NULS Enjoys the First-Mover Advantage With SCOs — The Staked Coin Output Rewards Model

NULS
Aug 20 · 4 min read

SCO is a new model for staking rewards that gives unparalleled flexibility to both projects and token holders, and it’s attracting a lot of institutional attention.

The SCO integrates several features of cryptocurrency market dynamics, mining (via staking), feedback and market resonance, and initial token offerings. Many institutions, including exchanges, staking services, VC’s and incubators have moved in to discover what SCOs can offer up to the industry.

SCO allows for the tokenization of crypto assets and uses public chain tokens, such as NULS, to issue consensus rewards to token holders who stake into SCO nodes. Stakers earn the tokenized assets instead of NULS, and depending on the project, rewards can be distributed as a mix of the two. Projects can easily create their nodes to distribute anywhere from 1-99% of the rewards as project tokens and NULS. If an SCO node for instance, sets its commissioned amount of rewards to 50%, the node will pay out consensus rewards as 50% NULS tokens and 50% project tokens.

For a project to conduct an SCO, it is necessary to establish a NULS node and then distribute the token to trustees via smart contract (Yes, there is a module for this.) Traditional staking only gives reward outputs in the staked token— for instance, staking NULS in a node used to only reward stakers with the NULS token. With the SCO, NULS token holders can stake into nodes whose Staked Coin Output is the project token only, or a mix of both.

Aleph, the first SCO to trial the new model is currently underway and has established six nodes at 99% commission, with a total staked value of nearly 3 million USD. Thus, the Aleph project will receive around 350,000 NULS yearly as consensus rewards. A deposit of 10,000 NULS into an Aleph SCO node will rewards roughly 350 Aleph each day, over 10,000 Aleph per month, before Aleph can be listed on exchanges.

Can other projects successfully utilize an SCO? Perhaps, but the NULS protocol is extremely versatile, due to the adaptable design of its Proof of Credit consensus mechanism. Specifically, ETH, EOS and Cosmos have limitations in their protocols that are not conductive to SCO capabilities.

In a recent discussion, NULS co-founder Reaper Ran pointed out that NULS is the best option for SCOs, citing three main reasons for this assertion:

  1. The threshold to join consensus as a NULS mainnet node is relatively low, and project developers have the freedom to join and exit the SCO program as they wish, at any time. Just like any other node in the NULS mainnet.
  2. With SCOs, the project can participate in the network with a consensus node to obtain tokens as a source of revenue, and also to distribute assets rationally to token holders, developers, etc.
  3. NULS staking doesn’t require users to lock their assets. When token holders do not want to participate in an SCO project anymore, they can choose to withdraw at any time or participate in another project’s SCO or any other NULS node.

Reaper Ran pointed out that not all PoS or DPoS public chains can support SCOs because it requires specific parameters from a consensus mechanism. For example, when carrying out an SCO, the project developer needs to establish multiple nodes. This cannot be supported by public chains if they have set up a maximum number of their block-producing nodes, like EOS. There are only 21 block-producing nodes in the EOS network, and they are all selected by voting. The projects cannot establish nodes at will, so EOS can not run SCOs.

POS public chains like ETH 2.0 randomly select nodes to produce blocks. Project developers that establish SCO nodes need to distribute their token assets steadily and consistently to their stakers. If a project can’t guarantee to produce blocks all the time, they can’t acquire stable consensus rewards, therefore they can’t distribute assets on an ongoing and consistent basis. Obviously, stakers will not want to miss out on rewards by waiting for a node to produce blocks again in these situations.

It should also be emphasized that POS public chains like Cosmos are not suitable for SCOs. Since projects rely on consensus rewards for operating funds, it will be a huge loss if they get punished and their collateral is lost. In this case, SCO project stakers also bear the potential risk on
penalties.

It is hard to find protocols that allow nodes to be set up with an adjustable commission rate that rewards stakers proportionally, depending upon their staked amount, and also rewards node operators more favorably based on the more tokens they have staked into the node. NULS provides this flexibility by allowing node operators to set the commission rate paid to them from the node — with no limitations on the amount of nodes that can participate in consensus, no lock-ups for stakers, and rewards that are distributed by the minute.

Reaper Ran believes that the future belongs to the PoS public chains that can support SCOs. In the United States, NULS has had an overwhelming response from interested projects and existing partners seeking to learn more about SCOs. In China, SCO Labs has partnered with a dozen institutions, exchanges and incubators to further explore the possibilities of a new staking economy.

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