ZenIP 42407 Addendum: Horizen 2.0 Tokenomics Proposal

General
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Preamble

ZenIP: 42409
Title: ZenIP 42407 Addendum: Horizen 2.0 Tokenomics Proposal
Owner: Domenico Cusumano
Discussions-To: dcusumano@horizenlabs.io
Status: Draft
Type: Technical
Created: April 1st 2025

Introduction

This ZENIP outlines a proposed addendum to the previously approved Horizen 2.0 tokenomics framework. With the recent decision to migrate Horizen to operate as an L3 appchain on Base, the ecosystem no longer requires a dedicated allocation to blockforging security. This provides an opportunity to reallocate the remaining 5M unminted $ZEN in a way that strategically drives long-term growth, ecosystem adoption, and sustainability and makes sense with being the first privacy platform of the Base ecosystem.

Note that the total supply will still remain the same at 21 million tokens.

The proposed allocations and their rationale are detailed below.

Recommended Allocation Summary

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Vesting Schedule

At migration, 25% of the remaining token supply will be minted for the community, with the rest subject to a linear vesting period over 48 months. This structure is designed to promote prudent spending over time and to help stabilize ZEN’s value.

Category Explanations & Rationale

1. Incentives/Participation (750,000 ZEN | 15%)

Purpose: To establish a robust incentive pool that rewards participation, developer contributions, and strategic dApp deployments on Horizen.

Rationale: Incentives are crucial for onboarding high-impact projects and encouraging engagement within the Horizen ecosystem. Tying incentives to milestones such as project launches, TVL targets, or staking programs ensures that rewards flow to meaningful contributions rather than passive participation.

This allocation is also intended to revive successful elements of previous staking programs, ensuring ZEN holders have active opportunities to earn rewards through qualified staking opportunities.

2. Community Grants (250,000 ZEN | 5%)

Purpose: To provide direct funding for community-driven initiatives, development projects, and other grassroots activities that support Horizen’s growth.

Rationale: While grants are important for empowering developers and innovators, the reduced allocation reflects a shift toward aligning funding with more targeted investments through the ZEN Sustainability Initiative and milestone-based incentives. Prioritizing strategic funding ensures a higher return on investment and minimizes wasted resources.

3. Growth Marketing (250,000 ZEN | 5%)

Purpose: To increase awareness, promote Horizen adoption, and drive targeted marketing campaigns aligned with platform growth.

Rationale: By shifting emphasis away from traditional broad marketing, this allocation will focus on performance-driven campaigns that drive measurable outcomes such as TVL growth, developer recruitment, and dApp adoption. A more efficient marketing strategy will allow Horizen to capture attention while preserving capital.

4. ZEN Sustainability Initiative (2,000,000 ZEN | 40%)

Purpose: To establish a long-term sustainability reserve that ensures ongoing resources for Horizen’s ecosystem well into the future.

Rationale: The Sustainability Initiative is designed to support initiatives that generate long-term value for the ecosystem in a sustainable way. By strategically reserving resources and investing in ecosystem projects with revenue and equity share opportunities, Horizen can foster continued growth while building new revenue streams. This approach helps safeguard the ecosystem’s future, ensuring it remains dynamic and resilient as emission reserves diminish.

5. Ecosystem Development (750,000 ZEN | 6%)

Purpose: To fund technical infrastructure, tooling, and services that expand Horizen’s platform capabilities.

Rationale: With Horizen migrating to Base, much of the critical tooling and infrastructure needs will be provided by the Base ecosystem. This reduced allocation reflects a narrower focus on Horizen-specific tooling or enhancements that Base does not provide.

6. $ZEN Growth & Stability (500,000 ZEN | 10%)

Purpose: To maintain a strategic reserve that can be deployed to stabilize ZEN’s value, fund liquidity initiatives, and buffer market volatility.

Rationale: As Horizen evolves, maintaining stability in ZEN’s price will be crucial for maintaining investor confidence and user adoption. This fund ensures Horizen can mitigate extreme market shifts or support key initiatives during turbulent conditions.

7. Infrastructure (500,000 ZEN | 10%)

Purpose: Designated to support the security and maintenance of blockchain infrastructure, ensuring the long-term stability and functionality of the ecosystem. This may include, but is not limited to, funding for sequencers, RPC nodes, oracles, indexers, basic bridging support, possible DA layers, and other essential services. This provides flexibility to allocate resources towardw initiatives that contribute to the ecosystem’s sustainability and growth.

Conclusion

This proposal reflects a strategic recalibration of Horizen’s tokenomics designed to optimize long-term sustainability, growth, and community impact. By reallocating the security budget into high-impact categories such as the ZEN Sustainability Initiative and Incentives/Participation, Horizen is better positioned to attract developers, expand the ecosystem, and ensure token value stability. Furthermore, ZEN’s utility will be integral to Horizen’s capability to enable private and compliant use cases within the ecosystem.

5 Likes
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With all the security provided by Base and Ethereum, the tokens that have not yet been released can be provided to that Horizen DAO to spend in responsible ways to grow the protocal. I like this!

The sustainability initiative addresses the long term costs of paying for infrastructure. If this can be done properly, ZEN used in applications can get returned to the DAO and Horizen would be able to pay for operations for decades into the future

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The sustainability line is really important IMO. We’re fortunate being able to collapse our security costs leveraging Base, but how we spend the remaining $ZEN matters a lot. The more we can plough into initiatives that ultimately pay back the ecosystem, the better.

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Are there any further details on the plans for the infrastructure allocation?

I am also curious about the section under “Incentives” stating: “revive successful elements of previous staking programs”. What staking would be involved if security is inherited from Base? Would it be purely for governance purposes?

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Maybe @domenico can speak more to some plans, but the intent is to have incentives for qualified (e.g. high quality) dApps that offer $ZEN staking.

So while Horizen as an L3 on Base won’t have nodes that require staking, like the old Secure and Super node programs, we want to reserve tokens for projects that offer alternatives for the community.

re: the Infrastructure bucket:

“This may include, but is not limited to, funding for sequencers, RPC nodes, oracles, indexers, basic bridging support, possible DA layers, and other essential services.”

There are always key pieces of infra we need for the platform to operate successfully.

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Does this mean there will no longer be secure and super nodes, or even programs similar to EON node staking? Instead, are these incentives being allocated to those providing critical infrastructure services, such as sequencers, RPC nodes, oracles, indexers, basic bridging support, potential DA layers, and other essential services?

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1 Is there a staking option available? If so, in what way is it provided?

2 In the new tokenomics update, what percentage of the previously allocated supply for validators or miners is now assigned to stakers?

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Staking has been such a big part of Horizen culture from the early days of ZenCash, but the reality is that there’s no productive infrastructure-level staking requirement when operating an L3. Part of the value prop is to eliminate the cost of running that kind of infrastructure.

But because we know how important staking is for the community to be able to participate, we set up the Incentives category to provide resources for productive staking protocols for the platform.

The diff is that these aren’t based on running infrastructure, they’d be based on participating in the protocols, like private DeFi, for instance. We want the ecosystem to reserve resources for those kinds of staking incentives and I would also expect the specific protocols, themselves, to add their own resources to reward stakers and so this is an incentive bucket to spark others to allocate their own resources on top of it.

As just a small example, private DeFi protocols that deploy on Horizen and make use of zkVerify will qualify for both ZEN and VFY rewards, in addition to their own rewards. One example is Singularity, one of our flagship private DeFi partners, who will have their own Singularity token. The idea is that stakers into such a protocol would earn ZEN+VFY+SINGULARITY.

This is how we’re proposing creating and incentivizing productive staking opportunities on Horizen.

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One of the things that may be overlooked is that currently 60% of new ZEN goes to Proof of Work miners. 20% of ZEN goes to staking, and 20% of ZEN goes to the DAO.

The 60% of ZEN to PoW is the current security budget.
The 20% for staking is also part of the security budget.
A good portion of the 20% paid to the DAO goes to infrastructure for Horizen EON.

A major benefit of moving to Base is the amount of ZEN spent on security and infrastructure is significantly reduced. The cost will still be at least $250,000 per year, or 25,000 ZEN at the current price, just for security and infrastructure.

Yes it is important to provide reasons for people to buy and hold ZEN. It is even more important for ZEN to have a purpose, deliver applications based on the purpose, and to be able to pay for operations going forward

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Yeah, honestly I think this is the right direction. Staking at the dApp level actually creates utility and brings people into the ecosystem in a meaningful way. It gives users a reason to explore, support, and stick around for projects they believe in. Plus, it’s a solid way to attract builders who know there’s an engaged community ready to back what they’re building. Makes way more sense than just one time stake and passively get rewards without truly adding anything to the ecosystem.

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The main concern is that if this process isn’t controlled properly, it could lead to an increase in the supply of ZEN, causing inflation and negatively affecting its value.
Funding through unreleased tokens ultimately means they will be sold on the market, which increases supply and can reduce ZEN’s value. If the DAO doesn’t manage this properly and lacks control over how many tokens are sold, it could lead to unchecked inflation and put downward pressure on ZEN’s price.

Calling this a sustainability plan only makes sense if there’s a mechanism to prevent excessive token issuance. Otherwise, in the long run, it could harm holders instead of benefiting them.
This kind of funding plan doesn’t seem like a good idea. Selling unreleased tokens to finance operations could create unchecked inflation, which would devalue ZEN in the long run. Without strict control over how many tokens are released, this could lead to more harm than good for the project and its holders.
If a project uses unreleased tokens for funding and those tokens are controlled by a centralized organization or DAO, it could shift away from the principle of decentralization. Essentially, this would place more control in the hands of a specific group or organization, which could have the power to make financial decisions and control token distribution.

In decentralized systems, key principles include fair distribution, community control, and decision-making that isn’t concentrated in a single entity. However, when unreleased tokens are used for funding and allocated to a centralized group, it could contradict the core values of decentralization.

So, if POW projects use this approach to fundraise, it could undermine the decentralized nature of the project.

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These are all good points

The tokens would be controlled by the Horizen DAO, which is a decentralized organization

16 million ZEN have already been distributed over 8 years. Any ZEN that any organization owns currently was purchased, mined, or earned in a different way. There have been no ZEN token grants to any centralized organization ever.

Of course the ZEN minted and held by the Horizen DAO should have lockups so it is not dumped at once.

Any spending by the DAO is reviewed by the Horizen Special Council. These members are voted in by the community of ZEN holders. Next election is in August, for 4 of the 7 seats. If someone feels strongly about this, they should work to become elected as a member of the Special Council in August

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In the current tokenomics, 20% is allocated to staking. Staking prevents the user from doing anything else with their ZEN.

In the new tokenomics, the Horizen DAO will work to encourage applications on the Horizen blockchain that are enable with privacy. This could be private DeFi, gaming, voting, polling, payments.

What we have seen is that many EVM applications require liquidity pools, where people could earn by putting their ZEN in a liquidity pool.

What would be even better is to get tokens from other projects on Base, and in the Ethereum ecosystem, to transfer their tokens to the Horizen blockchain to use the application, so ZEN holders could earn from the other projects tokens also

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So true @blockops! Great breakdown of where we are now and where we can go with Horizen on Base. The opportunity is tremendous to align resources to onchain activity with a purpose.

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Beyond what @blockops already added, I just want to make clear that there’s no mechanism for increasing the supply of $ZEN. $ZEN will always be fixed at a hard cap of 21 million, like bitcoin.

@dr.sh.jafarpour if you meant more about increasing $ZEN hitting the market, that’s totally understandable and I agree that we need to be judicious with what gets funded and how any $ZEN incentives ultimately circulate through the system.

That said, ref @blockops’s prev post about the diffs between this tokenomics proposal vs what happens today with 80% of the block reward going to miners and node operators, which, frankly, mostly gets dumped on the market.

We’re proposing a huge restructuring of that into productive activities that decentralize the fund flows enormously across many different types of users and stakeholders, each with their own goals and incentives to either hodl or sell.

This macro tokenomics proposal is only part of the story. How we deploy into each of these categories will matter and for sure we’d prefer to allocate to projects that are aligned for the long run with Horizen and not just looking for short term build, earn, and dump mechanics.

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The emphasis on sustainability, incentivized participation, and value-driven growth shows strategic maturity, especially with a clear vesting schedule to avoid inflation shocks.

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Reallocating the unused blockforging supply into strategic areas like sustainability and ecosystem growth feels like a smart move, especially with the shift to Base.

The focus on long-term impact and real participation incentives shows they’re thinking beyond hype more about building something that lasts. I’m excited to see how this plays out. Definitely feels like a new chapter for Horizen.

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Nice go for it(y) just a side thing. I have 1 "stakedZEN ":joy: what happens when you migrate to base? You need to claim your zen onto base? So in reality our supply could be less then it is?

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One rule I see in crypto is that hodlers should have the right to entirely forget about a project, come back years later, and still be able to access all of their funds. Tools change, wallets change, even chains change (like in our case!), but there should always be clear ways to access your funds.

So keeping that in mind, even if some $ZEN hodlers aren’t paying attention to the migration and don’t claim their Base-based $ZEN for years, we’ll still keep a clear path open for anyone to do so at any time.

That said, I’m super interested in thinking through burn mechanisms so we can productively reduce supply as the platform gains traction. But that’s another topic for another thread.

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The team is currently collaborating on multiple high value strategies in which ZEN is going to provide further utility beyond simply governance. Some of which are the following:

  • Horizen will be a privacy chain that is focused on compliance. Compliance is a service and comes at a cost. We intend to utilize advanced forms of cryptography and security protocols which would leverage ZEN as the payment system for compliant services and features within the Horizen protocol. Example: precompiles for zk verification, private computation/execution, etc.
  • Part of the ZEN sustainability initiative should invest into projects that have privacy features associated to it, which as part of the DAOs investment to a project would entail utilizing ZEN as both gas token and any other transaction fees a dApp may incur. There are many potential models for this. Example: A private DEX for which contributors provide ZEN as a form of liquidity and receive protocol benefits for doing so.
  • ZEN should be thought of a as a protocol fostering growth in the privacy space where ZEN itself is the vehicle for which those advancements become a reality.
3 Likes