1/ @hotdao_ proposed cutting @NEARProtocol 's annual token emissions by 50%, a proposal we support. How will this impact validator rewards + the economic security of NEAR? We conducted a stress test of NEAR's economic security ratio under various scenarios. Results 👇

2/ How do we quantify economic security? A blockchain can be considered economically secure if the cost of a successful attack significantly outweighs potential attacker rewards as measured by the economic security ratio (ESR). How do we determine ESR? Let's explore.

3/ What is ESR? ESR is the minimum cost required to attack a network, divided by the estimated sum(s) of gain from mounting an attack. A high ESR ratio means the attacker's potential gains are less than the cost of the attack, reflecting higher network economic security.

4/ Our objectives in conducting the stress test were three-fold. We wanted to assess: • Which input variables most impact NEAR's ESR? • How would decreasing validator payouts affect the ESR? • What combinations of factors could lead to at-risk ESR scenarios?

5/ Variables driving ESR, in order of impact NEAR token price: ESR remains most sensitive to NEAR’s price since price directly impacts attack costs. Staked supply: Declines in a network's staked supply pose risks to the ESR. Reducing validator rewards (as proposed by NEAR): Reducing validator payout by up to 40-50% won't immediately impose pressure on the ESR if other variables remain above certain thresholds. However, we caution against second-order effects of lowering validator income on the network’s staked supply. Funds at risk: Rising TVL or growing amounts of bridged funds increase the potential benefits of an attack.

6/ What's our take? Our analysis shows that the risk for a pressured ESR is not elevated, provided the staked supply of NEAR and the price stay above important levels, and annual validator rewards are not lowered by much more than 50%.

7/ Second-order effects of lowering validator rewards Whereas ESR is not highly sensitive to changes in validator income, considerably lowering validator payouts can introduce other risks: There is a second-order effect where validator economics pressure a subgroup of validators, which poses risks to the amount of staked supply, as validators may leave the network.

8/ Recommendations We suggest that NEAR implement incentive measures & programs that effectively incentivize staking and protect validator economics during this transitory period of optimizing NEAR token inflation. We support incentive proposals that strengthen network staking and validator participation on NEAR and will help vet and refine such programs.