> ## Documentation Index
> Fetch the complete documentation index at: https://docs.celo.org/llms.txt
> Use this file to discover all available pages before exploring further.

# L2 Epoch Rewards

Learn how Celo distributes rewards to network participants.

***

## What are Epoch Rewards?

**Epoch Rewards** function similarly to block rewards in other blockchains. They distribute new CELO tokens as epochs progress, creating incentives for various network participants.

## How Epoch Rewards Work

Rewards are distributed at the end of each epoch (roughly every 24 hours) to:

* **Community RPC providers** - Node operators serving the network
* **Locked CELO holders** - Users who vote for groups that elected community RPC providers
* **Community Fund** - Supporting protocol infrastructure grants
* **Carbon Offsetting Fund** - Environmental sustainability initiatives

## Token Economics

A total of **400 million CELO** will be released through epoch rewards over time. CELO serves multiple roles:

* Utility and governance token for the Celo network
* Reserve collateral backing Celo stablecoins
* Fixed supply asset with long-term deflationary characteristics (similar to Ethereum)

<Note>
  ****Migration from L1 to L2****

  For details on how epoch rewards worked when Celo was a Layer 1 blockchain, see [the historical epoch rewards section](/legacy/protocol/pos/epoch-rewards).

  For technical changes since the L1 to L2 migration, refer to the [official specs](https://specs.celo.org/smart_contract_updates_from_l1.html#epochs-and-rewards).
</Note>

## Epoch Duration and Processing

An epoch is a time period lasting at least one day, with no guaranteed maximum duration.
The epoch logic is implemented in Solidity via the [EpochManager contract](/contracts/core-contracts), introduced in [Contract Release 12](https://github.com/celo-org/celo-monorepo/tree/core-contracts.v12).

Since epoch processing requires significant gas consumption, it's handled through multiple function calls rather than a single transaction.

## Reward Distribution Process

CELO tokens are transferred from the `CeloUnreleasedTreasury` contract, which was allocated the full amount of unminted CELO during the L2 transition.

<Note>
  ****TERMINOLOGY****

  The term "validator" is used in the code and corresponding explanation due to historical reasons, but refers to the community RPC providers.
</Note>

### Phase 1: Starting Epoch Processing

When the epoch duration has elapsed, anyone can call `startNextEpochProcess()` to begin reward distribution.

**Requirements:**

* Sufficient time has passed since the current epoch began.
* No epoch is currently being processed.

**Actions performed:**

1. **Updates target voting yield** - Adjusts reward rates
2. **Calculates epoch rewards** - Determines total rewards via `EpochRewards.calculateTargetEpochRewards()`
3. **Allocates validator rewards:**
   * Mints CELO and exchanges it for USDm
   * Creates internal mapping for validator allocations
   * Validators later claim rewards by calling `sendValidatorPayment`
4. **Activates protection mode** - Temporarily blocks certain actions (locking/unlocking CELO, changing validator locks)
5. **Emits events:**
   * EpochRewards: `TargetVotingYieldUpdated(uint256 fraction)`
   * CeloUnreleasedTreasury: `Released(address indexed to, uint256 amount)`
   * USDm: `Transfer(address indexed from, address indexed to, uint256 value)`
   * EpochManager: `EpochProcessingStarted(uint256 indexed epochNumber)`

### Phase 2: Completing Epoch Processing

After the initial phase, anyone can call `finishNextEpochProcess()` to complete the epoch.

**Requirements:**

* `startNextEpochProcess` must have been called previously.

**Actions performed:**

1. **Allocates voter rewards** - Makes CELO available to eligible voters
2. **Conducts validator elections** - Stores elected validator accounts and signers
3. **Removes protection mode** - Re-enables previously blocked actions
4. **Updates epoch state** - Advances to the next epoch
5. **Emits events:**
   * Election: `EpochRewardsDistributedToVoters(address indexed group, uint256 value)`
   * CeloUnreleasedTreasury: `Released(address indexed to, uint256 amount)`
   * EpochManager: `EpochProcessingEnded(uint256 indexed epochNumber)`