The New Dawn: Proposal to Increase The Max Multiplier

The Covalent Foundation proposes to increase the max delegation room for CQT Holders to 34X targeting roughly 20% supply staked.

Covalent is taking the next big steps in the progress towards the completion of the New Dawn now sitting at 85% progress for the series of network upgrades and governance proposals. Learn more about the recent progress on migrating staking back to Ethereum in initial preparation towards shipping Long-Term Data Availability via the modularized Ethereum Wayback Machine. Link to the previous blog.

Current Challenges

As the Covalent Network expands, it is quickly running out of delegation room for CQT token holders relative to the time horizon needed to onboard more operators—meaning the community could quickly become blocked from delegating their CQT to earn emissions yield if not addressed now. 

CQT holders who wish to earn a targeted ~12% yield on emissions and likely do not run any of the data infrastructure operator types, fall into the category of delegates who stake to earn this yield. Staked delegates, staked operators and CQT holders alike can all participate in governance. However, the delegation room and network security come from the Block Specimen Producer Operators, not any other operator types currently. Much of the security budget—8% of the total supply—is reserved for this operation specifically, the rest is for other operator types.

Proposed Improvements

The Covalent Foundation proposes to increase the max delegation room for CQT Holders, increasing the Block Specimen Producer Operator Staking Max Multiplier to 34X targeting roughly ~20% supply staked—this target could increase to ~40% in the future. More details below.

The Proposal to Increase the Max Multiplier

Roughly a month since migrating to Ethereum, the Covalent Network surpassed its previous total staked and now sits at 13.79% (~137M CQT) with the Covalent Network’s current target being ~20% (~200M CQT) of the total supply staked for this phase of network development. However, the Covalent Network is already coming close to the maximum delegation room with only 2.12% of room left with the current operator count—which has already increased. That means that the scale of CQT holders wishing to delegate their stake to earn additional emissions yield outstrips that of the anticipated time required to onboard new operator companies to run data infrastructure. 

Currently, The Covalent Network has three levers to adjust token economic emissions through the staking contract and thus network economic policy during this initial 4-year bootstrapping period by changing the following.

  1. Operator count: currently there are 17 Block Specimen Producers with more expected to join, which eventually needs to reach market equilibrium and trend towards a less permissioned process to join.

  2. Staking requirements: BSP Operators require a minimum of 175K CQT up to a maximum of 350K CQT to participate in network security via staking with special software that submits onchain data with the production of Block Specimens. 

  3. Max Multiplier: for every 1 CQT an operator company stakes, 27 CQT of delegation room is available to CQT holders who wish to delegate their CQT via staking to earn emissions yield—currently targeting ~12% the closer the network CQT supply gets to ~20% total staked in this current phase.

Economic Changes Overview

To increase the delegation room to align with the increased CQT delegate demand, relative to the pace of operators onboarding, the proposal is to increase the Max Multiplier of each Block Specimen Producer Operator increasing the total delegation room. 

The current targeted ~20% total supply staked (200M CQT)—as ratified in the last Governance Proposal—is not proposed to be changed.

The Covalent Network expects to onboard more Block Specimen Producer Operators to a possible total of 19. Given the range Operators can choose to stake—of between 175K and 350K CQT—the proposal makes the assumption of 250K CQT average staked after factoring in that the existing Operators have largely staked at the cap of 350K CQT and proposes to raise the Max Multiplier from 27X to 34X. This slightly undershoots the goal of 200M CQT allowing room for other Operator types to stake and assumes all delegation room is absorbed by the market of delegates staking their CQT.

These assumptions, combined with this calculation, set the upper bound and lower bound of the total possible CQT staked within a comfortable but narrow area, allowing the market to reach an equilibrium at roughly 200M CQT staked.

As always, the ~12% targeted emissions yield for delegators is a target and will free-float a little.

How to Vote

All CQT token holders, except those still staking/delegating on Moonbeam can participate in governance and are encouraged to vote “Yes” or “No” for this proposal to be ratified or not. 

Both CQT stakers and holders are encouraged to vote.

Please navigate to the Snapshot here to vote.

  • Connect your Ethereum wallet on Ethereum mainnet to Snapshot.

  • Follow any instructions and vote by signing a meta-transaction.

  • The amount of tokens a user holds is relative to the voting weight they possess.

  • The proposal must reach a Quorum of 10M CQT of voting weight to pass or be denied.

  • This vote will be up for 5 days.

These changes ensure the security and stability of the Ethereum Wayback Machine that solves the Long-Term Data Availability problem with modular data infrastructure. For details on the design of the EWM please refer to this video.

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