Prop 867: Validator incentivization

Note: This proposal is the first of a series of proposals meant to increase alignment between Cosmos Hub, Neutron, Stride, future consumer chains and their respective stakeholders. A document outlining the general vision for these proposals is being drafted.

[DRAFT PROPOSAL] Cosmos Hub & Neutron: Validator alignment

Summary

• Allocate 10,000 NTRN from the NTRN Airdrop to each Cosmos Hub validator running Neutron nodes to provide financial support and improve incentive alignment.
• Validators opting to not run Neutron nodes after the 31st of December under the ‘soft opt-out’ feature will not be eligible.
• Tokens are allocated to Cosmos Hub operators running active nodes on Neutron. Operators whose nodes become inactive on Neutron will be reallocated or returned to the Cosmos Hub Community Pool.
• Validator allocations will be vested linearly over one year using dedicated contracts on Neutron.
• A corresponding proposal will be made to the Neutron DAO to request the enabling of a voting vault to provide locked validator tokens with voting rights in Neutron governance.

Context

Following the approval of proposal 835 1 and proposal N24, the Cosmos Hub community pool received ~42,727,950 NTRN tokens (4.27% of max supply of NTRN) from the Neutron Airdrop. This NTRN materialises the close alignment between the Hub and Neutron, reinforced by the “Do no harm” and “Cooperation” policies ratified by the Cosmos Hub community.

At present market value (>$0.80 NTRN 13.12.23) the transaction will equate to a return of >$34,000,000 on its initial outlay of 50,000 ATOM to Neutron in Prop 72. Based on average monthly cost of validation estimates, this would equate to 15 to 30 years of security budget.

This redoubled incentive alignment between the networks creates massive opportunities for collaboration: joint ecosystem funding initiatives, strategic PoL to bolster the AEZ’s growth, liquidity bootstrapping programs to enshrine ATOM as money on Neutron and the AEZ, and more.

As an initial step, we propose to ensure that Cosmos Hub validators are properly incentivized to fully support Replicated Security and Neutron. To this effect, we propose to allocate 1.8M NTRN out of the 42M tokens (roughly ~4.2% of the Hub’s allocation) to support and incentivize validators running Neutron nodes.

Proposal

We propose an endowment of 10,000 NTRN per validator, to be linearly vested over a year using battle tested smart-contracts on Neutron. Assuming a corresponding proposal is ratified by the Neutron DAO, Cosmos Hub validators would benefit from voting rights in Neutron governance.

• Validators who wish to cover infrastructure cost may claim and sell their tokens
• Validators who wish to gain upside in Neutron’s success may hold their tokens and help steer the network towards success

In the absence of ICA controller functionality on Cosmos Hub, it is not possible to implement a fully trustless solution. In the interest of time and simplicity, we propose to start with a minimal solution that can be implemented in the coming weeks, according to the following steps:

• Obtain governance approval from the Cosmos Hub and Neutron DAO
• Transfer 1,800,000 NTRN to a DAODAO multisig on Neutron.
• Allocate 10,000 NTRN per active Neutron validator to a vesting contract on Neutron.
• Vest the tokens linearly over 12 months. Unlocked tokens can be claimed at any time.

Since this proposal would release a large number of tokens into circulation, and in order to reinforce the collaborative precedent between the DAOs (having passed joint proposals for the airdrop transfer and more), a proposal to the Neutron DAO would be made to ensure it consents to the allocation of 1,800,000 NTRN. This would ensure that the Do No Harm and Cooperation clauses approved by the Cosmos Hub in Prop 835 are explicitly respected, and would grant the validator allocations voting power in the Neutron DAO.

This structure is the most straightforward option and can be implemented in a short amount of time. It requires a committee to perform the IBC transfer and allocate the NTRN tokens to the vesting contracts.

Address: cosmos1z2f2lh368k34j2rccnf8yz3rkuflulmuekvu4g

Upon successful passing of the proposal the full amount of 1,800,000 NTRN would be sent from the Cosmos Hub community pool to the above multisig, which would then perform an IBC transfer to Neutron and execute a message to register vesting allocations for each validator.

The multisig would retain the ability to edit/remove vesting schedules to easily handle circumstances such as:

1. An operator key has been compromised and the vesting schedule needs to be registered to their new operator address.
2. An operator is no longer an active validator on Neutron and the remaining tokens need to be returned to the Cosmos Hub CP or registered to a different operator which has replaced them in the active set.
3. Etc.

Any tokens remaining at the end of the period would be returned to the Cosmos Hub community pool before the multisig is disbanded.

Governance votes

The following items summarize the voting options and what they mean for this proposal:

YES: You wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

NO: You do not wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

ABSTAIN: You wish to contribute to the quorum but you formally decline to vote either for or against the proposal.

NO WITH VETO: A ‘NoWithVeto’ vote indicates a proposal either (1) is deemed to be spam, i.e., irrelevant to Cosmos Hub, (2) disproportionately infringes on minority interests, or (3) violates or encourages violation of the rules of engagement as currently set out by Cosmos Hub governance. If the number of ‘NoWithVeto’ votes is greater than a third of total votes, the proposal is rejected and the deposits are burned.