.
No one knows what the initial price of TLOS tokens are likely to be, but it is probable that they may initially be much closer to US $0.50 (approx 0.1 EOS) than to $2.50 (approx 0.5 EOS). This is particularly true at the outset of trading. While this low price may present an excellent opportunity for investors, block producers will need to pay their costs regularly.
Providing a schedule of increased inflation that ramps down over a predictable timeline will support block producers and keep their income closer to their anticipated costs throughout the first year of operations.
| Month | Inflation Rate | Monthly BP Income | TLOS Price to Breakeven |
|---|---|---|---|
| 1-4 | 4% | 30,750 TLOS | US $0.49-0.65 |
| 5-8 | 3% | 24,950 TLOS | US $0.60-0.80 |
| 9-12 | 2% | 17,900 TLOS | US $0.84-1.12 |
| 13+ | 1% | 9,600 TLOS | US $1.56-2.08 |
(Note, money supply grows at 2.5% annually)
This inflation schedule is limited to one year and decreases at a regular rate toward the eventual rate of 1% for block producers. It is a limited response that allows block producers to operate at a price that is in line with reasonable expectations about TLOS market prices.
The Telos Blockchain Network Operating Agreement (TBNOA), Clause 10, “Block Producer Pay” shall be amended to read as follows:
Block Producer and Standby Block Producers shall be paid each day from a daily fund consisting of the daily share of 1% annual inflation (the “BP Inflation Rate”) of the entire value of the Telos blockchain as measured in TLOS tokens. Every day, this total amount shall be allocated such that each Block Producer receives the same pay for the time spent as a Block Producer as every other Block Producer and each Standby receives pay that is half of the rate of each Block Producer for its time spent as a Standby, with the provision that Block Producers and Standby Block Producers may have their daily pay allotment deducted in proportion with the percentage of blocks they were expected to produce in their most recent production period of 180,000 blocks (approximately 24 hours) or fewer, but failed to produce. Loss of pay from failing to regularly execute the “claimrewards” action, shall be borne by the Block Producer or Standby Block Producer, not the network. For blocks 1,000,001 (activation) through 22,000,000 blocks (approximately 122 days), the BP Inflation Rate shall be equivalent of 4% annually instead of 1%. For blocks 22,000,001 through 43,000,000 blocks (approximately 122 days), the BP Inflation Rate shall be equivalent of 3% annually instead of 1%. For blocks 43,000,001 through 64,000,000 blocks (approximately 122 days), the BP Inflation Rate shall be equivalent of 2% annually instead of 1%.
(discussion is closed)
Adopted by the Telos Contributors Group 2018-10-23. Voting: Yes - 28, No - 3, Abstain - 6
This document is in the public domain.