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The Tezos Community Celebrates First Week of Adaptive Issuance and New ‘Staker’ Role on Mainnet
On June 19th, the Tezos community took a significant step forward with the activation of Adaptive Issuance and a new staking mechanism on the Tezos mainnet. This enhancement, introduced with the Paris protocol upgrade, aims to improve network security and provide more incentives for users to participate in staking. Now, a week into its implementation, the Tezos community is beginning to experience the benefits and changes brought by this update.
By:
26 June 2024
Disclaimer
Not Financial Advice: No content on this website constitutes investment, financial, legal, or tax advice. Users should not construe any such information as a recommendation to buy, sell, or hold any investment or security or to pursue any particular investment strategy.
Our articles due not endorse any projects/applications, nor due they constitute any financial advice. They are provided to simply inform our readers with readily available information that has been provided elsewhere.
On June 19th, the Tezos community took a significant step forward with the activation of Adaptive Issuance and a new staking mechanism on the Tezos mainnet. This enhancement, introduced with the Paris protocol upgrade, aims to improve network security and provide more incentives for users to participate in staking. Now, a week into its implementation, the Tezos community is beginning to experience the benefits and changes brought by this update.
Understanding Adaptive Issuance
Adaptive Issuance is designed to dynamically adjust the issuance rate of new tez based on the proportion of tez staked in the network. This mechanism ensures that the issuance of new tez is optimized to provide just enough incentive for network security without causing unnecessary inflation. As Nomadic Labs explain: “Adaptive Issuance lets the network automatically find the ‘Goldilocks’ level for staking rewards – just enough for a desired level of economic security, but not higher than that, so as to minimize dilution.”
The system targets a 50% staking ratio, meaning half of the total tez supply should be staked to achieve optimal security. If staking participation falls below 48%, rewards are increased to encourage more staking. Conversely, if staking participation exceeds 52%, rewards are reduced to prevent excessive issuance.
A visual video NFT helping to explain Adaptive Issuance, produced by Tezos community member and baker Tezberry Pie can be found here.
One of the most notable changes is the introduction of the staker role. Previously, only bakers had their funds frozen and directly contributed to the network’s security. Now, stakers can also have their funds frozen and subject to slashing, similar to a baker’s funds. This ensures that both bakers and stakers have a vested interest in maintaining network integrity.
Arthur Breitman, highlighted the significance of this change: “Users will now be able to stake their tez with bakers, without giving up custody. Staking will typically be more attractive than delegating.”
Enhanced Incentives
Staking offers higher rewards compared to delegation because staked funds carry double the weight in assigning baking rights and governance votes. This added incentive is designed to encourage more users to participate in staking, thereby enhancing network security. Nomadic Labs emphasize: “Staked funds are incentivized more because they contribute more to network security by being actually at stake.”
Additional Insights
Arthur Breitmanshared several key insights on social media about the new staking model and its impact on the ecosystem. He pointed out that the Tezos staking model has largely been unchanged since 2018, and this new mechanism aims to increase the number of tez at stake, thus enhancing network security and resiliency.
Increased Network Security: “First, this should increase the number of tez at stake, increasing the network’s security and resiliency.”
Dynamic Issuance Adjustment: “Second, this mechanism means the protocol can dynamically adjust ‘issuance’, the creation of new coins by stakers, to the lowest amount necessary to incentivize a sufficient stake.”
Streamlined Rewards Distribution: “With the old system, far more tez than needed were created to incentivize baking. In fact, 80% to 90% would typically end up in delegators’ hands! The new system nets out the two, resulting in a more streamlined issuance mechanism.”
Enhanced Composability: “The goal is more composability. Reducing the opportunity cost of not delegating means tez can more readily be used in defi applications on Tezos.”
Broader Usability:“It also means tez works better as gas in Smart Rollups. It means tez can be more easily bridged onto other ecosystems.”
How to Start Staking
For users ready to become stakers, the process involves a few straightforward steps. Visit stake.tezos.com, choose a Tezos wallet of your choice and then follow the intuitive steps to stake.
Risk Management and Baker Selection
Stakers must carefully choose their bakers, as funds are at risk of slashing if the baker engages in double-signing. Overstaking, where a baker accepts more stake than their limit, can also reduce rewards for all stakers involved. Therefore, it is crucial to monitor your baker’s capacity and status regularly.
Breakdown of Differences
Custody of Funds: Previously, only bakers held custody of staked funds, which were used to secure the network. With the new staking mechanism, stakers retain custody of their funds, which remain in their accounts but are frozen by the protocol.
Incentives for Stakers: Staked funds now carry double the weight for baking rights and governance votes compared to delegated funds. This provides higher rewards and greater influence in network decisions.
Adaptive Issuance Mechanism: The issuance rate of new tez is now dynamically adjusted based on the staking ratio. This ensures that the network remains secure while minimizing unnecessary inflation. The target staking ratio is set at 50% of the total tez supply.
Manual Staking: All staking actions are now handled manually. Users must actively delegate, stake, and unstake their funds. This change provides more control over the staking process but requires users to be more engaged.
Progressive Min-Max Rate: Initially, the issuance rate is kept within a narrow range (4.5% to 5.5%) and gradually widens over six months to span from 0.25% to 10%, ensuring a smooth transition and preventing abrupt fluctuations.
Adaptive Slashing: Differentiates between accidental errors and deliberate attacks, with penalties proportional to the degree of misconduct. This ensures fairer treatment of unintentional mistakes while maintaining strict penalties for malicious actions.
What’s Next?
One week into the activation of Adaptive Issuance and the new staking mechanism, the Tezos community is beginning to see the positive impacts on network security and economic efficiency. By aligning incentives for stakers and bakers, Tezos aims to enhance network security and optimize the issuance of new tez. As the community adjusts to these changes, the Tezos network stands to benefit from increased participation and improved economic efficiency.
Today, Tezos X has been unveiled, presenting a forward-looking vision for Tezos that marks a significant evolution from its original design. According to the official blog, this vision addresses some of the most fundamental issues in the blockchain space, aiming to enhance usability and utility while maintaining the core properties of blockchain technology.
On June 19th, the Tezos community took a significant step forward with the activation of Adaptive Issuance and a new staking mechanism on the Tezos mainnet. This enhancement, introduced with the Paris protocol upgrade, aims to improve network security and provide more incentives for users to participate in staking. Now, a week into its implementation, the Tezos community is beginning to experience the benefits and changes brought by this update.
Tezos protocol’s sixteenth upgrade, Paris, was activated on Mainnet on June 4th, 2024. Tezos is a pioneering blockchain known for its self-amending capabilities and community-driven, on-chain governance system. The upgrade makes the Tezos blockchain faster, more scalable, more robust, and continues its tradition of community-driven development and innovation.
Not Financial Advice: No content on this website constitutes investment, financial, legal, or tax advice. Users should not construe any such information as a recommendation to buy, sell, or hold any investment or security or to pursue any particular investment strategy.
Our articles due not endorse any projects/applications, nor due they constitute any financial advice. They are provided to simply inform our readers with readily available information that has been provided elsewhere.
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Today, Tezos X has been unveiled, presenting a forward-looking vision for Tezos that marks a significant evolution from its original design. According to the official blog, this vision addresses some of the most fundamental issues in the blockchain space, aiming to enhance usability and utility while maintaining the core properties of blockchain technology.
Tezos protocol’s sixteenth upgrade, Paris, was activated on Mainnet on June 4th, 2024. Tezos is a pioneering blockchain known for its self-amending capabilities and community-driven, on-chain governance system. The upgrade makes the Tezos blockchain faster, more scalable, more robust, and continues its tradition of community-driven development and innovation.
Lower latency and faster finality with 10s block times without compromising decentralization or security.
The activation of the Data Availability Layer (the DAL) on Mainnet, boosting throughput and scalability of Smart Rollups with the capacity to support millions of transactions.
