The main participants in Celo’s network economy are validators, validator groups, CELO holders, and full node operators.

• Validator: has a minimum of 10,000 locked CELO, is at risk for slashing, and is registered on the network as a “validator.” This account must spin up a Validator node in order to perform work on the blockchain. All validators must be associated with a validator group to be elected to the active set and be eligible for the reward.
• Validator Group: has between 1-5 associated validators. A minimum of 10,000 CELO per member validator must be locked to the group. Validator Groups mediate the election of validators to the active set by campaigning for votes from any account with Locked CELO.

The election process for the active uses the D'hondt method to choose representatives, iteratively selecting a validator from the group with the most votes as a proportion of total votes until all slots are filled. In practice, this process results in a “price per seat” for the active set dependent upon the amount of Locked CELO that is voting and what proportion of that amount is controlled by the top validator groups. Groups must satisfy this price per seat to guarantee election into the active set. The system tends to over-represent top groups compared to the ones with a smaller percentage of the vote.

Validator elections are held once every election epoch. Votes persist between epochs, and the same vote is applied to each election until revoked, in which case it has no effect on the validator set until the following election. A user can divide its vote between a maximum of three groups.

Groups can receive votes up to the equivalent of the number needed to elect all of its validators, plus one more. Enforcement of this cap is done when a user is voting; they can only cast a vote for a group if it is currently under the cap. The cap for a group fluctuates depending on the number of validators in the group and the total amount of voting Locked Gold in the system.

Epoch rewards to validators do not depend on the number of votes the validator’s group has received as long as the validator remains in the active set. Validators can earn up to 75,000 cUSD (Celo Dollars) every 12 months.

Validator groups are compensated by taking a share of the rewards allocated to validators. Validator groups set a group share rate when they register and can change that at any time. The protocol automatically deducts this share, sending that portion of the epoch rewards to the validator group of which they were a member at the time of the last election.

Locked CELO holders can earn rewards by voting for a group with at least one (1) active validator. These funds are not at risk of slashing. However, if there’s a slashing event, the group, validators, and cGLD token holders will all receive reduced rewards for the next month. Rewards are targeted at 6% annually (although the percentage can be adjusted by the protocol) and are denominated in CELO and reapplied as votes. These rewards are not subject to the group share.

→ Read more about Celo’s token economics.

Celo validators and validator groups are both at risk of slashing; they get slashed by the same amount. Locked CELO holders, who are voting for a group that gets slashed, do not suffer this penalty. However, all three parties have their rewards reduced by half for the next month after suffering a penalty.

Severity of slashing:

• Persistent downtime: A validator that can be shown to be down for 12 hours will be slashed 100 CELO, have future rewards suppressed, and will be ejected from its current group. 10 CELO will be rewarded to the accuser and 90 will go to the Community Fund.
• Double Signing: A validator that can be shown to have produced BLS signatures for 2 distinct blocks at the same height but with different hashes will be slashed 9000 Celo Gold, have future rewards suppressed, and will be ejected from its current group. 1000 cGLD will be rewarded to the accuser and 8000 will go to the Community Fund.

→ Read more about slashing on Celo.

Governance is managed on-chain on Celo. Stakeholders can submit proposals to improve the network; CELO holders then vote whether or not to implement the proposals. These proposals center around (1) the introduction of new stable currencies and (2) the expansion of the Celo reserve with additional crypto-assets in order to reduce volatility.

The goal is to align incentives for the protocol and CELO holders to ensure stability and consistency. It is important that only stable currencies for which there is demand are added to the reserve, otherwise the reserve will have to contract its supply by selling assets. Expanding the reserve is a way to fend off the volatility introduced when the reserve ratio dips.

The Celo Alliance for Prosperity is a group of fifty founding members who are committed to “helping ensure that Celo delivers on its mission to enable prosperity for everyone.”

Bison Trails joined the Celo Alliance for Prosperity as a founding member because we believe there’s a need for groups of incentive-aligned participants to help govern, secure, support, and generally further protocols through collaboration. We share a vision with the Alliance’s members of blockchain technology unlocking access to greater participation in global financial systems. As one of the few infrastructure providers in the Celo Alliance for Prosperity, and a founding member, we are responsible for keeping identity, assets, and the network secure.