Internet Computer Association

DFINITY Foundation

ICP Maximalist Network

cycledao.xyz

ICDevs.org

Present design proposal for SNS reward scheme



## What we vote on
This motion proposes that DFINITY includes an SNS reward scheme in the Carbon milestone.

## Summary and objective
* In order to unlock the full potential of a tokenized open governance system for a service nervous system (SNS) we require an SNS reward scheme.
* Following the SNS release strategy to deliver functionality in stages, we suggest introducing a first simple scheme for SNS rewards. The proposal covers voting rewards and usage rewards.
* To facilitate a timely delivery, we suggest leveraging the concepts and code base of the Network Nervous System (NNS) reward scheme. This has the advantage that the community is already familiar with key concepts and that we can leverage the existing code base.
* An SNS will have the flexibility to configure the reward scheme to a broad set of use cases.
* This proposal has been discussed in this [forum post](https://forum.dfinity.org/t/open-governance-canister-for-sns-design-proposal/10224/36) and a dedicated [community conversation](https://www.youtube.com/watch?v=6V8nQ053aB8&list=PLuhDt1vhGcrez-f3I0_hvbwGZHZzkZ7Ng). The forum post also contains further details and background information.

## Recap on NNS voting rewards
Within the NNS, voting rewards are paid out daily, based on an overall reward pool. The NNS reward function specifies how the reward pool evolves over time. Each neuron receives a pro-rata amount of that pool according to the voting power with which the neuron voted and in how many proposals the neuron participated.

## Proposed design for SNS rewards

**Voting rewards:**
We propose to leverage the NNS voting reward scheme and allow for flexibility to configure the scheme. In particular, we suggest that an SNS has the ability
* to influence the shape of the reward function. This includes the ability to choose between a limited/unlimited total supply and the ability to configure the development of supply over time.
* to configure the parameters determining the voting power of neurons, namely the dissolve delay bonus and the age bonus.

**Usage rewards:**
Given that the meaning of usage and the according usage rewards can vary greatly across individual SNSs we suggest a very simple set-up at start. In particular, we suggest that some tokens (reserved for usage rewards) can be held in an account owned by an SNS-controlled canister. This canister can then codify when the rewards are paid out and to whom.

## Security
If reward schemes are implemented incorrectly some participants might receive more maturity or token rewards than they deserve or other users might not get sufficient rewards. To mitigate this risk, we plan to carefully test the code and review both the design and implementation together with the security team of DFNITY.

## Alternatives considered
Alternative 1: Very simple set-up
* Voting power is allocated according to the quantity of SNS tokens. No staking and minimum looking period, no voting rewards.
* We did not pursue this alternative, as the proposed design can be configured to such a simple set-up but provides more flexibility to those who prefer other options.

Alternative 2: Even more flexible
* Allow for further flexibility in the determination of voting power and allocation.
* We chose to not add this additional implementation complexity for the first stage as the simpler feature can be delivered faster. More flexibility can be added in a next step, when it might also be clearer what additional features SNSs are looking for.



SNS reward scheme | Design proposal