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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)
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.

For technical changes since the L1 to L2 migration, refer to the official specs.

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, introduced in Contract Release 12.

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.

Terminology

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

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 cUSD
    • 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)
    • cUSD: 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)