Introduction of another system based on distributed ledger technology makes less and less noise in today’s rapidly changing world. A few years ago, emergence of a new cryptocurrency was a significant event, deserving the public attention. However, wave of popularity of cryptocurrency, launched by Bitcoin system and supported by Ethereum system, is gradually going down, and along with the increasing control over the cryptocurrency activities by the state structures, the focus in technological development is shifted to systems that automate one or another side of the public life. One such project is called ALEHUB, a platform for hiring specialists and automating the outsourcing process (freelancing).
The key problem of any system based on the distributed ledger (and hence the peer-to-peer network) is how to motivate users to support the system. The below 2 challenges are essential to solve this problem:
1. Anonymity of miners;
2. Using tokens.
Gradually waiving anonymity in distributed systems is a significant trend in the modern world. Government agencies enter the world of information technology, and they bring the requirements for protecting users and citizens with them. This is why such principles as KYC (Know Your Customer) and AML (Anti-Money Laundering) gradually come even to the world of cryptocurrencies. For example, founders of the popular Telegram messenger plan to waive anonymity of the users while building a TON system through the so-called Telegram Passport. This technology is the first step in the development of the TON system. Its value is on transfer of user verified information only to those contract partners who cannot use their obligations in the system without this information.
The ALEHUB platform is designed and built in order to protect the interactive participants during the execution of orders against potentially injurious actions by business partners. Building such system is impossible without following principles such as AML and KYC. Moreover, the system complies with the laws of different countries, and therefore should allow control by government agencies over earnings of the users. Therefore, mining in ALEHUB is not anonymous, and miners must undergo mandatory verification procedure.
The use of tokens is governed by financial legislation. There are two tokens in ALEHUB, each of them playing an important role in the process of the system operation. Let’s review these tokens.
Security-tokens (ALE)
Practically a common practice now is to attract investments in projects based on the distributed ledger through ICO. At the same time, the question of the risks of such investments often remains open. In the contest of many cryptocurrencies, ICO was as a lottery with purchasing a resource with unknown liquidity, and the success of investments was mere accidental.
The current trend is the use of ICO as an IPO in the digital sphere. In fact, this is a way of attracting investments, sharing the project risks and, in the long term, sharing revenue from the project. This approach is implemented in ALEHUB. Buyers of ALE-tokens act as shareholders with the right to receive share of profits of the system. Considering the decentralized nature of the system, as well as its dependence on market conditions, it was decided to allow the system to make coordinated changes to the principles of its operation. Security tokens (ALE) are also used for this purpose.
Debt obligations in Ripple
Ripple system is one of the few platforms which existence slightly depends on the attitude of states to the cryptocurrency community. The reason is simple: by its nature Ripple is not anonymous. This is a decentralized system where users interact via trust lines. Users should initially trust a certain community of users. Transfer of funds between users is done by finding a “trust path” from one node to another, i.e. chain of trust relationship between nodes. Participation in such interaction brings the users small reward.
In Ripple, interaction between users is based on the concept of debt obligations. This approach, by definition, resembles the current banking system of correspondent accounts used in interbank transfers. The transfer of funds in Ripple is a transfer of debt. An indispensable condition here is that users should trust each other (this is required to execute an operation similar to clearing, i.e., elimination of debt).
Users can create tokens (debt obligations to their owners). Participants of interaction receive reward through these tokens. With that, both customer and contractor must trust the obligations of the user, which created the token, because the payment actually means transfer of the obligations.
Furthermore, the internal XRP token is used as a unified means of exchange. Ripple users can act as providers of liquidity and render a service for exchanging XRP or any token with a token of some other type. Due to this approach, users get the opportunity to exchange currencies without leaving the system.
It should be noted that possibility of introducing such an economy into ALEHUB was initially under review, but the revealed problems of such approach forced us to drop this idea. Ripple is a financial exchange based on the blockchain. Therefore, it does not allow creating complex smart contracts (like in Ethereum). At the same time, such smart contracts are necessary for building complex applications based on the blockchain. Special attention is given to the problem of cycling and slowing down virtual machines (and hence the whole system) with smart contracts that have computationally intensive code. To solve it, Ethereum introduced the concept of gas — an internal token, which is not traded on exchanges, designed to pay for execution of the programs by a virtual machine. This token has a fixed exchange rate against Ether. The same approach should be used in ALEHUB.
To achieve fair execution of contracts, it is necessary to set a fixed cost of one instruction of the virtual machine. Since ALEHUB exists within the market economy, the exchange rate is constantly changing, which requires using one of two possible approaches:
1. Setting the price in the selected base currency, according to which the cost of execution can be calculated in any currency;
2. Recalculation of the cost of execution at certain time intervals for each currency.
Both approaches apply the same functionality, however they impose a different load on the system: in the second case, information about the rate should be transmitted to the entire system in order to reach a consensus, while connection fluctuations can lead to desynchronization of the database (distributed ledger). Moreover, recalculation of the cost will still require the selection of the base currency, according to which the cost is recalculated.
Another problem that arises from dealing with a large number of tokens within the system is currency conversion. In this case, the potential conversion is carried out three times:
1. When placing funds into the system (from the physical form into the virtual one);
2. When concluding a contract (from one currency to another at the exchange rate at the time of signing the contract);
3. When withdrawing funds by the recipient from the system (from the virtual form to the physical one).
To avoid losses from exchange rate volatility, gateways that transfer funds from physical form to virtual one must carry out conversion when the contract is concluded, which requires tracking all transactions in the system. In case of several gateways (which will eventually happen to ALEHUB for decentralization purposes), the problem gets even bigger, as the gateways will have to form deposits and, when withdrawing funds, make an agreed decision on the exchange rate.
AXEL — trade token of ALEHUB
In the light of the challenges described earlier, it was decided to create an internal ALEHUB token, used as a container for cost. This token is called AXEL (ALEHUB eXchange Element). The exchange rate of this token is pegged to the US dollar rate at the ratio:
1 AXEL=1$
There are several advantages in using this token. First, it encapsulates the change in the exchange rate. Since the account stores exactly AXEL tokens, user can at any time convert them into any currency at his own choice. Due to strict peg to the US dollar, there is no way to play on the domestic market of the system. Conversion of funds is carried out in two stages:
1. Conversion of funds at the current rate from the currency provided by the client to dollars;
2. Conversion of dollars AXEL.
Refund is carried out according to the same scheme, but in the opposite direction. The changes in the exchange rate against the dollar entail a change in its exchange rate against AXEL. Therefore, the actual amount of funds in a currency other than the dollar may be different at different times, but the ratio of AXEL to the dollar is always respected.
It is important that in the future the base currency may be changed taking into account the situation on the market. Changes will affect only the ratio of AXEL to the base currency. For example, if the dollar to euro exchange rate is 0.85, then changing one base currency to another will require only setting a new ratio:
1 AXEL=0.85 €
This conversion will not only save the users from losing their funds, but also protect them against instability of the base currency.
Utilization of an internal token, encapsulating the cost, will allow setting the cost of execution of one instruction in the virtual machine, which significantly reduces consumption of the system while searching a consensus on the current exchange rate.
Finally, AXEL allows reducing the number of actual conversion operations from one currency to another. Conversion occurs only twice — when the funds are placed into the system and when they are withdrawn. In fact, this approach allows the user to place the base currency in the system — and receive it back upon funds withdrawal. Conversion is carried out by the gateway, whose role in the initial operational stages of the system is performed by ALEHUB. It is worth noting that the token is not traded. It is created by the gateway (liquidity provider) when the funds are placed in the system and destroyed when the funds are withdrawn. In order to avoid exchange rate manipulation, a commission fee is charged when funds are withdrawn.
Motivation of miners
As previously noted, the miners in the system are not anonymous. Therefore, distribution of tokens between them is carried out almost equally, once in an epoch (epoch is a sequence of time slots or, similarly, a sequence of blocks). The reward is generated from the commission fund and depends on the total volume of transactions in the system executed in the previous epoch. Therefore, the miners are motivated to include as many transactions in the blocks as possible. Transactions of the miners, however, may bring them only losses (or, more correctly, they cannot bring profit under any circumstances). Reward from all commission fees in favor of the miners is divided equally, so the miner that invested more than the others will receive less reward:
In the future, transition to a model similar to that used in Cardano is possible. It involves random selection of a group of miners to participate in the epoch. Nevertheless, the monetary policy does not undergo any changes: the miners still receive reward from the currency fund, and the amount of reward weakly depends on the number of transactions (Less than medium –Medium — More than medium) and is defined by a weak coefficient determined by the consensus of users.
It is worth noting that the miners divide among themselves not all the accumulated commission fund, but only a part of it equal to 40%. The rest of the funds are distributed according to generally accepted recommendations in proportions, including profit to the shareholders (ALE) and development of the project. The reward is distributed with due regard for contribution of users into the process of reaching a consensus and taking into account the mechanism of protection against “professional” miners.
Existing commission fees
ALE system sets forth a commission fee for the following operations:
1. Transaction that fulfills transition of the system between states — in a fixed amount;
2. When funds are withdrawn from the system — as a percentage of the amount withdrawn — instead of a percentage of transactions to encourage the development of internal cooperation;
3. The execution of a smart contract — proportional to the number byte codes executed by a virtual machine.
4. Verification in ALE system.
5. Commission for the publication of large (in increments of of 50MB) documents in embedded blockchains
Takeaways
Thus, two tokens are available in the ALEHUB system:
· The first token is a security-token (equal to a share in the economic environment). It is used to pay interest from the platform profit, as well as to make decisions about the future of the system.
· The second token, AXEL, is used to encapsulate currency fluctuations and unify settlement instruments within the system.
The liquidity of AXEL is ensured in the same way as the liquidity of the cryptocurrencies. This token allows making payments for services of contracting participants without binding to a particular fiat currency. This can solve the challenge with tax legislation: since information on payments is contained in a blockchain, control by the tax authorities becomes comparatively easy task. At the same time, participants are protected against currency fluctuations on fiat currencies exchange.
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