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  • The Next Protocol Upgrade: Will Hangzhou Continue Liquidity Baking With XTZ-tzBTC or USDtz?

The Next Protocol Upgrade: Will Hangzhou Continue Liquidity Baking With XTZ-tzBTC or USDtz?

Decentralized Governance

An important problem to solve in blockchain is the decentralization of protocol upgrades. How can we upgrade the blockchain’s core protocol in such a way that no central entity controls the evolution of the blockchain?

Tezos has solved this issue by implementing on-chain governance. Proposals can be injected through the governance process and all token holders have voting rights.

Holders of XTZ that do not run a node and produce blocks, can delegate their voting rights to the ones that do. This way, the process is democratized.

Hangzhou

The protocol proposal that is up for voting currently, is called Hangzhou. This proposal introduces a set of technical features (Enabling a way to work with more complex smart contracts, prevention of frontrunning, throughput improvements, optimization of storage use). Hangzhou also prolongs Liquidity Baking. 

Liquidity baking currently supports the XTZ-tzBTC and you can see it in action here trading pair. There has been some discussion around the choice for tzBTC. Presently, liquidity baking has an APY of 114.07% at the time of writing, through subsidized rewards generated by the Tezos protocol. 

Fortunately, anyone can inject a proposal through the governance process. The first phase of the governance cycle has been designed to allow several proposals to be injected at the same time. Through the voting mechanism, one final proposal will go through to the next round.

This possibility has been utilized to add a variation of Hangzhou to this part of the voting process. Hangzhou (PtHangzHo) is the original proposal that includes the continuation of the XTZ-tzBTC trading pair. 

Hangzhou (PsCUKj6wy)   is identical to the original proposal with one important change: instead of the XTZ-tzBTC trading pair, it introduces the XTZ-USDtz trading pair.

According to the initiator of this variation, XTZ-USDtz is much more likely to achieve Liquidity Baking’s intended goals. 

Without indicating a personal preference from our side, we’d like to encourage discussion and participation in the choice to be made. Whatever the outcome, everyone has a say in this matter and thus the choice is ours.