Zilliqa 2.0 balances attractive rewards with sustainability, reducing inflation and empowering the community through decentralised governance.

Zilliqa 2.0 introduces a comprehensive overhaul of its tokenomics to enhance the sustainability and attractiveness of rewards for validators on the Proof-of-Stake (PoS) mainnet. 

The strategy aims to strike a balance between sustainability and attractiveness, ensuring the long-term health and reliability of the network while maintaining an incentive for validators to participate in consensus.

This robust consensus model aims to incentivise and reward participation through staking rewards while penalising disruptive behaviour through processes such as slashing a validators’ stake for equivocation.

Sustainable Rewards

The tokenomics of the Proof-of-Stake Zilliqa 2.0 mainnet are baked into the protocol and are designed to be sustainable and attractive to validators.

The reward structure on Zilliqa 2.0 aims to reduce ZIL inflation while fairly compensating validators for their role in maintaining the security of the network.

Staking rewards are adjusted based on the utilisation of the block space, allowing for a dynamic model that stabilises the total amount staked by validators. The formula used to calculate the total staking rewards awarded to validators is outlined in the Zilliqa 2.0 whitepaper.

The total staking rewards expected to be earned by validators every hour are adjusted according to the target staking ratio, transaction fees, and the depletion level of the ZIL reserve.

If it becomes necessary, the Zilliqa 2.0 mainnet may also introduce state rent in the future, which would require users to pay a fee for storing data on the blockchain.

Targeting Zero Inflation

Zilliqa 2.0 aims to become a zero-inflation protocol, which is important for preventing the depletion of the capped maximum supply of ZIL.

The changes introduced to staking rewards in Zilliqa 2.0 aim to balance the burn and reward rates of ZIL to achieve this goal.

Reducing inflation is necessary to prevent the supply of ZIL for staking rewards being eventually exhausted. By reducing inflation, Zilliqa 2.0 creates long-term sustainability for its native token economy and aligns its tokenomics with industry standards.

The graph above shows how Zilliqa 2.0 governance aims to balance staking rewards to reduce inflation and avoid the depletion of the capped supply of ZIL, while maintaining attractive returns and a reasonable staking ratio. Reducing inflation is essential to alleviate the depletion of the ZIL supply. The impact on validator rewards and staking returns depends on the remaining supply, the fees burned and the staking ratio, i.e. the staked fraction of the total supply. The more fees burned, the more rewards can be distributed among the validators. The higher the validator rewards, the higher the staking returns. High returns are likely to attract more ZIL staking, increasing the cryptoeconomic security of the PoS chain, but a higher staking ratio depresses returns as rewards must be divided by more ZIL staked. Modelling these effects and simulating the equilibrium serve as the basis for recommendations on reward and gas price adjustments, the two most important governance levers to attract more users through lower fees or validators and stakers through higher yields, while actively managing ZIL issuance.

Staking ZIL

In Zilliqa 2.0’s Proof-of-Stake consensus, validator nodes earn rewards for staking a minimum amount of ZIL to vote on transactions and secure the network.

ZIL holders can earn a share of these rewards by delegating ZIL to be staked through the validator node of their choice. 

Users who have delegated their ZIL to be staked by a validator node are able to unstake their delegated ZIL amount, which will become unlocked and available after a set unbonding period.

The process of delegation democratises participation, allowing any ZIL holders to contribute to network security and share in the rewards issued to validators for participating in consensus.

Decentralised Governance

Gas prices and staking rewards on Zilliqa 2.0 are revisited on a monthly basis and are adjusted according to the protocol’s decentralised governance structure, with the final decision on changes resting with gZIL token holders.

Holders of the gZIL governance token will continue to play an active role in the development of the network as they have done since the introduction of decentralised governance, voting on major improvements or changes to the protocol. gZIL holders with a minimum specified balance are able to make proposals which may then progress to a formal vote if enough support is reached. 

All gZIL holders are eligible to participate in a formal vote, and they are also able to delegate their gZIL to a voter of their choice. The Zilliqa governance structure is highly decentralised, involving more than 86,000 gZIL token holders.

This community-driven approach ensures that the network evolves in a transparent and inclusive manner, with input from the community shaping its future.

Customisable Economies

X-shards, the application-specific, interconnected shard chains unique to Zilliqa 2.0 can be customised in a variety of ways, and this includes adapting their tokenomics.

They can be configured to charge state rent, conduct gas price auctions, or to use their own native token for gas fees or staking rewards, creating their own token economy built on top of the Zilliqa mainnet.

X-shards may use ZIL bridged from the mainnet as their native token, or they may opt to use another ERC-20 token deployed on the mainnet and bridged to the new x-shard.

Other options include launching with a newly minted native token exclusive to the new x-shard or using a stablecoin as their native token, allowing transaction fees and validator rewards to be pegged to fiat currencies for price stability. 

X-shards can choose to deploy their own governance model and token to drive development decisions on their shard chain or they can directly adopt gZIL, which can be useful if they are using ZIL as their native token.