ICON moved to a decentralized governance structure in late 2019. The network’s community of main node validators, or P-Reps, vote to determine network policy. Main P-Reps are selected by ICX holders through staking.
Network participants are rewarded based on the ICON Incentives Scoring System (IISS). This includes rules regarding compensation for P-Reps for participation in governance decisions. A more in-depth description of the IISS rules can be found at ICON’s developer portal.
ICON: a DPoS Network
ICON is a delegated proof-of-stake (DPoS) network, an evolution of the simple proof-of-stake used in networks such Cardano, Algorand and Polkadot (and soon Ethereum).
In ICON’s DPoS network, stakeholders “delegate” their share of the network – i.e., the native cryptocurrency ICX – to registered node validators, who produce blocks and participate in network governance. This allows stakeholders with the technical expertise to set up their own nodes to receive rewards from staking.
In ICON, validators are called Public Representatives, or P-Reps. P-Reps are “elected” by the community — i.e., ICX holders — through delegations of said ICX. As in a representative system, community members delegate their ICX to P-Reps who espouse policies and projects they support.
There are two categories of P-Reps:
- Main P-Reps (the top 25 P-Reps in terms of delegated ICX)
- Sub P-Reps (the other 75)
Both Main P-Reps and Sub P-Reps can earn rewards. The main P-Reps earn block validation awards, while all 100 receive representative rewards according to their delegated ICX. However, only Main P-Reps can participate in network proposal votes, i.e., the decisions that impact the entire network. To pass, network proposals must be approved by 66% of the voting P-Reps, with a quorum of 66%.
To become a P-Rep, a team must undergo an on-chain registration process, which includes paying a 2,000 ICX registration fee.
P-Reps have a number of responsibilities, including:
- Producing blocks
- Keeping the node infrastructure working as it should with maximum uptime
- Keeping the node software updated
- Voting on network proposal votes
- Governing ICON’s Contribution Proposal System (CPS)
- Educating and informing the ICON community through social media, etc.
ICON’s governance rules encourage good P-Rep behavior through both positive and negative incentives. For example, P-Reps are rewarded for keeping their nodes in good working order and verifying blocks, their most important function. Likewise, the rules punish P-Reps for missing network proposal votes or failing to validate blocks.
ICON’s governance structure includes a community grant program, the Contribution Proposal System (CPS). This allows members of the wider ICON community and beyond — especially developers — to receive funding for projects that benefit the ICON ecosystem. This can include building DApps, engaging in NFT projects, building network infrastructure or even running a news site dedicated to ICON.
To receive funding, applicants must submit a proposal to the CPS website. Applicants should be sponsored by a P-Rep, who will post a bond of 10% of the requested grant. The P-Reps will then vote to either or accept or reject the proposal. Grants are paid in the stablecoin bnUSD.
Under the most recent IISS rules, CPS funding is currently capped at around 300,000 ICX per month, which means even accepted proposals may not receive funding. During the voting, P-Reps rank the proposals in terms of priority, which is used to determine which approved proposals get funding and which do not.
ICON Incentives Scoring System (IISS)
The ICON network rewards system participants based on the ICON Incentives Scoring System (IISS), an “evaluation system for accurately measuring and compensating the contributions of ICONists within the ICON Network.”
IISS rewards several forms of “contributions” to the ICON network, including validation of blocks, staking and building services on the ICON network.
One important feature of the IISS is its use of a “bonding” system to determine rewards. For P-Reps to receive the full amount of rewards they are eligible to receive, they must put up a bond equivalent of 5% of their vote share.
For example, if a P-Rep receives a vote share of 1 million ICX, they must post a deposit of 50,000 ICX to receive their full reward. Failure to do so will result in the P-Rep receiving smaller rewards.
The bonding system is crucial to ensuring “good” behavior by giving P-Reps proverbial “skin in the game.” According to IISS rules, failure to validate blocks or take part in network votes, or engaging in malicious behavior results in the bond being slashed — i.e., burning their ICX. As a result, the P-Reps receive fewer rewards, a powerful incentive for node validators to stay active and well-behaved.
Learn more about ICON governance: https://icon.community/learn/icon-governance/
Why Decentralized Governance is Good for ICON and its Participants
ICON’s decentralized governance structure brings very real benefits to the blockchain network and its broad community of participants.
- Philosophically, decentralization is the core value of blockchain. Blockchain was created in large part to overcome the limitations of Web 2.0’s highly centralized, highly siloed data systems. ICON demonstrates a commitment to decentralization not only at the top governance level, but also in its constituent parts — see the large number of DAOs that take part as P-reps and service providers.
- Like open source, decentralization encourages the “crowd sourcing” of solutions. It brings in players with a wide range of skills, interests and capabilities, which in turn enables the network to build out far more quickly than would be possible with an internal staff of developers. Indeed, many of ICON’s key services, including its critical DeFi infrastructure, were largely developed by its P-Reps.
- Likewise, decentralization broadens the network’s “vision” in a way that would simply be impossible with a small corporate board. At ICON, the community IS the board of directors.
- Decentralization not only encourages a participatory form of decision making, but also helps encourage the kind of “trustless” environment that makes hyperconnectivity — as demonstrated by BTP — possible.