Midnight Proposes NIGHT Block Rewards for Cardano SPOs and Delegators

Midnight's improvement proposal repository has introduced two draft specifications covering the calculation, distribution, and funding of NIGHT block production rewards. The proposals, associated with change request #406, would initially make Cardano stake pool operators (SPOs) and their ADA delegators eligible for rewards.

The new design is intended to replace the payout mechanism described in MIP-0024, which routes rewards through Cardano. Both new specifications remain drafts, and their proposed changes have not been activated.

How Cardano SPOs Would Earn NIGHT on Midnight

Midnight is a privacy-focused partner blockchain of Cardano. Its initial block production model relies on authorized producers, with Cardano SPO participation forming part of the network's transition toward decentralized block production.

The first draft, Native NIGHT Block Production Rewards: Accrual and Claims, specifies how the protocol would record block producers, calculate rewards using the published tokenomics formula, and assign NIGHT to eligible operators.

At the end of each Midnight epoch, a pool's accumulated rewards would be divided between its operator and ADA delegators. The calculation would use the operator's existing margin from its Cardano stake pool registration, alongside an optional fixed fee denominated in NIGHT.

Delegator allocations would be based on the finalized ADA stake snapshot used to determine the producer committee for that epoch. According to the proposal, the resulting distribution could be independently recalculated from publicly available finalized data.

Authorized producers operating during Midnight's initial phase would not qualify for these rewards. Blocks produced by those participants would not draw NIGHT from the designated reserve.

The draft also prevents retroactive changes to reward eligibility. Expanding the eligible producer group would require a separate MIP and a network upgrade announced at least one full epoch in advance.

How ADA Delegators Would Claim NIGHT Rewards

The proposed payout mechanism differs from the earlier MIP-0024 design, which uses virtual accounts, smart contracts, and batch processing to distribute NIGHT on Cardano.

Under the new approach, rewards would be paid as unshielded NIGHT directly on Midnight, using capabilities already present in the network's ledger.

ADA delegators would not need to register separately as block producers to accrue rewards. Their allocations would be calculated automatically based on their stake in participating Cardano pools.

However, claiming those rewards would require a one-time registration process.

Until registration is completed, Midnight would hold the accumulated rewards in escrow associated with each delegator's Cardano stake address. To access the funds, the delegator would submit a Cardano transaction linking their stake key to a designated Midnight reward withdrawal key.

The registration process would require a refundable ADA deposit. Its final amount has not been established, although the draft references a preliminary range of 10 to 40 ADA from earlier technical testing.

The mechanism separates reward accrual from withdrawal authorization. Delegators could accumulate NIGHT through their existing ADA delegation, while access to those rewards would depend on completing the required key registration.

[NEWSBREAK]

Cardano Reserve Funding and Remaining Approval Requirements

The second draft, Cardano Reserve Release, addresses how NIGHT tokens would become available to fund block production rewards.

Under the proposed mechanism, a reserve contract on Cardano would release a fixed proportion of its remaining NIGHT balance at predetermined intervals. Midnight would mirror those releases through the existing cross-chain bridge, making the corresponding tokens available for reward distribution.

Withdrawals would be limited to the NIGHT actually released from the Cardano reserve. The design is intended to preserve supply accounting across both networks without creating additional tokens.

Both proposals would need to be approved and activated together, linking the reward calculation system to its funding mechanism.

The initial implementation would exclude block producers participating through native NIGHT staking. Their reward eligibility, operator margins, and stake snapshot rules would require a separate MIP.

Several issues must also be resolved before the drafts can advance to Proposed status. These include governance control over reward and reserve parameters, reward allocation among multiple pool owners, and clarification of the applicable documentation under the European Union's Markets in Crypto-Assets Regulation (MiCA).

The proposed RekeyUnclaimedReward operation would additionally require a Midnight ledger release later than version 9.1.

The system cannot be activated until both proposals are approved and the necessary ledger and network upgrades are implemented.