Understanding ICON Global Commission Rate
ICON token economics is not the most straightforward concept to understand. In this article, we’d like to take you through the ICON’s Global Commission rate. Most of this article is based on the Yellow IISS Paper 2.0 and the latest community updates.
🌏 The Global Commission Rate
The Global Commission Rate (formerly network i_rep) is the decisive figure from which incentives are derived. P-Reps receive these incentives as rewards for contribution in numerous ways to the ICON ecosystem. To be eligible for P-Rep rewards, a couple of conditions need to be fulfilled. The most essential one is that the P-Rep should rank in the top 100, as stated by the ICON Foundation (and it’s governance, see the paper here).
Now, what does this mean? If you’re familiar with the ICON Network, then you know that there are 22 Main P-Reps that are elected and rank higher than Sub P-Reps. If P-Rep A is number 7 on the list, and P-Rep B is number 40, they are both eligible for commission rewards (which come in the form of $ICX). The rate to which they are rewarded, however, is different.
The Main P-Rep (P-Rep A) has more vote, and decision-making abilities, plus, Main P-Reps are responsible for producing blocks, verifying blocks, and participating in governance. The other Sub P-Reps, such as P-Rep B, add further security to the network by storing a copy of the ledger and making themselves available to replace Main P-Reps if necessary. P-Rep A can also determine the percentage of rewards that the 100 P-Reps should receive. This decision is made with the other top 21 P-Reps and is the average of each Commission Rate values submitted by all 22 Main P-Reps. P-Rep B can provide his opinion but isn’t able to influence the decision directly.
The ICON Foundations states that representatives should consider their operational costs, profits from running a node, and the number of transaction fees on the network when submitting their suggested Commission Rate. The Global Commission Rate will update every 43,120 blocks and can be adjusted by each Main P-Rep with a range of 20% from the value of the previous term. The Commission Rate variable has a minimum amount of 10,000 $ICX to prevent monetary policy attacks. It is important to note that if the Commission Rate value is set to high, it influences the $ICX inflation.
Side note: i_rep is now called Suggested Commission Rate when mentioning the i_rep suggested by 1 P-Rep. The result of the stake-weighted calculation is the Global Commission Rate.
- 👉 For more information on the previous i_rep Economics, click here.
The current or old P-Rep commission rate was around 36%, leaving 64% of rewards for voters. As illustrated in the image below. However, in the ICON Newsletter number 22 of June 1st, 2020, the following news related to the global commission rate for Main P-Reps was shared:
“Main P-Reps lowered the global commission rate to 29.2% down from roughly 36% to start the week. We continue to suggest lowering i_rep to 14,000, which will result in a P-Rep Commission Rate of approximately 17.5%.”
- 👉 You can track the current average network i_rep or Global Commission Rate here.
The reason for this shift is the goal of the ICON Foundation to create a clear path towards a sustainable economy within the ecosystem. A significant difference between ICON and other networks such as Tezos or Cosmos is that commission is paid through dilution. Meaning, when P-Reps raise the Global Commission Rate, they raise rewards only for themselves and not for voters, leading to dilution of ICX holders. The number of ICX going to stakeholders remains the same regardless of the P-Rep Commission Rate. This concept is beneficial as you do not need to trust a P-Rep to pay your rewards. But, as mentioned earlier, the idea is hard to understand, and “i_rep governance variables” have confused many in the ICON Community. That’s why the decision to make a change has been made.
Additionally, the ICON Foundation has announced that by July 2020, they will come up with a new proposal for changing the adjustment process of the P-Rep Commission Rate into a Network Proposal rather than a constantly fluctuating governance variable. In the IISS 2.0, a B1 Block Production Reward (Main P-Rep Reward) is mentioned. However, this concept will be removed in IISS 3.0. According to the newly made changes, the new formulas for calculating rewards are:
- P-Rep Commission Rate = P-rep Reward Rate / (Voter Reward Rate + P-rep Reward Rate).
- P-Rep Reward Rate (for 1 ICX Vote) = 1 / Total Network Votes x 100 x 12 x i_rep / 2.
As a key participant in the ICON ecosystem, ICX holder, and Main P-Rep, Stakin is supportive of making the system economics clearer to all the participants. From our end, we had seen some confusion around the terms i_rep and network i_rep. We support the initiative of the Foundation in renaming these terms to Suggested Commission Rate and Global Commission Rate. Additionally, having the Global Commission Rate voted in a network proposal and less fluctuating will contribute to its stability, and avoid a potential race to the bottom. As it stands, the Suggested Commission Rate appears on explorers as “Commission Rate”, which can bring a bit of confusion in voters’ minds as well. Indeed, it may appear as if the rate shown is the one charged by the P-Rep directly. We hope that fellow P-Reps will not try to lure voters into explaining that there are cheaper than others.
Overall, we find that the economics of ICON is now clearer, the inflation lower, and we cannot wait to keep building for the ecosystem and our voters. If you have any questions or suggestions around ICON economics and Commission Rates, please reach out to us. We would be very happy to hear your thoughts and help carry your voice among the other P-Reps and the Foundation.
DISCLAIMER: This is not financial advice. Staking, delegation, and cryptocurrencies involve a high degree of risk, and there is always the possibility of loss, including the loss of all staked digital assets. Additionally, delegators are at risk of slashing in case of security or liveness faults on some protocols. We advise you to do your due diligence before choosing a validator.