Leaders within the Celestia community are backing a radical change to the once buzzy modular blockchain.
On Sunday, John Alder, one of the network’s co-founders, proposed scrapping its Proof of Stake consensus mechanism and replacing it with a new, experimental system called Proof of Governance.
Doing so will reduce issuance of Celestia’s TIA token by a factor of 20, maintain the blockchain’s existing security, and do away with the need for complicated liquid staking tokens, he said in a post on the Celestia governance forum.
Dramatic move
It’s a dramatic move, but drastic times call for drastic measures.
Demand for Celestia’s data availability services hasn’t met expectations, and the price of its native TIA token has plummeted 93% from its all-time high as early investors cash out.
Proof of Governance involves token holders directly electing the operators who run the blockchain without locking up tokens and earning rewards through staking.
Proponents argue it cuts out unnecessary steps, is more cost-efficient, and maintains the same security assurances as Proof of Stake.
Implementing this change will place Celestia on the path to more directly prioritising the revenues it generates through its data availability services and accrue value to TIA token holders, Adler said.
Staking woes
Celestia has previously faced backlash over its Proof of Stake model.
Critics argue that the inflation of its TIA token, resulting from high staking rewards, is harming the network.
Celestia is programmed to give out TIA tokens equal to just under 8% of the total circulating supply each year to stakers. That’s about $127 million worth of rewards at current prices, or 13% of the token’s total market value.
Others have slammed the project for letting venture investors, such Polychain Capital, stake their vested tokens, allowing them to sell the rewards while their primary investments remain locked.
Alder points out that staking may just be an unnecessary step in choosing which operators run the network.
He argues that all staking achieves is punishing those who opt not to stake their tokens by reducing their share of the network over time.
Removing staking, he says, is economically equivalent to everyone staking, and creates a fairer system.
With staking — and staking rewards — gone, the only thing the network needs to do is reward the operators who run the network’s infrastructure.
Fining operators, a function called slashing, isn’t needed either because the threat of token holders voting to kick operators off the network — and thus making them miss out on rewards — is more than sufficient to ensure they process transactions properly.
In February, Ethereum Foundation researcher Justin Drake proposed putting a cap on the amount of staking rewards the Ethereum network gives out in a bid to fix its “broken” tokenomics.
Celestia has also greenlit a proposal to lower its staking rewards from around 8% to 5%, although this change hasn’t been implemented yet.
Under Adler’s proposed Proof of Governance model, the new tokens issued yearly on the network could drop to just 0.25%, or from $127 million to $4 million.
The new system will also involve some serious restructuring.
Unlike the Proof of Stake system, which is coded into the blockchain itself, Proof of Governance will operate offchain because the Celestia blockchain cannot support governance voting.
Some onchain purists may baulk at the notion of not having a key piece of blockchain infrastructure enshrined in code.
But Adler argues that such a system is just as secure as comparable onchain systems, and points out that Celestia is already backstopped by offchain governance.
So far, responses to the Proof of Governance proposal have been positive. Discussion of the idea is ongoing.
