Tokenomics Update: Concordium CCD

tl:dr Concordium changes it tokenomics, as the newly formed Concordium Governance Committee announces three key tokenomics parameter updates:

Reduced Cool-Down Period: Reduced from 21 days to 7 days, allowing for more flexible stake management. The parameter change will take place October 30th 2024.

Decreased Mint Rate: The CCD mint rate will decrease from 8% to 4%, in response to community requests. The parameter change will take place November 15th 2024

Adjusted Transaction Fees: Simple transaction fees will return to 1 euro cent, all other fees are adjusted linearly. Complex transaction fee optimizations will take place October 30th with protocol 7, and the linear increase of all fees will take place November 15th 2024.

What does this mean to you?

Concordium started the process of decentralizing the blockchain governance in June 2024, welcoming two new members from the community, Andreas Baidas and Mikael Bondum. The election happened through an on-chain vote by CCD holders. As a part of the governance committee, they will be working together with the other members to respond on community-requested changes. The first of these are the changes to the cool-down time, mint rate and transaction fees. We will cover them in this article.

Cool-Down period parameter changes in depth

Update summary

The cool-down period is the time CCD tokens stay locked in a wallet after being unstaked. The Governance Committee has decided to reduce this cool-down period from 21 to 7 days. Combined with the concurrent unstaking and restaking introduced by protocol 7, this allows for a much more flexible stake management process for validators and delegators alike, and adds utility to Concordium’s token, CCD. The cool-down parameter change will take place at the same time as the protocol 7 update, namely on the 30th of October 2024.

Understanding the Cool-down period update:

When a validator or delegator removes some of their stake, it goes through a cool-down period during which it cannot be transferred or spent and the stake will not earn rewards during this period. Once the cool-down ends, the stake is unlocked and becomes fully accessible in your wallet.

The cool-down period has two purposes. First, it reduces the volatility of the amount of stake on-chain, since no cool-down or a too short cool-down could result in stake being added and removed as the price of the token fluctuates. Having a stable amount of staked CCD is crucial, as it means a stable number of validators that create and verify the blocks in a decentralized manner. Second, for security reasons: a validator that behaves maliciously by, e.g., signing two conflicting blocks, must not be allowed to immediately send their CCD to an exchange as soon as the act is committed. Instead, their tokens remain locked for the length of the cool-down, which allows the other validators to take action against them if needed.

The governance committee’s analysis indicates that a 7-day cool-down period is sufficient to preserve the benefits. This shorter period allows CCD holders more flexibility to unstake their tokens. With the addition of concurrent unstaking and restaking in  Protocol 7 , CCD holders now have greater control over their stake.

Mint rate paramenter changes in depth

Update summary

The annual CCD mint rate will be reduced from 8% to 4%, effective November 15, 2024. This change aligns with Concordium’s long-term goal of gradually lowering the mint rate to 2% and with community feedback to the governance committee.

Understanding the mint rate update

90% of the daily minted CCD on Concordium is used to reward validators, and their delegators, while 10% is allocated to the Foundation to finance the blockchain development. At the current 8% mint rate and with approx. 2/3 of all CCD staked, validators receive around 12% APY. Concordium aims to shift from mostly minting-based rewards to transaction fee-based rewards, with a medium-term target mint rate of 2%.

During this transition, it is crucial that validators receive sufficient rewards to keep the validator activity financially attractive. A 4% mint rate will produce approximately 6% APY at current staking levels, which is considered sufficient regardless of future TPS and fee rewards. This 4% mint rate also roughly corresponds to the average mint rate on other chains.

The mint rate can also affect CCD’s price, as more tokens minted means more tokens in the hands of validators and delegators which could potentially create selling pressure. While it is hard to quantify the impact of a mint rate reduction, a positive development in the demand for CCDs is a key focus of Concordium and is always taken into consideration.

Transaction fees parameter changes in depth

Update summary

The price of simple transactions will revert to the low price of 1 euro cent per transaction, which was in effect at the beginning of 2024, while preserving the price reduction of 3–5x for complex transactions.

This parameter change will also take effect on November 15, 2024.

Understanding the transaction fees update

In February 2024, all transaction fees were temporarily reduced by a factor of 100 for two reasons. First, it was identified that the cost for validators to execute complex transactions was unnecessarily high, affecting use cases like running a decentralized exchange. Optimizations to the WASM engine and smart contract libraries were required to decrease those costs, which would take time, so fees were lowered in the interim. New libraries for ordered maps have now been implemented, which reduce the cost of smart contracts using those data structures. And the WASM engine has been optimized, which reduced the computational cost of executing transactions by a factor 3.

In 2024 Concordium’s TPS have risen from less than 1 to an average of 8 under the impulse of several new use-cases. It is thus the moment to revise the transaction fees. Concordium will return to the simple transaction fees that were in place in February 2024, i.e., 1 euro cent for a simple transfer, which is very competitive. All other fees are adjusted linearly, so with the engineering optimizations, complex transactions will be 3–5 times cheaper than in February 2024. This fee adjustment also increases validator rewards, complementing the mint rate reduction. The final complex transaction fee optimizations will go live with  Protocol 7  on October 30, 2024, and the linear increase of all transaction fees will be effective on November 15, 2024.

If you have any questions regarding these new updates, please reach out to us in any of our community channels or by email.

Sincerely, Myrmidon Staking