Date: 2025-07-21
Author: Kleros Cooperative
Context
As we have stated in KIP-66: Long-Term Juror Incentive Program “Maintaining the economic security of the court is vital for Kleros protocol. “Kleros economic security” refers to the system’s resistance against attacks and manipulations by malicious actors. A higher staking percentage enhances resistance against attacks and reinforces trust in the protocol.”
On Jan 4, 2024, the community voted KIP-66 in order to distribute rewards in PNK to all users that staked their tokens. This program was for the first time introducing a non-linear reward system based on the following formula R(i+1) = R(i) * (1 + t - s(i)), where:
s(i): Percentage of total PNK staked in month i.R(i): Reward in month i (amount of PNK distributed in month i).t: Target percentage of PNK.
One year and half later, as of July 25, 2025, data from Klerosboard shows that approximately 270 million PNK are staked in Kleros courts across both Ethereum and Gnosis Chain. This represents 32.2% of the total PNK supply.
For comparison, when KIP-66 was voted we were at 213 million PNK staked in Kleros courts across both Ethereum and Gnosis Chain representing 28% of the total PNK.
Cooperative Kleros is considering this increase +57M of PNK Staked as a partial success as we are now at an all time high PNK Staked. However, experience has taught us that once the staking rate exceeds 30%, user behavior tends to become inelastic. It is difficult to increase the staking rate further, even with strong incentives (currently, the APY for stakers is 22.64% on Ethereum Mainnet).
The formula chosen by the community for KIP-66 was exceedingly ambitious in terms of the target staking percentage (48% for September 2025) and the rate of increase (+1% per month).
As a result, this formula is pushing up the PNK supply and appears to be misaligned with the actual behavior of PNK holders and the overall security of the protocol that it is intended to serve.
Proposal
The goal of this proposal is to slow down the increase in rewards in order to make it more responsive to the observed behavior of the community.
The Kleros Cooperative proposes adjusting the following parameters of the original formula to reflect our learnings:
R(i+1) = R(i) * (1 + t - s(i)), where:
s(i): Percentage of total PNK staked in month i.R(i): Reward in month i (amount of PNK distributed in month i).t: Target percentage of PNK.
Current Parameters:
- Target of September 2025 = 49%
- Target ramp up by +1% each month up to 50%
Updated Parameters:
- Target of September 2025 = 33% - reinitiationalization at current level
- Target ramp up by +0.2% each month up to 50%
We believe these updated parameters are more realistic based on our experience during the first phase of KIP-66.
Resetting the target to the current level (33%) avoids a significant gap that would otherwise lead to exponential growth in supply, also preserving a gradual increase of the target (+0.2% per month) signals a long-term goal of reaching a 50% staking rate.
Allocation between Ethereum Mainnet and GnosisChain:
This is similar to KIP-66; the allocation of rewards stays 90% on Ethereum Mainnet and 10% on Gnosis Chain.
Specific Allocation for Kleros 2.0:
This is similar to KIP-66; the Cooperative is currently working on Kleros 2.0 (more details here). At some point in the future, during a testing phase, Kleros 2.0 will be live in parallel to Kleros 1.0. (as of now we are only in the Kleros 2 Beta version)
When Kleros 2.0 is deemed usable and secure enough, Kleros 1.0 will be deprecated and all the court activity will be moved to Kleros 2.0. This event will be called “The Kleros Merge” in analogy to the Ethereum Merge.
When Kleros 2.0 becomes live, before the Kleros Merge, 10% of the incentives distributed by this program will be directed to Kleros 2.0 jurors (leading to a 80% in Ethereum mainnet, 10% in Gnosis and 10% in Kleros 2.0). After the Kleros Merge, all the rewards will be distributed in Kleros 2.0.
Details
The tokens will be distributed using a Merkle Drop contract. The distribution will be done once a month and the computation of rewards may use snapshots.
Means
The reward distribution will still be handled by the Kleros Cooperative. After Kleros 2.0 is fully launched, a proposal could be made to implement the distribution at the protocol level (and potentially auto-compound them).
The process stay similar to KIP-66, at the beginning of each year, the Kleros DAO will mint for the Kleros Cooperative Safe (eth:0xE979438B331b28D3246f8444b74caB0f874b40e8) an amount of PNK corresponding to the current yearly distribution rate (rate of the last month of the year X12). At the end of each year:
- If there were more PNK distributed, the DAO will mint an amount corresponding to the difference between the initial minting and the amount distributed to reimburse the cooperative.
- If there were less PNK distributed, the Cooperative will reimburse the difference to the DAO
Everymonth a reporting will be done under this Forum post similarly to what was done for KIP-66.
Voting Options
- Yes, Update the program.
- No, rework proposal.