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Introduction
One of the most significant innovations by the ICON Project thus far has been the inception of Contribution Proposals. While on the surface level these appear to be ways to simply fund projects, the underlying decentralized, autonomous governance mechanism described in this paper allows for a level of human organization, funding and decision making that is only enabled by blockchain technology.
The importance of the Contribution Proposal System is two fold. For one, it allows for expedited growth of the ICON Network by giving entities the opportunity to receive funding from the network itself. Developers of decentralized applications and contributors to the growth of the ecosystem can submit their work or plan to the Contribution Proposal System, Validators will vote on whether or not this is a legitimate project, and if approved, this project will be eligible to receive funding from the ICON Network. This system will turn the ICON Network itself into one of the first fully operational Decentralized Autonomous Organizations (DAO).
Secondly, and perhaps less obvious, the Contribution Proposal System plays a significant role in the distribution of wealth and power in the ICON Ecosystem. Many blockchain networks give rewards solely to those that produce & verify blocks, thus centralizing wealth & governance power and giving sole discretion of funding ecosystem growth initiatives to such entities. With the introduction of the Contribution Proposal System, anybody interested in contributing to the ecosystem will have the opportunity to accrue governance power and wealth within the network.
A Contribution Proposal is a request for funding submitted by an ICONist to fund a specific initiative in an effort to grow the value of the ICON Network. A Contribution Proposal has a broad range, including but not limited to: Community building initiatives, non-profit infrastructure projects (analytics platforms, developer tools, ecosystem tools, loopchain core code enhancements, BTP bridges, etc.), educational projects, developer community initiatives, and bootstrapping for-profit businesses built on ICON.
Funding for contribution proposals comes from ICX held in the Contribution Proposal Fund (CPF), which is a smart contract on the ICON Network funded by block rewards. The amount of ICX is dependent upon governance decisions by ICON Validators. Currently, 10% of annual ICX inflation is sent to the CPF (around 300,000 ICX/month).
Payments to approved Contribution Proposals will come from the CPF and will be made in monthly installments. Payments are made in bnUSD, the native stablecoin of the ICON ecosystem. The amount of bnUSD per installment and the number of installments is based on the length and budget of the approved Contribution Proposal. The CPF will set aside the entire budget upon approval of a Contribution Proposal, as the amount of bnUSD funding for the CPF from month to month is unknown.
Proposals receive funding based on their priority ranking given by Validators during the Voting Period. For more details on how the priority ranking system works, please see this explanation.
The CPS will be managed by Validators that voluntarily register to do so. Any Validator in the top 100 may register to manage the CPF, giving them a voice in how network resources are allocated. Additionally, registered Validators will have the opportunity to be a Sponsor, which is explained in detail in the next section. Validators may unregister if they so choose.
Registered Validators that fail to submit a vote during a Voting Period will be unregistered from the CPS and must pay a fine by burning ICX in order to register again. The penalty issued is dynamic, based on the size of delegation the Validator holds. The maximum penalty a Validator can receive is 500 bnUSD for the first penalty, 1000 bnUSD for the second, etc.
The formula used for the dynamic penalty fee is:
(delegation_amount * amount) // self.max_delegation.get()
As part of the application process, applicants must find a Validator in the top 100 interested in “sponsoring” their Contribution Proposal. The primary responsibility of the Sponsor Validator is to stake 10% of the approved budget (“Sponsor Bond”) into a smart contract to be held for the duration of the Contribution Proposal and returned at the end of the project.
If the Contribution Proposal is approved and the Sponsor Bond is deposited, the Sponsor Validator receives 2% of the approved budget (“Sponsor Reward”) in exchange for the risk taken by providing the Sponsor Bond and the work done to research the Contribution Proposal. The Sponsor Reward will be paid in the form of installments. However, if the Contribution Proposal is disqualified prior to completion, the Sponsor Bond will be kept by the CPF and the rest of the Sponsor Reward will not be paid.
With a 10% Sponsor Bond and a 2% Sponsor Reward, this implies a 20% return on investment for the period of the Contribution Proposal. Since sponsorship can provide a meaningful return on investment, we hope to see Validators competing to sponsor good projects by offering additional services on top of the Sponsor Bond (i.e. strategic consulting, introductions to partners, marketing support, operational support, etc.).
The sponsorship process provides four key benefits:
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It provides a level of trust associated with each Contribution Proposal because it implies a certain level of due diligence done by the Sponsor Validator
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It gives Validators a direct economic incentive to research and support good proposals
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It filters out lower quality applications because they must first find a Sponsor Validator
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It allows ICONists to submit a Contribution Proposal without meaningful ICX holdings