Examining Invoicing

Invoicing is a mechanism unique to Tezos’ on-chain governance structure which allows the ability to fund core development and other public goods. The process can be detailed in further length below, showing how Tezos’ governance structure works:

A dev team injects the hash of a tarball file as a proposal into the Tezos Protocol with an invoice attached.

The injected proposal goes through 4 phases.

The first phase, known as the initial voting period, is where bakers will vote and decide if the proposal is best for the protocol. There can be a maximum of 20 proposals per baker in this phase.

The second phase, known as the exploration voting period, is where another vote is made to move forward. During this phase, 80% Quorum is needed to vote “Yay” and proceed with a testing period of the proposed changes. The Quorum adjusts accordingly and won’t always 80%. This phase also requires to meet supermajority to proceed.

The third phase, known as the testing phase, is where a temporary blockchain is formed for testing purposes. If things run smoothly and there are no significant problems, a final promotional period will begin.

The final phase, known as the promotional period, is where a final vote is cast on the proposed changes. During this final phase, if voted through, the new protocol will be added automatically with the new code and the protocol mints the tokens attached as an invoice in the proposal. If it does not go through, it goes back to the proposal phase.

Through Tezos’ formal on-chain governance, such as we’ve seen successfully executed within Athens; Nomadic Labs, the team behind the Athens proposals, were paid automatically 100 XTZ directly to their wallet following the successful activation of the proposed protocol amendment. Thus, the first instance of invoicing was born.

Invoicing works through raising the total token supply of XTZ (inflation). Therefore, when Nomadic Labs received 100 XTZ after the Athens protocol amendment was successfully activated, these tez were minted directly from the Tezos protocol. Through this open and permissionless process, there is no central authority that evaluates what can be proposed and/or the amount a dev team can attach as an invoice. It is fair, uniform, and devolves all decision-making powers directly to the token holders. Thus, the token holders are in essence the owners, operators, and governors of the network.

On the same note, it is also possible to those dev teams who submit an invoice attached within their proposal, could also submit multiple amounts, some of which could be going to completely other projects or even, charity. In this sense, funding of core development is thrown out at what will be popular within the community and consequently, taking the Tezos Foundation out of the loop in the process completely.

Additionally, a further inducement to adhere to regarding invoicing is that it can also lead as a potential solution to the free-rider problem that open-source projects are particularly prone to.