Jayen Harill
Marketing Manager

The New Dawn—Migrating CQT Staking Back to Ethereum: Phasing Down Moonbeam

The New Dawn represents a series of massive network upgrades and proposed governance changes that lead us into the promise of Long-term Data Availability via the Ethereum Wayback Machine… This is the first of many.

Section 1: Network Operations & Staking Migration to Ethereum

How The Covalent Network Currently Works & Where We Are Going

Currently, the Staking Contract and the ProofChain Contract are hosted on Moonbeam, where proofs for Block Specimens and Block Results are also posted. Block Specimens and Block Results are produced by professional node operator companies running Covalent infrastructure structuring the data into a unified schema in a verifiable way. Specifically, Block Results are produced by Block Result Producer Operators, a group of incentivized nodes that takes the Block Specimens—composed from raw chain data and produced by Block Specimen Producer Operators—and structures the data by performing arbitrary computations on the specimen designed for performant downstream use. At this level, professional companies that provide operator services are used to provide a performant data stream built for high throughput and uptime. This arrangement however, has introduced a disincentive to stake as an operator and accept delegations as it necessitates the use of the Wormhole bridge to transfer CQT, leading to inefficiencies and UX drawbacks. 

To address these issues, we are proposing to migrate staking back to Ethereum, pending a favorable governance vote. This move will enable Operators and Delegates to stake on Ethereum, thereby streamlining the process of earning emission yields. All of these efforts are to support the launch of the Ethereum Wayback Machine expected later in Q3, where following the completion of the staking migration, we aim to transition the ProofChain Contract from Moonbeam to a highly concurrent event streaming system within the Ethereum Wayback Machine (EWM), allowing to scale proof aggregations of offchain operator computations. 

The Ethereum Wayback Machine is a long-term data availability solution that provides performant verified structured historical onchain data to downstream consumer and enterprise use-cases—and by moving the ProofChain Contract to the EWM, Block Specimens and Block Results will form the bedrock of a scalable structured data compute infrastructure for the growing ecosystem of rollups to eventually post to. 

What is not changing and what is not included in this post:

  • Block Results and Block Specimens will continue posting data artifacts to IPFS for further trustlessness. 

  • Not mentioned are the later addition of node roles like Olympic Clients (Light Client Operators)—an intentional nod to Ethereum history—and Query Node Operators.

  • Data consumption revenue continues to support the Operator and Delegate Staking rewards Multi-Sig on Ethereum via automated onchain purchasing of CQT. Current reward emissions are under budget of the previously set targeted schedule.

  • For more information on the most current plans for the Ethereum Wayback Machine, including technical implementation, please refer to this EthDenver video with our Head of Protocol Engineering Pranay Valson.

Advantages of Staking on Ethereum

Migrating staking to Ethereum introduces several key benefits:

  • Removes the Need for Two Gas Tokens: Currently, both GLMR and ETH are required for gas operations across Moonbeam and Ethereum. Migration simplifies this by only needing ETH.

  • Improved User Experience (UX): The transition reduces the complexity of interactions for new stakers, leading to a more straightforward staking process.

  • Enables Liquid Staking: Ethereum’s mature ecosystem supports various liquid staking opportunities, which are currently unavailable on Moonbeam.

  • Infrastructure Expansion for Rollups: Migrating to Ethereum allows the network to serve rollups better, facilitating the adoption of block specimen infrastructure. This increases interoperability for demand-side use cases requiring structured long-term data availability like AI. Long term, this means that the Ethereum Wayback Machine can provide performant structured data infrastructure compute for Rollups.

Section 2: Phase down Moonbeam Staking Via Disincentive & Airdrops

There will be an introduced disincentive to continue staking on Moonbeam by a reduction of emissions to 0!

This is important to encourage the network shift to staking on the new Ethereum contracts, it's important to note that this process requires manual actions from token holders—unstaking tokens from Moonbeam, bridging them, and then staking on Ethereum. To encourage and expedite this transition, we plan to implement several incentives:

  1. Cease Moonbeam Rewards: Again, by ceasing the rewards on Moonbeam bringing APY to 0, we introduce a disincentive creating a negative opportunity cost of continuing to stake there—making Ethereum staking far more attractive by comparison.

  2. Eliminate Cooldown Periods: We propose reducing the cooldown period for unstaking from the current 28 days to 0. This change will allow token holders to move their assets more swiftly.

  3. Incentives for Early Adopters: We may offer additional rewards to the first 100M CQT staked on Ethereum. These incentives may include external token airdrops from our ecosystem partners, subject to external factors.

Section 3: Security Budget Overview

For the purpose of network bootstrapping, 8% of the CQT supply, equating to 80M CQT is allocated over a four-year period to support reward emissions. Despite the incremental activation of network roles, spending has remained conservative, staying well within the budget limits of 20M CQT per year. We've established a baseline Annual Percentage Yield (APY) of 10%-12%, translating to 10M-12M CQT in rewards for every 100M CQT staked. Over the past two years, approximately 20M CQT has been dispensed as rewards from an available 40M CQT budget, indicating substantial underutilized funds. This underutilization provides flexibility to potentially exceed the annual budget if needed to enhance network incentives.

Staking Rewards & Ratio Expansion Strategy

Currently, 11.71% of the CQT supply is actively staked to secure the Covalent Network. Our proposed strategy to increase the staking ratio and bolster network security includes three main approaches:

  1. Increasing the APY: Enhancing the Annual Percentage Yield (APY) to make staking more attractive to potential stakers.

  2. Adjusting the Maximum Multiplier: The current maximum multiplier is set at 27x, allowing operators with 100 CQT self-staked to accept up to 2700 CQT in delegations. Increasing this multiplier would enable each operator to support more delegations, effectively scaling their operations. Currently, 175K CQT is needed to stake and run one Block Specimen Producer Operator.

  3. Expanding the Number of Operators: With 15 Block Specimen Producer Operators currently active, increasing this count will aid in decentralizing the network further.

We aim to achieve a staking target of 20% of the CQT supply (200M CQT) with an APY of 12%, which would result in distributing 24M CQT in rewards annually. The APY for early stakers will be high, gradually coming down to around 12% APY till our target stake of 20% of the CQT supply is reached. This target will be pursued through a combination of increasing the number of operators and maintaining competitive APYs. Moving forward, we aspire to elevate the staking ratios further to 30%, 40%, and beyond, paralleling the staking benchmarks of other projects, which typically see around 50% of their supply staked at double-digit APYs.

Section 4: Onboard more operators

Currently, our network hosts 29 active operators across all operator roles with 117M CQT staked, which represents 11.71% of the total supply. These operators collectively have only about 2.9M CQT available for further delegations, meaning there is very limited staking delegation room available for supporters. We also have several highly capable operators waiting to join the network, many of whom not only meet the necessary staking requirements to operate a node but also offer additional value-added services. Their commitment exemplifies a strong dedication to enhancing the network's performance and addressing its deficiencies.

To accommodate the increasing interest and to expand our network's capacity, we propose to raise the limit on the number of operators from the current 29 to a maximum of 40 across all current operator roles—not including Olympic Clients. This adjustment will cater to the growing demand and allow us to raise the overall staking cap.

Furthermore, we recognize that several of the prospective operators possess exceptional qualifications, contributing more than just basic infrastructure management. We assert that integrating these groups will optimally leverage their expertise to broaden and strengthen the Covalent ecosystem.

Image shows staking operation only.

Section 5: Guide for Current Delegators to Unstake & Stake on Ethereum

Basic Steps for Current Delegators

To adapt to the new system, delegators will need to follow a straightforward process:

  1. Access the Staking Dashboard: Navigate to Covalent’s staking dashboard.

  2. Connect Your Moonbeam Wallet: Ensure your wallet is loaded with GLMR, connect your Moonbeam wallet to the dashboard and follow the onscreen instructions. Note, you may need to switch networks to Moonbeam.

  3. Unstake Your CQT: Note, the cooldown period will reduce to 0 on Moonbeam.

  4. Use Wormhole to Bridge CQT: Transfer your CQT back to your Ethereum wallet on Ethereum.

  5. Stake Your CQT Ethereum: Navigate back to the Covalent staking dashboard and connect your Ethereum wallet with ETH for Gas and your recently bridged CQT, switch networks to Ethereum if not already done so, you should see the new Ethereum staking dashboard. From here choose an operator on the Ethereum network to delegate your governance power to and earn yield. Note, long term we believe all CQT holders who stake should be able to participate in Governance, but this is just our opinion yet to be ratified or proposed.

About Covalent:

Covalent provides the industry-leading Unified API bringing visibility to billions of Web3 data points. Developers and analysts use Covalent to build exciting multi-chain applications like crypto wallets, NFT galleries, and investor dashboard tools utilizing data from 232+ blockchains. Covalent is trusted by a community of 40,000+ developers and powers data for 5,000+ applications, including 0x, Rainbow Wallet, NFTX, Guild.xyz, StakeKit many others.