Parameter Change Proposal

A PCP directly modifies the on-chain parameters stored in a protocol's governance module. These are not code changes but adjustments to existing variables, such as:

• Block gas limit (e.g., from 30M to 40M units)
• Staking reward rate (e.g., inflation from 7% to 5%)
• Slashing penalties for validator misbehavior
• Voting period duration for future proposals

A PCP follows a defined governance process:

1. Submission: A proposal with the new parameter value is submitted, often with a deposit.
2. Deposit Period: Token holders stake funds to signal initial support.
3. Voting Period: Delegates or direct token holders vote Yes, No, NoWithVeto, or Abstain.
4. Execution: If the vote passes the required quorum and threshold, the parameter change is automatically executed by the governance module at a specified block height.

PCPs typically target several core protocol areas:

• Monetary Policy: Inflation rate, block rewards, community pool tax.
• Network Security: Validator slashing rates, unbonding period, minimum commission.
• Performance & Cost: Gas prices (e.g., min_gas_price), block size/limits.
• Governance Itself: Deposit requirements, voting periods, quorum thresholds.

Example: Cosmos Hub Proposal #69 changed the InflationMin and InflationMax parameters.

While the vote is a technical mechanism, successful PCPs require social consensus. Key considerations include:

• Economic Impact Analysis: How will the change affect staking yields, validator revenue, or user costs?
• Game Theory & Incentives: Does the change create unintended consequences or new attack vectors?
• Off-Chain Signaling: Discussions often occur first on forums (e.g., Commonwealth, Discord) and through signal proposals to gauge sentiment before the formal on-chain vote.

A defining feature is automated, permissionless execution. Unlike a software upgrade proposal (which requires validators to manually upgrade nodes), a passed PCP is enacted automatically by the blockchain's state machine. The new parameter value is written to state at the designated block, with no further action required by validators. This reduces coordination overhead for routine economic adjustments.

PCPs concentrate significant power. A malicious or poorly designed proposal could:

• Extract value from users (e.g., drastically increase transaction fees).
• Compromise security (e.g., reduce slashing penalties).
• Censor transactions (e.g., set minimum gas price prohibitively high).

Robust governance requires high voter participation, transparent analysis, and sometimes veto powers (e.g., a high NoWithVeto threshold) to guard against harmful changes.

A Parameter Change Proposal is a type of on-chain governance proposal that seeks to alter one or more configurable variables within a blockchain's protocol. Its primary purpose is to allow a decentralized community to adjust system parameters—such as block size, gas fees, staking rewards, or inflation rates—without requiring a full network upgrade or hard fork. This enables iterative optimization and risk mitigation in response to network conditions, economic shifts, or security research.

These proposals target specific, pre-defined variables in the protocol's code. Common categories include:

• Economic Parameters: Staking rewards, inflation rate, transaction fees, slashing penalties.
• Consensus Parameters: Block size, block time, validator set size, unbonding periods.
• Governance Parameters: Deposit requirements, voting periods, quorum thresholds.
• Module-Specific Parameters: Interest rates in lending modules, oracle feed parameters, IBC packet timeouts. Altering these requires careful analysis of their interdependencies and potential second-order effects.

Poorly calibrated parameter changes can introduce systemic risks. Key security considerations include:

• Economic Attacks: Drastically lowering staking rewards or slashing penalties could reduce network security by disincentivizing honest validation.
• Performance Degradation: Increasing block size without proper testing can lead to network congestion or centralization pressures.
• Governance Capture: Malicious actors could propose changes that benefit a minority at the expense of the network's health.
• Unintended Consequences: A change in one parameter (e.g., fee market) can have cascading effects on application-layer smart contracts and user experience.

A robust process is essential for safe parameter changes. A typical workflow involves:

1. Signal Proposal: An informal discussion to gauge community sentiment.
2. Formal On-Chain Proposal: Submitting the change with a deposit, detailing the rationale and impact analysis.
3. Voting Period: Token holders vote, often requiring a quorum and a supermajority (e.g., >66.7%) to pass.
4. Execution: Upon passing, the change is automatically enacted after a delay. Best practices include simulation tools to model impacts, multisig execution delays for critical parameters, and clear communication of changes to node operators.

Parameter changes are routine in major networks:

• Cosmos Hub: Regularly adjusts the inflation_rate and community_pool_tax via governance.
• MakerDAO: Uses executive votes to change stability fees and debt ceilings for its collateral assets.
• Compound: Governance controls the borrow_cap and collateral_factor for each listed asset.
• Osmosis: Has adjusted swap fees and incentive weights for liquidity pools through proposals. These examples highlight the tool's role in adaptive monetary policy and protocol maintenance.

Parameter changes exist within a broader governance framework. Key related mechanisms include:

• Software Upgrade Proposal: Proposes replacing the entire protocol codebase, more drastic than a parameter tweak.
• Community Pool Spend Proposal: Requests spending from a community-owned treasury.
• Text Proposal: A generic signaling proposal without automatic execution.
• Voting Power: Often derived from staking (Proof-of-Stake) or token ownership, determining influence over parameter changes. Understanding the hierarchy and interaction of these proposal types is crucial for effective decentralized governance.