EGL Economics

In case you missed it, we introduced EGL here.

The TL;DR:

• EGL: a coordination token that allows holders to vote on what their individual desired Ethereum block gas limit is, and rewards miners for listening to the community and user preferences.
• EGL creates an economic incentive for the community to research, vote and ultimately discover what the “economically efficient” gas limit is and rewards mining pools for listening and taking the economic risk of listening to them.
• EGL builds on Ethereum’s experiment of moving some parameters away from core devs to miners, by giving some of that power back to not only core devs, but also the entire community.

In this post we will outline in more detail EGL’s token economics.

Key Design Choices

Several key design choices are worth emphasizing:

• Genesis: EGL is designed to solve a coordination problem on Ethereum and thus it should be owned by the Ethereum community. Any ETH holder can participate in the Genesis.
• Core Devs’ Guidance. Core devs have the greatest insight to the nodes’ technical limitations, and their opinions should carry significant weight and act as a signal to others in the community. Thus, EGLs will be awarded to all interested core devs, both to directly affect the EGL vote, and to signal to other actors their respective opinions.
• Carrot-only Incentive. EGL rewards mining pools for adjusting the gas limit according to the ecosystem’s collaborative desired gas limit — that’s the “carrot”. But there is no “stick” forcing them to follow the EGL desired gas limit, an EGL cannot force pools to adjust their gas limit to levels they consider unsafe.
• Creating Value for EGLs. EGL is designed to quickly deploy an ETH-EGL pool (using Balancer). This is intended to provide the best setting to spin the flywheel:

• Incentivize Large Actors’ Participation. Optimizing the gas limit to its maximum safe limit creates value for the entire ecosystem, but also opens the door for the tragedy of the commons; every actor will ask herself why should it fall upon her to invest capital and effort to hold EGLs and vote. To incentivize the participation of tier-1 actors, who benefit the most from EGL, EGL leverages a two-step mechanism.

1. For a weekly tally to pass, a minimum threshold of EGLs must participate in the vote, and this threshold gradually increases over time.
2. If the threshold is not met, the desired gas limit does not remain unchanged. Instead, it is set to revert to 95% of the current gas limit. Thus, failure to participate in voting begins to revert the value EGL creates.

The rationale beyond this unconventional design choice is that large actors (be them centralized like Coinbase or decentralized like the Uniswap Treasury) benefit greatly from influencing the gas limit. Therefore they are significantly better off locking some capital in EGL and voting compared to losing the value they capture from EGL.

EGL Supply and Distribution:

Community — 2,000M EGLs

Genesis: 1,250M EGLs

Pools will not be incentivized by a worthless token, so EGLs must be bootstrapped with value. Any ETH holder can stake ETH to the EGL Genesis contract to participate in the launch. The contract will collect staked ETH and reward stakers with EGLs. At the conclusion of the Genesis lockup, participants can claim their staked ETH and EGLs.

Matching EGLs

The contract will match all the staked ETH during Genesis with 750,000,000 EGLs — regardless of total ETH collected — and deploy both the ETH and EGL to a 50–50 Balancer pool. Thus, the more ETH that is collected, the higher the EGL-ETH ratio is at deployment.

Participants will receive locked Balancer Pool Tokens (BPT), which represent their staked ETH plus the equivalent value in EGLs, in return for staking their ETH. The BPT will unlock on a FIFO basis, thus those that participated in the Genesis earlier will have their BPTs unlocked first (see the release schedule below for more details).

Bonus Voting EGLs

Additionally, all EGL Genesis participants will receive Bonus Voting EGLs totaling 500,000,000 EGLs to be used for voting. Since those who participated last will be locked into EGL for the longest term, those that participate later will receive exponentially more than those that participated first.

Thus,

• Early participation -> released sooner
• Later participation -> more voting EGLs

For ease, you will be able to check EGL.vote to see how many Bonus Voting EGLs you were rewarded and we’ve created a spreadsheet for those that would like to calculate themselves.

Voting Rewards — 500M EGLs

To bootstrap early participation and build a long-term user base, EGL voters — i.e. EGL holders who lock their EGLs and vote on their desired gas limit — are awarded with EGLs. For one year (52 weeks), a predetermined amount of EGLs is distributed weekly among EGL voters. EGL voters who lock up their EGLs for longer periods of time multiply their share of the reward and the weight of their vote, as outlined below.

Once the weekly EGL vote takes place, a predetermined amount of EGLs is distributed among all EGL voters. The amount gradually reduces each week and is based on the following formula:

Thus, the Voter Reward being distributed among all voters after the first vote equals to:

The weekly Voter Reward is distributed among the EGL voters; in order to vote, an EGL voter must specify:

• Amount of EGLs
• Desired lockup period (1–8 weeks)
• Desired gas limit (+/- 4M from current gas limit)

The share size for voterj is calculated as:

while voterj’s EGL reward is calculated:

Given the following voters in the 1st week:

• voter1 locks up 10 EGLs for 1 week (Share1 = 10 · 1 = 10)
• voter2 locks up 10 EGLs for 2 weeks (Share2 = 10 · 2 = 20)
• voter3 locks up 20 EGLs for 1 week (Share3 = 20 · 1 = 20)

voter2 will be rewarded 20/50 ·Reward1=20/50 · 18,867,925 = 7,547,169.811 EGLs.

Similarly, voter2’s vote will represent 20/50 of the total vote.

The EGL smart contract automatically awards the Voter Reward to each voter. The Voter Reward is added to the voter’s balance once the voter either withdraws her EGLs, or resubmits her EGLs with another vote.

During the lockup period, a voter can “revote” any awarded but not yet unlocked EGL to increase her vote size. However, if an epoch has passed, to keep the same multiplier the voter will need to extend the voting time. Thus, there is a tradeoff between revoting with more tokens and the length of the lockup. (This will be discussed in more detail in a voting post).

Voting on a public good like the Ethereum Gas Limit is tricky, as it inherently invites free-riders and lacks incentives to continue voting once the gas limit reaches a level which satisfies a voter. While the Voter Reward incentivizes initial participation, we’ve introduced two mechanisms to encourage long term voting: a voting threshold and a default behavior (both discussed in more details on the voting post).

For a weekly vote to pass, a minimum number of EGLs must be locked and participating in the vote. This threshold is set for 30% in the first year (10% in the first 8 weeks), and gradually increases to a maximum threshold of 50% by year 3. EGL’s default outcome when failing to reach the threshold is to reduce the gas limit, not keep it unchanged. This design choice means that lax actors would likely be dissatisfied with the outcome, and are better off participating, even in the case where the current gas limit is a satisfactory one.

DAO — 250M EGLs

EGLs are to be distributed in the future to support further development, security audits, etc. Allocation of these funds will be decided upon by the EGL voters as part of the voting process in future upgrades.

Core Devs

It is obvious that the core devs are among the most important stakeholders (regardless of their capital). Furthermore, the Ethereum ecosystem would greatly benefit from the guidance of the Core Devs, and from insight into their individual preferences for the gas limit.

Each and every Core Dev is entitled to receive EGLs, locked for a period of a year, to vote on the gas limit and guide the community.

Pools — 1,250M EGLs

To incentivize pools to follow the EGL Desired Gas Limit, pools can “sweep” free EGLs when they produce a block that follows the EGL desired gas limit. The initial reward can be as high as 500 EGLs, which may account for a significant portion of the pools’ block reward. The EGL reward begins at 1,250M EGLs and reduces gradually, every time an EGL reward is swept by a pool following the EGL vote. Specifically,

Miner_reward = 0.0000004 * remaining_rewards

The exact amount of EGLs pools are awarded depends on how closely the blocks they produce match the desired gas limit chosen by the EGL holders: blocks that match the desired limit perfectly collect the full award and blocks that deviate but are directionally correct collect partial rewards.

EGL Creators — 750M EGLs (subject to vesting)

EGL was born out of years of work on the networking layer and took over a year to develop and launch. We took Andre Cronje’s advice from “Building in DeFi Sucks (Part 2)“ to heart when he said “Don’t give away your tokens…Don’t do this, I was an idiot.” And we’re not alone, Comp, Uni, Maker, and many other tokens have taken a portion to cover the risk and time it took to build. Thus, we reserved less than the standard 20% for the EGL Creators.

This amount, and a gradual release schedule, also limits the influence of the creators. Specifically, the 750,000,000 EGLs are to be awarded gradually over the course of a year, using the same schedule as those who staked ETH to the EGL smart contract to support the initial Genesis.

These tokens will be split among the team and a small number of early backers. Thus, all 750,000,000 EGLs do not represent a large voting block as it is made up of many actors that may choose to use their EGLs differently.

Tokens Unlocking

The BPT, Bonus Tokens as well as the Creator’s Fund all unlock on a strong exponential curve, releasing very small quantities early to stabilize the system, and larger quantities towards the end of the lock-up period.

Specifically, for BPT and the Creator’s Fund, tokens unlock starting at 10 weeks using the following methodology:

1. Find the percentage of time that has passed from day 70 to the date in question
2. Take percentage of time passed, raise it to the forth and multiply by 750,000,000

For example, on day 301, it would be:

• 78.57% of time has passed = ((301–70) / (364–70))
• 78.57%⁴ x 750,000,000 = 285,837,932.11

Thus, on day 301, the BPT tokens associated with EGLs 1 up through 285.8M of the 750M will be released (~38% of locked BPTs) and Bonus Voting EGLs 1–285.8M of the Creator’s Fund will be released (i.e. a majority of the tokens are still locked after 301 days).

For the Bonus Voting EGLs awarded to Genesis participants, all the Bonus Voting EGLs will be released on the last day of a given wallet’s BPT release schedule. For example, if your BPT tokens release from Aug. 1 — Aug. 7, 2021, then on August 7, all your Bonus Voting EGLs will unlock.

Conclusion

EGL’s token economics is designed to encourage voter participation and incentivize miners to follow the vote. Given this, EGLs are given away to the community for their participation in the Genesis and kickstarting the flywheel and rewarded to miners for listening to the community. Concurrently, the DAO gives EGLs to core devs who can act as a signal to the community on what the “right” gas limit may be and provides a foundation to grow the EGL community and continue to develop the protocol.

Join the EGL community today and vote on your desired gas limit.