There are many updates in the new Yellow Paper, but the one I want to focus on is the Penalty System. The medium article highlighting the Yellow Paper changes describes this system as such:

“ICON’s penalty system now has a token burning component. There are 3 types of penalties outlined in the IISS paper: Validation Penalty, Low Productivity Penalty, and Disqualification Penalty.

If a P-Rep suffers a Low Productivity Penalty or a Disqualification Penalty, 6% of the delegation toward such a P-Rep will be burned. This makes it extremely important for ICONists to delegate towards reliable and quality P-Reps.

We encourage ICONists to delegate across multiple P-Reps to diversify the risk of having their tokens burned.”

ICON is a Delegated Proof of Contribution system and requires all parties to contribute to be successful. I strongly believe there needs to be a penalty to incentivize good behavior of P-Reps and sound voting and incentives for iconists to vote for good P-Reps. Accountability is key in any ecosystem and penalties for missing the mark help enforce this. However, my initial thoughts were that this was a very harsh penalty to go after ICX of ICONists. I sought to further understand what situations would allow this.

The penalties that warrant a burn of 6% of the delegated ICX are:

Low Productivity Penalty: “Applies when the Productivity Ratio of a specific representative has dropped below 85%. The Productivity Ratio is the ratio of actual blocks produced and validated divided by the number of opportunities to produce and validate a block.Representatives will not be subject to this penalty for their first 86,240 blocks as a block producing Representative” Disqualification Penalty: “Applies when a specific representative has been disqualified via a ‘P-Rep Disqualification Proposal’”

A disqualification proposal requires at least 66% of peer P-Reps to vote to disqualify a P-Rep. This is a serious proposal and is reserved for significant blunders. I think this is safe to assume that if you vote for good P-Reps who are producing fruit for ICON, then there is no need to worry about this type of penalty. The remainder of this paper focuses on the Low Productivity Penalty.