Revert Community Pool Tax Rate to 2%

*Authors*: [Atom Accelerator DAO & Oversight Committee](https://www.atomaccelerator.com/) ## Summary This `param-change` proposal aims to revert the `community_tax` parameter from 10% (0.10) to 2% (0.02), reinstating the baseline default rate that was in effect prior to [**Proposal 88**](https://www.mintscan.io/cosmos/proposals/88/). ## Parameter Change The proposed change affects the "distribution module" in the Cosmos SDK. **Parameter**: `community_tax` `community_tax`: Defines the percentage of block rewards (including transaction fees and inflation rewards) that is allocated to the Community Pool before the remainder is distributed to validators and delegators. The `community_tax` has these key characteristics: * The value must be greater than 0 and less than or equal to 1.00 (100%). * The default value is set to 0.02 (2%) in the distribution module's default parameters. * Cosmos Hub governance can adjust this parameter through on-chain `param-change` proposals. **Parameter and Proposed Value** | Module | Parameter | Current Value | Proposed Value | |----------------|----------------|----------------|----------------| | `x/distribution` | `community_tax` | 0.10 (10%) | 0.02 (2%) | *If the parameter is set to*: 0.02 → 2% of minted rewards go to the Community Pool 0.10 → 10% of minted rewards go to the Community Pool ## Background [**Proposal 88**](https://www.mintscan.io/cosmos/proposals/88/) raised the community tax from 2% to 10% to enable long-term funding of the **Atom Accelerator DAO (AADAO)** and similar initiatives. This tax increase facilitated allocations of 588,000 ATOM via [**Proposal 95**](https://www.mintscan.io/cosmos/proposals/95/), and an additional 975,811 ATOM (plus 100,000 bonus ATOM) via [**Proposal 865**](https://www.mintscan.io/cosmos/proposals/865/). As of Q1 2025, AADAO has entered "maintenance mode" and has declined to renew or revise its mandate; the conditions that warranted the 10% tax rate increase have become obsolete. ## Rationale for Reversion to 2% 1. **The Circumstances That Justified the Tax Rate Increase Are No Longer Valid** As the AADAO's funding mandate approaches its end, the basis for sustaining a 10% tax rate has ceased to be relevant. 2. **Avoid Capital Oversupply and Misallocation** An excessive buildup of idle capital can attract value-extractive or poorly scoped spending proposals. 3. **Decouple Tax Policy from Broader Governance Discussions** The Community Pool tax rate should reflect the network's actual operational needs, not serve as a default placeholder for unresolved Treasury discussions or opportunistic funding demands. 4. **Preserve Hub Autonomy with Fiscal Discipline** A 2% tax rate maintains a credibly decentralized funding stream while keeping governance of the Hub's public resources **independent**, **sovereign**, **manageable** and **reasonable**. 5. **Return More to Stakers** Assuming ~9.6 ATOM minted per block and ~4.36 million blocks/year: - Reducing the tax from 10% to 2% returns **0.768 ATOM per block** to stakers. - This results in approximately **3.34 million additional ATOM/year** in staking rewards. ## **Clarification on Scope** This proposal **does not eliminate or reduce** existing Community Pool funds, which currently hold, approximately 9.37 million ATOM. Decisions concerning the **active balance**, **use**, **governance structure**, or **potential reforms** of the Community Pool should be addressed through subsequent and separate governance proposals. ## **Conclusion** Reducing the community tax rate to 2% is a prudent adjustment in the absence of an active, governance-ratified funding mandate or mandates for the Cosmos Hub. This parameter change helps mitigate inadvertent capital accumulation, improves validator and staker economics, and strengthens fiscal discipline, while preserving the Hub's ability to fund public goods and services independently of its founding organizations and core teams. It also sets a more appropriate baseline to guide future governance discussions concerning long-term treasury management and strategic capital deployment from the Community Pool. ## Links * [**Cosmos Hub Forum Discussions**](https://forum.cosmos.network/t/proposal-draft-reverse-proposal-88-revert-community-pool-tax-rate-to-2/15397) * [**Cosmos SDK `x/distribution` module Documents**](https://docs.cosmos.network/main/build/modules/distribution) ## **Voting Options** - **YES** – Supports the proposed parameter change, reducing the Community Pool tax rate to 2%. - **NO** – Opposes the proposed parameter change, supports maintaining the Community Pool tax rate at 10%. - **ABSTAIN** – Chooses not to take a position, due to a conflict of interest or a wish to participate without expressing a preference. - **NO WITH VETO** – Opposes the proposed parameter change on the grounds it is (1) irrelevant to the Cosmos Hub, (2) malicious and or unjustly harms minority interests, or (3) violates Cosmos Hub governance rules and or norms.