ARC-0042: Enhancing value for tokenholders and ensuring sustainability

The Aleo community continues to grow and thrive, and with that growth comes the need for thoughtful adjustments to ensure long-term sustainability. As part of our recent mainnet release, the Aleo community is implementing a key change with ARC-0042 to the staking rewards emission rate, effective December 9th on mainnet from block 2,800,000. This adjustment will reduce the Annual Percentage Yield (APY) for staking while benefiting tokenholders and supporting the Aleo Network’s long-term goals.

In this blog, we’ll explain what this change means, why it’s happening, and how it contributes to the health and success of the Aleo ecosystem.

What are staking and proving rewards?

The Aleo Network issues Aleo Tokens as rewards to participants through two distinct mechanisms: staking and proving.

Staking Rewards: Validators earn Aleo Tokens for securing the network and participating in consensus. Community members can further contribute to the network’s security by staking their Aleo Tokens with a validator. In return, stakers receive rewards proportional to the percentage of their stake in the network.

Proving Rewards: Provers earn Aleo Tokens by solving complex cryptographic puzzles using dedicated hardware. This process incentivizes the growth of the network’s computational resources, and ensures the ecosystem maintains adequate resources to efficiently generate zero-knowledge proofs. These two reward systems work in tandem to incentivize participation and maintain the security and efficiency of the Aleo Network.

What is the emission rate?

The emission rate refers to the speed at which new Aleo Tokens are introduced into circulation through these staking rewards. This emission rate directly impacts:

• Token Supply: The total number of Aleo Tokens available over time.

• Inflation: The rate at which new tokens dilute the value of existing ones.

• Staking Rewards: The value and quantity of tokens distributed to stakers.

It determines the rate of inflation within the network, impacting both the total supply of tokens and the rewards received by stakers over time.

Why is the emission rate changing? 

The new emission rate lowers the staking rewards component to align with a targeted 5% annual reward rate. In addition, proving rewards are being updated to align with actual block times. In conjunction, the new emission rate reduces inflation and helps secure the long-term value of Aleo Tokens. Over time, the emission rate will continue to decrease, as outlined in Aleo’s sustainable tokenomics plan

What does this mean for tokenholders?

• Sustainable Growth: The adjustment reduces inflation, preserving the value of Aleo Tokens over time.

• Rewarding Long-Term Participation: The staking program continues to incentivize participants while balancing token supply.

• Community-Centric Economics: Over the next 10 years, more than 50% of Aleo Tokens is expected to be distributed to the public, ensuring equitable access.

An Aleo Community success story

Aleo Request for Comments (ARCs) are protocol-level, network-level, and application-level standards for the Aleo ecosystem. Discussions for an ideal emission rate were kickstarted by a long-time Aleo community member - and a specification to effect this change was proposed with ARC-0042.

Dozens of community members contributed to the discussion across various platforms, ultimately honing in on an elegant design which uses timestamp-based (instead of height-based) reward calculations for more accurate rewards emission. The change landed in the recent mainnet release, together with a host of other incredible improvements - most notably a significant reduction in finalize fees.

If you are excited about furthering innovation in the Aleo ecosystem, we welcome you to comment on existing ARCs or even champion your own in the Aleo ARCs repository.

Looking ahead

The adjustment from ARC-0042 marks an important step toward a more sustainable and value-driven Aleo Network. By aligning staking rewards with the network’s long-term goals, this change ensures the ecosystem remains robust, equitable, and rewarding for participants.

We’re excited to continue growing with our community and invite you to join us in building the future of decentralized privacy.