🔄 Proposal: XDC Network Reward Mechanism Upgrade

The XDC Network is evolving — and so is its reward mechanism.

This article outlines a detailed proposal to upgrade how rewards are calculated and distributed in the XDC Network’s XDC 2.0’s Consensus. This builds on our earlier discussion and introduces new logic to better recognize node contributions while preparing the network for future security and scalability.

🧠 Background: How Rewards Work Today

In the current XDC Network’s consensus model:

• Rewards are distributed every epoch, not every block.
• An epoch equals 900 blocks (XDC 1.0) or 900 rounds (XDC 2.0).
• At the start of each epoch, a total reward (currently 5000 XDC) is allocated, defined by the parameter XDPoSConfig.Reward.

🔧 Current Reward Flow (3 Steps):

1. Count Contributions: Only block signers who were Master Nodes are counted.
2. Calculate Reward: The protocol uses a fixed reward per epoch (e.g., 5000 XDC).
3. Distribute Rewards:

• 90% to the owner of each contributing signer
• 10% to the Foundation Wallet (xdc92a289fe95a85c53b8d0d113cbaef0c1ec98ac65)

🚀 What’s Changing: Introducing Protector & Observer Nodes

We're proposing a multi-tiered node reward system, where three types of nodes will now receive fixed, per-node rewards based on their rank and contribution:

Each role will have a predefined per-epoch reward — but only if they actively contribute to network health.

💰 Proposed Per-Epoch Rewards

This is a major shift — rewards are now fixed per contributing node, rather than dynamically split.

Technically, no restriction to Contribute more XDC compared to 10,000,000 XDC to become a Masternode or protector node but Per EPoch Rewards will remain the same. Higher XDC contribution increases probability to be masternode as timestamp based validation will be replaced with new updates which includes XDC Contribution, Timestamp (to check longevity of node), Hardware/ Network resources allocated to the Masternode/Protector Node/Observer Node.

⚠️ Inactive nodes (no contribution during epoch) will receive no rewards also provision of penalty to serve few epoch before start getting rewards.

🔍 Technical Enhancements

The new configuration will be managed via the upgraded V2Config struct:

type V2Config struct {  
    MasternodeReward     float64 `json:"masternodeReward"`  
    ProtectorReward      float64 `json:"protectorReward"`  
    ObserverReward       float64 `json:"observerReward"`  
    MaxProtectorNodes    int    `json:"maxProtectorNodes"`  
    MaxObserverNodes     int    `json:"maxObserverNodes"`  
}

Implementation Steps:

1. Pull candidates from the parent state of the epoch switch block.
2. Rank by Candidate Cap (stake from owner + voters).
3. Assign roles (Master, Protector, Observer).
4. Distribute fixed rewards to the owner of each contributing node. Also distribute rewards to the Foundation Wallet according to the 90/10 split.

📈 Future-Proofing the Network

While the reward values proposed are grounded in staking math and real-world logic, they are subject to change based on:

• Transaction volume
• Network activity
• Validator participation
• New edge cases that emerge in production

🌟 Why This Is Unique

This model introduces a first-of-its-kind, tiered validator reward system in the blockchain space.

To our knowledge, no other blockchain has implemented a structure that:

• Recognizes not just core validators, but mid-tier and observer nodes
• Distributes fixed per-node rewards based on participation
• Provides room for adaptive scalability via upgradable node caps and reward values

But with innovation comes risk:

⚠️ As this model is unprecedented, no guarantee exists that it will work flawlessly in all conditions.

High network traffic, edge-case validator behaviors, and real-world operations may necessitate future refinements.

🧪 Security & Activation

This upgrade will be rolled out as a hard fork, requiring:

• A full security audit
• Rigorous testnet simulations
• A clearly defined activation block (e.g., TIPUpgradeReward \= big.NewInt(XXXX))

🧩 Final Thoughts

The XDC Network is on a journey of rapid technical innovation. This reward upgrade is a big leap forward — one that honors contribution, encourages decentralization, and positions XDC for long-term sustainability.

We welcome feedback from developers, node operators, and community members to refine this proposal before implementation.

Let’s build the future of contribute-based reward systems — together.

Please note: There is nothing new in this proposal — it simply reinforces the original vision that has been in place since day one. We are not changing anything, only aligning the implementation more closely with XDC’s core principles.

✍️ Questions or thoughts? Comment below.