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[ZIP 234] Zcash Sustainability Fund Issuance
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| <!DOCTYPE html> | ||
| <html> | ||
| <head> | ||
| <title>ZIP 234: Smooth Out The Block Subsidy Issuance</title> | ||
| <meta charset="utf-8" /> | ||
| <script src="https://cdn.jsdelivr.net/npm/mathjax@3/es5/tex-mml-chtml.js?config=TeX-AMS-MML_HTMLorMML"></script> | ||
| <meta name="viewport" content="width=device-width, initial-scale=1"><link rel="stylesheet" href="css/style.css"> | ||
| </head> | ||
| <body> | ||
| <pre><code>ZIP: 234 | ||
| Title: Smooth Out The Block Subsidy Issuance | ||
| Owners: Jason McGee <[email protected]> | ||
| Mark Henderson <[email protected]> | ||
| Tomek Piotrowski <[email protected]> | ||
| Mariusz Pilarek <[email protected]> | ||
| Original-Authors: Nathan Wilcox | ||
| Credits: | ||
| Status: Draft | ||
| Category: Consensus | ||
| Created: 2023-08-23 | ||
| License: BSD-2-Clause</code></pre> | ||
| <h1 id="terminology">Terminology</h1> | ||
| <p>The key words “MUST”, “SHOULD”, “SHOULD NOT”, “MAY”, “RECOMMENDED”, | ||
| “OPTIONAL”, and “REQUIRED” in this document are to be interpreted as | ||
| described in RFC 2119. [1]</p> | ||
| <p>“Network upgrade” - to be interpreted as described in ZIP 200. | ||
| [2]</p> | ||
| <p>“Block Subsidy” - to be interpreted as described in the Zcash | ||
| Protocol Specification (TODO ZIP Editors: link from comment).</p> | ||
| <p>“Issuance” - the sum of Block Subsidies over time. (TODO ZIP Editors: | ||
| work out if this definition is correct or can be removed).</p> | ||
| <p>“<code>ZsfBalanceAfter(h)</code>” is the total ZEC available in the | ||
| Zcash Sustainability Fund (ZSF) after the transactions in block | ||
| <code>h</code>, described in ZIP draft-zsf.md. In this ZIP, the | ||
| Sustainability Fund is used to pay out Block Subsidies from unmined ZEC, | ||
| and other fund deposits.</p> | ||
| <p>Let <code>PostBlossomHalvingInterval</code> be as defined in | ||
| [#protocol-diffadjustment]_.</p> | ||
| <h1 id="abstract">Abstract</h1> | ||
| <p>This ZIP proposes a change to how nodes calculate the block | ||
| subsidy.</p> | ||
| <p>Instead of following a step function around the 4-year halving | ||
| intervals inherited from Bitcoin, we propose a slow exponential | ||
| “smoothing” of the curve. The new issuance scheme would approximate the | ||
| current issuance over 4-year intervals.</p> | ||
| <p>This ZIP depends on the ZIP introducing the Zcash Sustainability Fund | ||
| (ZIP-XXX).</p> | ||
| <h1 id="motivation">Motivation</h1> | ||
| <p>The current Zcash economic model, inherited from Bitcoin, includes a | ||
| halving mechanism which dictates the issuance of new coins. While this | ||
| has been foundational, halvings can lead to abrupt changes in the rate | ||
| of new coins being introduced to the market. Such sudden shifts can | ||
| potentially disrupt the network’s economic model, potentially impacting | ||
| its security and stability. Furthermore, the halvings schedule is fixed | ||
| and does not provide any way to “recycle” funds into future | ||
| issuance.</p> | ||
| <p>To address this, we propose issuing a fixed portion of the pending | ||
| funds-to-be-issued in each block. This has the effect of smoothing out | ||
| the issuance curve of ZEC, ensuring a more consistent and predictable | ||
| rate of coin issuance, while still preserving the overall supply cap of | ||
| 21,000,000 coins. This mechanism by itself (without other anticipated | ||
| changes) seeks to preserve the core aspects of Zcash’s issuance policy | ||
| and aims to enhance predictability and avoid sudden changes. By making | ||
| this shift, the average block subsidy over time will remain predictable | ||
| with very gradual changes.</p> | ||
| <p>However, we anticipate schemes proposed in [#draft-zsf]_ where the | ||
| amount of funds-to-be-issued may increase. In that scenario, this | ||
| issuance mechanism would distribute that increase starting in the | ||
| immediately following block and subsequent blocks. Because this | ||
| distribution mechanism has an exponential decay, such increases will be | ||
| spread out in miniscule amounts to future blocks over a long time | ||
| period. This issuance mechanism thus provides a way for potential | ||
| increases or decreases of issuance while constraining those changes to | ||
| be small on a short time scale to avoid unexpected disruptions.</p> | ||
| <p>Additionally, the current Bitcoin-style issuance does not take into | ||
| account the current balance of <code>ZsfBalanceAfter(h)</code>. If | ||
| [#draft-zsf]_ were to activate without a change to the issuance | ||
| mechanism, then some funds would never be disbursed after they are | ||
| deposited back into the ZSF.</p> | ||
| <h1 id="requirements">Requirements</h1> | ||
| <p>Smoothing the issuance curve is possible using an exponential decay | ||
| formula that satisfies the following requirements:</p> | ||
| <h2 id="issuance-requirements">Issuance Requirements</h2> | ||
| <ol type="1"> | ||
| <li>The issuance can be summarised into a reasonably simple | ||
| explanation</li> | ||
| <li>Block subsidies approximate a continuous function</li> | ||
| <li>If there are funds in the ZSF, then the block subsidy must be | ||
| non-zero, preventing any final “unmined” zatoshis</li> | ||
| <li>For any 4 year period, all paid out block subsidies are | ||
| approximately equal to half of the ZSF at the beginning of that 4 year | ||
| period, if there are no deposits into the ZSF during those 4 years</li> | ||
| </ol> | ||
| <p>TODO daira: add a requirement that makes the initial total issuance | ||
| match the previous total issuance</p> | ||
| <h1 id="specification">Specification</h1> | ||
| <h2 id="goals">Goals</h2> | ||
| <p>We want to decrease the short-term impact of the deployment of this | ||
| ZIP on block reward recipients, and minimise the potential reputational | ||
| risk to Zcash of changing the block reward amount.</p> | ||
| <h2 id="constants">Constants</h2> | ||
| <p>Define constants:</p> | ||
| <p>“<code>BLOCK_SUBSIDY_FRACTION</code>” = 4126 / 10,000,000,000 or | ||
| <code>0.0000004126</code></p> | ||
| <p>“<code>DEPLOYMENT_BLOCK_HEIGHT</code>” = 2726400</p> | ||
| <h2 id="issuance-calculation">Issuance Calculation</h2> | ||
| <p>At the <code>DEPLOYMENT_BLOCK_HEIGHT</code>, nodes should switch from | ||
| the current issuance calculation, to the following:</p> | ||
| <p>Given the block height <code>h</code> define a function | ||
| <strong>BlockSubsidy(h)</strong>, such that:</p> | ||
| <p><strong>BlockSubsidy(h)</strong> = Block subsidy for a given | ||
| <code>h</code>, that satisfies above requirements.</p> | ||
| <p>Using an exponential decay function for <strong>BlockSubsidy</strong> | ||
| satisfies requirements <strong>R1</strong> and <strong>R2</strong> | ||
| above:</p> | ||
| <p><code>BlockSubsidy(h) = BLOCK_SUBSIDY_FRACTION * ZsfBalanceAfter(h - 1)</code></p> | ||
| <p>Finally, to satisfy <strong>R3</strong> above we always round up to | ||
| the next zatoshi.</p> | ||
| <p><code>BlockSubsidy(h) = ceiling(BLOCK_SUBSIDY_FRACTION * ZsfBalanceAfter(h - 1))</code></p> | ||
| <h1 id="rationale">Rationale</h1> | ||
| <h2 id="block_subsidy_fraction"><code>BLOCK_SUBSIDY_FRACTION</code></h2> | ||
| <p>Let <code>IntendedZSFFractionRemainingAfterFourYears</code> = | ||
| 0.5.</p> | ||
| <p>The value <code>4126 / 10_000_000_000</code> satisfies the | ||
| approximation within +0.002%:</p> | ||
| <p><code>(1 - BLOCK_SUBSIDY_FRACTION)^PostBlossomHalvingInterval ≈ IntendedZSFFractionRemainingAfterFourYears</code></p> | ||
| <p>Meaning after a period of 4 years around half of | ||
| <code>ZSF_BALANCE</code> will be paid out as block subsidies, thus | ||
| satisfying <strong>R4</strong>.</p> | ||
| <p>The largest possible amount in the ZSF is MAX_MONEY, in the | ||
| theoretically possible case that all issued funds are deposited back | ||
| into the ZSF. If this happened, the largest interim sum in the block | ||
| subsidy calculation would be MAX_MONEY * 4126 + 10000000000.</p> | ||
| <p>This uses 62.91 bits, which is just under the 63 bit limit for 64-bit | ||
| signed two’s-complement integer amount types.</p> | ||
| <p>The numerator could be brought closer to the limit by using a larger | ||
| denominator, but the difference in the amount issued would be very | ||
| small. So we chose a power-of-10 denominator for simplicity.</p> | ||
| <p>TODO for ZIP owners: How many ZEC per day?</p> | ||
| <h2 | ||
| id="deployment_block_height"><code>DEPLOYMENT_BLOCK_HEIGHT</code></h2> | ||
| <p>The deployment should happen at the next halving, which is block | ||
| <code>2726400</code>.</p> | ||
| <p>Since there is a planned halving at this point, there will already be | ||
| a significant “shock” caused by the drop in issuance caused by the | ||
| halving. This reduces surprise and thus increases security. Also, due to | ||
| the nature of the smoothed curve having a portion of the curve above the | ||
| respective step function line at times, this will maximally | ||
| <em>reduce</em> the issuance shock at the | ||
| <code>DEPLOYMENT_BLOCK_HEIGHT</code>.</p> | ||
| <h2 id="visualization-of-the-smoothed-curve">Visualization of the | ||
| Smoothed Curve</h2> | ||
| <p>The following graph illustrates compares issuance for the current | ||
| halving-based step function vs the smoothed curve.</p> | ||
| <figure> | ||
| <img src="assets/images/zip-0234-block_subsidy.png" | ||
| alt="A graph showing a comparison of the halving-based step function vs the smoothed curve" /> | ||
| <figcaption aria-hidden="true">A graph showing a comparison of the | ||
| halving-based step function vs the smoothed curve</figcaption> | ||
| </figure> | ||
| <p>The graph below shows the balance of the ZSF assuming smooth issuance | ||
| is implemented.</p> | ||
| <figure> | ||
| <img src="assets/images/zip-0234-balance.png" | ||
| alt="A graph showing the balance of the ZSF assuming smooth issuance is implemented" /> | ||
| <figcaption aria-hidden="true">A graph showing the balance of the ZSF | ||
| assuming smooth issuance is implemented</figcaption> | ||
| </figure> | ||
| <h1 id="deployment">Deployment</h1> | ||
| <p>The implementation of this ZIP MUST be deployed at the same time or | ||
| after the Zcash Sustainability Fund is established (ZIP-XXX).</p> | ||
| <h1 id="appendix-simulation">Appendix: Simulation</h1> | ||
| <p>The <a href="https://github.com/eigerco/zsf-simulator">ZSF | ||
| simulator</a> allows us to simulate the effects of this ZIP on the ZSF | ||
| balance and the block subsidy, as well as generate plots like the ones | ||
| above. Its output:</p> | ||
| <pre><code>Last block is 47917869 in ~113.88 years</code></pre> | ||
| <p>indicates that, assuming no ZEC is ever deposited to the ZSF, its | ||
| balance will be depleted after 113.88 years, and the block subsidy will | ||
| be 0 ZEC after that point.</p> | ||
| <p>This fragment of the output</p> | ||
| <pre><code>Halving 1 at block 1680000: | ||
| ZSF subsidies: 262523884819889 (~ 2625238.848 ZEC, 1.563 ZEC per block) | ||
| legacy subsidies: 262500000000000 (~ 2625000.000 ZEC, 1.562 ZEC per block) | ||
| difference: 23884819889 (~ 238 ZEC), ZSF/legacy: 1.0001</code></pre> | ||
| <p>shows that the difference between the smoothed out and the current | ||
| issuance schemes is 238 ZEC after 1680000 blocks (aroound 4 years).</p> | ||
| <h1 id="references">References</h1> | ||
| <p>[1] RFC-2119: https://datatracker.ietf.org/doc/html/rfc2119</p> | ||
| <p>[2] ZIP-200: https://zips.z.cash/zip-0200</p> | ||
| <p>[3] ZIP-XXX: Placeholder for the ZSF ZIP</p> | ||
| </body> | ||
| </html> |
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