Governance overview
At the moment, the security of the Lisk Mainnet is dependent on a multisig wallet managed by several key members involved in the Lisk project. This multisig wallet can be used to upgrade core Lisk Mainnet smart contracts without upgrade delays.
To decentralize the governance of the Lisk project further, Lisk introduces a decentralized autonomous organization, the Lisk DAO, which allows Lisk token holders to participate together in the governance of the Lisk project.
Every LSK token holder who participates in the DAO is rewarded with staking rewards, to incentivize participation in the Lisk governance.
Lisk DAO
The Lisk DAO provides the opportunity for LSK token holders to participate in the overall governance of the Lisk project, including allocation of funds, protocol updates, or strategic directions. Decisions are made via proposals.
Tools
The following are the main tools to participate in the Lisk DAO:
- Tally
- Forum
- Discord
Tally is the platform used to create and vote for proposals of the Lisk DAO.
The Lisk DAO Tally instance is the place where users can vote on proposals or delegate their voting power. It will be available once the Lisk DAO is launched.
The Lisk Governance Forum is the place for the community to discuss the Lisk governance and draft proposals, before they are submitted on Tally.
The #lisk-dao channel in the Lisk Chat Discord server is a community chat dedicated to discuss topics all around the Lisk DAO, share news and updates, or share ideas for new proposals.
Treasury
The Lisk DAO has an associated treasury, which resides in the Timelock contract. The current balance of the treasury can be checked on the Lisk BlockScout Explorer. The treasury is NOT managed by the Onchain Foundation. Instead, the funds from the treasury can only be transferred via successful funding proposals.
Tokens for the Lisk DAO fund are minted newly and added to the Lisk DAO according to the following vesting plan:
| Year | Amount (LSK) | Description |
|---|---|---|
| 2024 | 15,000,000 | 6,250,000 LSK liquid at migration, 8,750,000 LSK are linearly released in 2024, starting from the migration. |
| 2025 | 15,000,000 | LSK are linearly released over the year. |
| 2026 | 15,000,000 | LSK are linearly released over the year. |
The DAO fund may be increased further in the future by an additional 100,000,000 LSK over the following 7 years if the DAO members approve the corresponding proposals.
Voting power
Every account holding LSK is able to stake/lock a specific amount of LSK tokens to get some voting power and staking rewards.
This works as follows:
- Stake tokens for a specific locking duration (between 2 weeks and 2 years) on the Lisk Portal.
- Receive voting power and staking rewards proportional to the amount of locked tokens.
- Delegate the voting power on Tally to yourself or another delegate in order to use it.
- After the locking duration ends, the users can redeem their staked tokens.
Staking happens on the Lisk portal.
Initially, the voting power of a locked token will be constant during its locking duration. But it is possible to boost the voting power by up to 200% where the boost is proportional to the remaining locking duration.
Voting power calculation
Locked tokens provide a voting power proportional to the amount of locked tokens. Concretely, 1 locked LSK provides one unit of voting power (= 1 vpLSK).
Boosting the voting power
Users have the option to pause the countdown of the locking period.
This means that the counting towards the end of the locking period is paused until the user decides to resume it.
In the case of pausing, the user receives a boost of the voting power. It is set to lockedAmount * (1 + remainingLockingDurationInDays/365).
Hence, the voting power can be increased by up to 200%.
Delegation
The Governor framework requires delegating the voting power in order to use it. The voting power can be delegated to other users or to yourself. Self-delegation is a requirement if you want to vote on your own.
Delegation happens on Tally.
Please go to the Delegation page to find out more about the delegation process, including guides how to delegate and how to become a delegate.
Proposals
Proposals are created on Tally. For spam protection, the following requirement must be fulfilled in order to create a proposal:
- Proposal threshold: For creating a proposal, the voting power of the proposer must be at least 300,000 vpLSK, i.e., the value corresponding to 100,000 LSK locked for 2 years where the countdown is paused.
Proposal types
| Type | Description | Binding? |
|---|---|---|
| Funding | A proposal for receiving a certain amount of funds to an address. If approved, the recipient receives the amount given in the proposal. | Yes |
| General | General proposals about protocol parameters or the project direction in general that may be followed by the Onchain Foundation or not, depending also on feasibility and cost. | No |
Proposal evaluation
The following requirements must be fulfilled for a proposal to approve:
- Quorum: For a proposal to pass, the “yes” and “abstain” votes must sum up at least to 24,000,000 vpLSK, i.e., the value that corresponds to 8,000,000 LSK locked for 2 years where the countdown is paused.
- There must be strictly more “yes” than “no” votes.
Implementation of funding proposals
The transfer from the Lisk DAO treasury can be executed by anyone, once a funding proposal is approved. Funding proposals are binding, which means that no one, not even the Onchain Foundation, can prevent the transfer if the proposal passes.
Implementation of general proposals
For approved general proposals, the Onchain Foundation will determine whether the proposal is safe, secure, consistent with the scope of Lisk governance, and capable of being implemented in a legally compliant manner. If it is, the Foundation will act diligently and in a commercially reasonable manner to cause the proposal to be implemented.
Administrative role of the Onchain Foundation
The foundation will have an administrative role and will take care of the following:
- Removal of draft proposals that reasonably appear to be fraudulent, spam-oriented, defamatory, hateful, or otherwise inappropriate.
- Management of mutually contradictory proposals that are submitted simultaneously or in close proximity to one another.
- Administration of network maintenance, such as emergency bug fixes or release rollbacks (with or without a governance vote).
Staking rewards
Staking rewards incentivize users to participate in governance, making the decision making more decentralized and community-driven.
In short, users get voting power and rewards for staking tokens for a specific time period.
The Lisk DAO applies a time-weight boosting on rewards: The further the end of the locking duration is in the future, the more rewards you get. This also implies that the rewards decrease every day. This way, we reward token holders for committing long-term to the Lisk project so we attract them as long-term advocates for Lisk while reducing short-term speculation and volatility.
- Users can modify their locking positions (increase amount, extend/pause locking duration) at any time they want.
- Users can claim their rewards at any time.
- Users have the option to pause their locking period countdown. That means, the remaining locking duration remains fixed until the user decides to resume it. Note that this results in higher staking rewards, since the weight remains fixed, as opposed to a weight daily decreasing when the countdown is active.
Staking rewards distribution
Rewards are taken from the balance of the Rewards contract and calculated daily, based on the amount locked and the remaining locking duration.
Concretely, the weight for a locked amount is given by lockedAmount * (remainingLockingDurationInDays + 150).
The total daily amount of staking rewards, 8,000,000 / 365 LSK, is then shared by all users proportional to their weight.
A total of 24 million LSK tokens will be used over the course of 3 years for the LSK staking rewards program (8 million LSK per year). After the end of this 3-year span, we expect that developments in the Optimism Superchain Ecosystem (shared, decentralized sequencers) will lead us to a new staking mechanism.
However, even in case the current staking mechanism has to be continued, extra funding could be provided; potential sources are:
- Unclaimed LSK tokens
- The staking rewards of the Onchain Foundation, which would be provided to the ecosystem and
- The profit of the Onchain Foundation from sequencing rewards.