We’re very pleased to present this proposal to the community after many weeks of patience. We have reviewed the Loki cryptoeconomics extensively with assistance from Dr Brenden Markey Towler of the University of Queensland, working with the RMIT Blockchain Innovation Hub.
Today we present two documents. The first is our economics paper: Proposal: Alterations to the Loki Cryptoeconomics. This document outlines the problems we have considered, some solutions to them, and an explanation of our final selection.
The second is a report by Dr Brenden Markey-Towler, Cryptoeconomics of the Loki network, which lays out the game theory at play in the Loki ecosystem. This report goes into some of the mathematics at play and makes some cases for potential solutions based on that maths. Our proposal to the community makes several references to this report, so if you want a greater understanding of the formulas we have used to derive values in our proposal, you can look there.
The crux of the matter is that we propose to initiate a hardfork at block height 64324, or approximately the 30th of July, 2018. This hardfork will only change one parameter in the current Loki implementation, which is the emission curve. The reason for this change is that we have come to the conclusion that the current emissions scheme would be completely untenable as a sustainable rewards scheme for the Service Nodes whilst retaining Sybil attack resistant properties. As it turns out, this is a very complex subject, so we strongly encourage you to Read The Proposal.
As we believe this to be a time sensitive matter, please present any feedback you have in the Discord channel under #governance.
Gaming This Change
A concern we have had while constructing this proposal is the potential repercussions in years to come. A number of accusations could arise as a result of this proposal, even if it is successful and has the desired effects we have described.
An example of such an accusation could be that the Loki core team deliberately set the emissions curve to be high at the beginning of the project in order to crash the price, during which, we could have accumulated Loki at very low prices, implemented this change to cut emissions, and then sold at a higher price.
We set the original emission curve to be as high as it is for a couple of reasons. Firstly, Monero uses the same emission curve, so it seemed reasonable that we inherit it from our parent project. Knowing that this would mean very high inflation (at least at first), we believed it would help us argue against a concern that turns out to have been far less prominent than we had anticipated: our premine. Our 15% premine has successfully funded this project for the next 3 years, provided incentive to the founders, advisors, and investors, and has allowed this project to scale and evolve at a rapid pace. However, community concerns over ‘premines’ have historically been a common occurrence in the cryptocurrency community, and we wanted to make sure that by the time Service Nodes launched, enough Loki had been emitted to counteract the argument that the founders or Foundation could have dominance over the network based on the ownership of their Loki. However, if one accepts the 59% presale of premined coins alone to have actually taken place, it is already mathematically impossible for all the remaining parties who control premined Loki to collude and achieve Service Node network dominance without purchasing more. The high emissions have resulted in a very large hashrate compared to the size of our market, which has meant there has been ample distribution of Loki amongst several thousand miners.
While we are proposing to cut the emission curve, it is not for the purpose of or own personal gain, or the gain of the Loki Foundation. Since the launch of the mainnet, the Loki Foundation has participated very little in the Loki market, only making relatively minor purchases of Loki to pay certain parties for their efforts without touching Foundation reserves. Similarly, the founders have only ever made minor purchases of Loki for their own personal use, and certainly haven’t sold any. The first vesting period has not yet elapsed for any of the founders or advisors, which can be verified by anyone using the information disclosed in the premine report. This can also be used to verify the impossible chances of founder dominance when Service Nodes launch.
We hope that by disclosing our intentions and concerns we can form an ongoing trust with the community and continuously strive towards transparency.
And so, with those concerns laid out, we propose to implement this change to the emissions curve as soon as possible. If you haven’t already, please read the proposal and submit your feedback or signal your support.
Technical Details
In the coming days, we will release a new binary for Loki. Once this binary is released, all users of Loki must update their daemons within 7 days. This includes all pools, exchanges, remote nodes, and users operating their own nodes. Where possible, we will reach out to all concerned parties that we are aware of and inform them of this change.
After block height 64324, the Loki block reward will go from being calculated in terms of the circulating supply with an emission speed factor of 20, to be derived from the block height. Defining the base block reward based on height will mean that the typical block size penalty will simply under-emit if miners attempt to create abnormally large blocks. However, this should not negatively impact Service Nodes as we attend to apply this penalty on the miner’s reward output only once the Service Node hardfork takes place in the coming months.
Once the new binary is running, users will not need to do anything to initiate this hardfork. The new emission rules will roll over automatically at block 64324.
Stay tuned to the Loki communication channels for updates on the binary release.
Brendan Markey-Towler, Cryptoeconomics of the Loki network (2018), https://loki.network/%20wp-content/uploads/2018/07/CryptoeconomicsOfTheLokiNetworkV1.pdf.
Johnathan Ross, Simon Harman & Kee Jefferys, Loki Cryptoeconomics (2018), https://loki.network/wp-content/uploads/2018/07/Loki_Cryptoeconomics-1.pdf!