NNS Tokenomics Changes for Decentralized Internet Computer Governance
A review of recent NNS proposals to incentivize participation in governance and maximize voting rewards for neuron holders.
The Network Nervous System (NNS) controls and upgrades the Internet Computer blockchain by adopting governance proposals. The NNS community can also adopt proposals to adjust the NNS itself, and changes that are intended to further incentivize participation in governance have occurred since Genesis. The purpose of this community-sourced blog post is to communicate and educate the community of neuron holders about these changes. It was previously posted on the Developer Forum, deliberated by the community, and presented as an NNS proposal.
To maximize the decentralization of the Internet Computer’s governance, it is essential that everyone who stakes neurons in the NNS know how they can actively participate and maximize their voting rewards. Staking the ICP governance token in an NNS neuron entitles you to vote to adopt or reject proposals that affect the blockchain, and voting entitles you to voting rewards. Because rewards are only earned through voting, participation in governance is incentivized.
Weighted Rewards for Governance
Status: Deployed to mainnet.
A primary goal of Internet Computer governance is decentralization. Significant progress has been made over the past year, and one change that has catalyzed this progress is proposal 34485, which was deliberated and adopted by the NNS community in late November 2021. This proposal had two objectives: 1) remove the Governance topic from the All Topics “catch all,” and 2) weight proposals so that Governance topics generate a higher proportion of voting rewards. The proposal was implemented in mid-February and voting participation for the Governance topic went up dramatically, from approximately 5% in December to approximately 45% by late March.
Since implementation, neurons that are voting on Governance proposals are earning significantly higher voting rewards, while neurons that do not vote on Governance are earning significantly lower voting rewards. This change was designed to incentivize people to select Followees for the Governance topic, including new choices to follow public known neurons such as the ICP Maximalist Network, Cycledao, and ICDevs.
Everyone who stakes in the NNS can start earning voting rewards for participation in Governance topics. It only takes a few minutes to select one or more Followee for your neuron in the NNS front-end dapp. A great source of information for how to configure your neuron is the Internet Computer wiki.
Periodic Followee Confirmation
Status: Not deployed yet.
A more recently approved change is proposal 55651. It specifically recommends confirmation of Followee selections every 6 months, and automatic reset of Followee selections for all proposal topics if they are not confirmed. Removal of Followees will cause the neuron to stop voting automatically, and therefore stop earning voting rewards. The goal of this proposal is to increase governance participation by incentivizing inactive neuron owners to actively select Followees for the Governance topic. Its purpose is to ensure that neuron owners are making active decisions on who they want for their Followees, while also ensuring that a Followee will not permanently retain a given follower’s voting power if the neuron owner is inactive.
Changes in Maturity
Status: Not deployed yet.
Finally, proposal 48623 is intended to change how maturity is handled by the NNS governance canister in order to minimize problems with incurring a tax burden while compounding maturity. This was the most controversial of the proposals that have changed tokenomics, and you are encouraged to read the proposal in detail for more information.
Conclusion
Everyone who is staking ICP tokens in the NNS should know that the Internet Computer’s governance system is mutable. It can and will change over time in order to incentivize participation and engagement. Even with these changes, active participation in the network’s governance system is quite simple. You just need to remain aware of updates and to spend time deciding what neuron to follow to help you maximize your voting rewards.
Currently, the easiest way to maximize voting rewards is to configure your neuron with a Followee for the Governance topic and for the All Topics Except Governance “catch-all” category. Soon you will also need to confirm your Followees periodically, but this should be a very simple task 2 times per year in the NNS dapp.
The above review is part of an effort to communicate these changes and their effects as widely as possible.
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