DFINITY Foundation

Synapse.vote (original)

ICDevs.org

CryptoIsGood

Anvil

ICPL.app

ysyms

The Accumulators’ Neuron

RawTech Venture

Paul Young

ICPMANUAL

8yeargangDAO

Isaac Valadez

Krzysztof Żelazko

Nicolas.ic

Smaug’s Neuron for Retail Investors

ICLight.io

Synapse.vote (NEW)

Taggr Network

CodeGov

Sonic AMM

Rakeoff.io

OpenChat

ELNA AI

GEEKFACTORY

ICP Hub México

ICP Hub Poland

Jerry Banfield

WaterNeuron

ICP Hub Bulgaria

Gold DAO

NeuronPool

LORIMER ♾️ 🐶

B3Pay

ZenithCode

Aviate Labs

D-QUORUM

Yuku AI

CO.DELTA △

DragginCorp

Cosmicrafts

Arthur’s Neuron (used to be cycle_dao)

Inactive (Request Removal) - The Fools' Court

$STACK

Always Rejects

John Wiegley

Flexible Neuron Dissolve Delay Reduction with a 10% Early Withdrawal Penalty

Proposal to the DFINITY Foundation: Flexible Neuron Dissolve Delay Reduction with a 10% Early Withdrawal Penalty

Proposal Title: Enhancing Liquidity and Accessibility: Introducing Flexible Neuron Dissolve Delay Reduction with a 10% Penalty for Early Withdrawal

✓ Executive Summary

The Internet Computer Protocol (ICP), developed by the DFINITY Foundation, is a groundbreaking blockchain platform designed to redefine decentralized computing. Its governance system, the Network Nervous System (NNS), relies on staking ICP tokens in neurons to ensure responsible governance and incentivize long-term commitment through voting rewards. However, the current neuron dissolve delay, ranging from 6 months to 8 years, can deter participation from users who value flexibility or require liquidity in dynamic market conditions. 

This proposal introduces a Flexible Dissolve Delay Reduction Option, allowing neuron holders to exit their stake and withdraw ICP within 24 hours of initiating dissolution, subject to a 10% penalty fee on the total staked ICP. This mechanism balances the need for network stability with increased accessibility, attracting a broader user base while maintaining the integrity of the NNS governance model. By drawing inspiration from similar mechanisms in other blockchain networks, this proposal aims to enhance ICP’s competitiveness and user-friendliness in the Web3 ecosystem.

✓ Background and Rationale

The NNS incentivizes governance participation by requiring ICP holders to lock tokens in neurons with dissolve delays of 6 months to 8 years. Longer lock-up periods yield higher voting power and rewards, aligning stakeholders with the network’s long-term vision. However, this structure can be a barrier for users who:

1\. Seek Liquidity: Market volatility or personal financial needs may require faster access to staked assets.

2\. Are New to ICP: Potential participants may hesitate to commit to long lock-up periods due to uncertainty or lack of familiarity with the ecosystem.

3\. Value Flexibility: Dynamic investment strategies in the crypto space often favor protocols with adaptable staking mechanisms.

The proposed Flexible Dissolve Delay Reduction Option addresses these concerns by allowing neuron holders to exit their stake quickly, with a trade-off of a 10% penalty fee. This approach preserves the NNS’s governance stability (as the penalty discourages frivolous withdrawals) while making ICP more attractive to a diverse range of participants, including retail investors, developers, and institutions.

Proposal Details

✓ Key Features of the Flexible Dissolve Delay Reduction Option

1\. 24-Hour Withdrawal Option:

   - Neuron holders can initiate an early dissolution process, reducing the dissolve delay to 24 hours.

   - Upon completion, staked ICP (minus the penalty) is transferred to the user’s NNS wallet.

2\. 10% Penalty Fee:

   - A 10% fee is deducted from the total staked ICP (excluding accumulated maturity) upon early withdrawal.

   - For example, a neuron with 100 ICP staked would receive 90 ICP after the penalty, with any earned maturity rewards processed separately per existing NNS rules.

3\. Preservation of Governance Integrity:

   - Neurons using the 24-hour withdrawal option forfeit voting rights immediately upon initiating dissolution, ensuring that only committed stakeholders influence governance.

   - The penalty fee is burned or redirected to a community fund (e.g., for node provider rewards or ecosystem development), reinforcing network stability.

4\. Implementation Simplicity:

   - The feature can be integrated into the existing NNS interface with minimal changes, allowing users to select “Standard Dissolution” or “Flexible Dissolution” when initiating the process.

   - The 24-hour window ensures operational feasibility for the network to process withdrawals securely.

✓ Benefits of the Proposal

\- Increased Participation: Lowering the barrier to entry by offering flexibility will attract new users, including those hesitant to lock funds for extended periods.

\- Enhanced Liquidity: Providing a quick exit option aligns ICP with the needs of users in fast-moving crypto markets, fostering trust and adoption.

\- Competitive Edge: By adopting a user-friendly staking model, ICP can differentiate itself from other blockchains with rigid staking requirements.

\- Revenue for the Ecosystem: The 10% penalty fee creates a deflationary mechanism or funds ecosystem initiatives, benefiting long-term stakeholders.

\- Maintained Governance Stability: The penalty and immediate loss of voting rights discourage speculative or short-term behavior, preserving the NNS’s integrity.

✓ Comparative Analysis: Similar Mechanisms in Other Blockchain Networks

Several leading blockchain networks have implemented flexible staking or withdrawal mechanisms with penalties, demonstrating the viability and appeal of such systems. Below are examples that informed this proposal:

1\. Cosmos (ATOM):

   - Mechanism: Cosmos allows staked ATOM tokens to be unstaked with a 21-day unbonding period. There is no penalty fee, but users forfeit staking rewards during this period.

   - Relevance to ICP: While Cosmos does not impose a penalty, its unbonding period is significantly shorter than ICP’s minimum 6-month dissolve delay. A 24-hour withdrawal with a penalty offers a more immediate solution, balancing speed with network stability.

   - Outcome: Cosmos’s flexible staking has driven high participation rates, with over 60% of ATOM tokens staked, contributing to network security and governance engagement.

2\. Tezos (XTZ):

   - Mechanism: Tezos employs a liquid staking model where users can delegate XTZ without locking funds, but undelegating or withdrawing requires a 14-day waiting period. No penalties are applied, but rewards are delayed during this period.

   - Relevance to ICP: Tezos’s model prioritizes flexibility, appealing to users who value liquidity. ICP’s proposed 24-hour withdrawal with a penalty is more aggressive, offering near-instant access while incentivizing longer-term commitment through the fee.

   - Outcome: Tezos’s liquid staking has fostered a diverse validator and delegator ecosystem, enhancing decentralization and user engagement.

3\. Polkadot (DOT):

   - Mechanism: Polkadot requires a 28-day unbonding period for staked DOT, with no penalty but a loss of staking rewards during unbonding. Users can participate in governance or staking with flexible delegation options.

   - Relevance to ICP: Polkadot’s model balances flexibility with commitment, similar to the proposed ICP mechanism. The 24-hour withdrawal option with a penalty provides a faster alternative, appealing to users needing quick liquidity.

   - Outcome: Polkadot’s staking system has achieved over 50% token participation, supporting network security and governance while accommodating diverse user needs.

4\. Ethereum 2.0 (ETH):

   - Mechanism: Ethereum’s Beacon Chain initially required long-term staking with no withdrawal option. Recent upgrades (e.g., EIP-4895) introduced withdrawals with a processing time of 4–5 days, depending on validator queues, and no penalty.

   - Relevance to ICP: Ethereum’s shift to enabling withdrawals reflects the growing demand for staking flexibility. ICP’s 24-hour withdrawal with a penalty is more user-friendly, catering to urgent liquidity needs while discouraging abuse through the fee.

   - Outcome: 

Ethereum’s withdrawal feature has increased validator participation, with over 30 million ETH staked as of 2025, demonstrating the appeal of accessible staking.

These examples highlight a trend in blockchain ecosystems toward balancing staking commitment with user flexibility. ICP’s proposed 24-hour withdrawal with a 10% penalty is competitive, offering faster access than Cosmos, Tezos, Polkadot, or Ethereum while maintaining network incentives through the penalty fee.

✓Implementation Considerations

1\. Technical Feasibility:

   - The NNS already supports dissolve delay adjustments and withdrawal processes. Adding a “Flexible Dissolution” option requires updating the governance canister to process 24-hour withdrawals and apply the 10% penalty.

   - The penalty fee can be burned (reducing ICP supply) or allocated to a community fund, with the allocation mechanism determined by a separate NNS proposal.

2\. Economic Impact:

   - The 10% penalty ensures that early withdrawals do not destabilize the network’s tokenomics. For example, if 10,000 ICP is withdrawn early, 1,000 ICP is burned or redirected, reducing inflationary pressure or funding ecosystem growth.

   - The proposal aligns with ICP’s deflationary mechanisms, as outlined in DFINITY’s tokenomics, where ICP is converted to cycles for computation (https://medium.com/dfinity/the-internet-computers-token-economics-an-overview-29e238bd1d83)

3\. Community Engagement:

   - To ensure transparency, the proposal will be discussed on the Internet Computer Developer Forum (forum.dfinity.org) and Reddit (r/dfinity) to gather community feedback.

   - A voting period of 7 days is recommended to allow sufficient time for neuron holders to evaluate the proposal.

4\. Risk Mitigation:

   - Speculative Abuse: The 10% penalty and loss of voting rights deter users from frequently entering and exiting neurons for short-term gains.

   - Network Stability: The 24-hour processing window allows the NNS to verify transactions securely, preventing network congestion.

   - Governance Integrity: Immediate forfeiture of voting rights upon initiating flexible dissolution ensures that only committed stakeholders influence NNS decisions.

✓ Expected Outcomes

1\. Increased User Adoption:

- By offering a flexible exit option, ICP will attract users who prioritize liquidity, such as retail investors, traders, and developers testing the ecosystem.

This aligns with ICP’s goal of expanding the decentralized web by making the platform more accessible (https://www.mariblock.com/icp-token-analysis-how-dfinity-icp-powering-future-decentralized-web-2/)

2\. Enhanced Market Competitiveness:

The proposal positions ICP as a leader in user-centric blockchain governance, rivaling networks like Cosmos, Tezos, and Polkadot, which have seen success with flexible staking models.

3\. Ecosystem Growth:

Penalty fees can fund node provider rewards, developer grants, or other community initiatives, fostering innovation and network resilience (https://countdefi.com/blog/unraveling-the-potential-of-icp-blockchain-a-paradigm-shift-in-decentralization/)

4\. Balanced Tokenomics:

The penalty fee introduces a deflationary mechanism, complementing ICP’s existing cycle-burning model, which ensures long-term economic stability.(https://medium.com/dfinity/the-internet-computers-token-economics-an-overview-29e238bd1d83)

✓ Call to Action

The DFINITY Foundation and the ICP community are invited to review and support this proposal to enhance the Network Nervous System’s flexibility and accessibility. By adopting the Flexible Dissolve Delay Reduction Option, ICP can attract a broader user base, strengthen its position in the Web3 ecosystem, and maintain its commitment to decentralized governance.

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This proposal was crafted and submitted with [proposals.network](https://proposals.network) – where ideas meet the ICP governance.