Token Model, Node & Voter Incentives, & Governance
In the lead up to aelf’s much anticipated Mainnet launch, the Economic & Governance Whitepaper was released on Feb 17th. This Whitepaper provides the sought after information surrounding the financial structure of running a node on the aelf blockchain. The whitepaper is broken up into 3 main topics: Token Model, Incentive Model, & Governance.
Some of the burning questions that have now been put at ease include, how many tokens are required to setup a node? What does the incentive structure of running a node look like? Who can vote and what is the minimum amount of tokens needed? And, how can my ELF earn me dividends?
This post will look at some of these questions and explain the fundamentals of the whitepaper.
Token Model
The token model essentially describes what type of tokens will exist in the aelf ecosystem and their uses within the system. Although there are 3 types of tokens, there is the potential for an infinite amount of tokens to exist with the 3rd type.
The most obvious token and first mentioned is the ELF token. This token is used for all fees paid by developers or side chain creators, staking by nodes and voters, and the main incentive system.
The second token type is the series of Resource tokens available for purchase by developers. These tokens are used by developers to purchase the resources their side chains or DApps will require to function. These include CPU, RAM, DISK, NET, READ, WRITE, STORAGE and TRAFFIC resources which all can be bought or sold in exchange for ELF.
The final type of token is that which can be created by developers for use within their own DApps or side chains. As more side chains are developed on the aelf ecosystem, the number of tokens within this type will naturally increase.
Incentive Model
Putting developers aside for the moment, there are two main ways in which the average user can be a part of the aelf incentive model — as a Voter and a Node (Candidate & Producer).
It is difficult to identify the exact total ELF input to the Dividend Pool as all but the Block Production rewards are variable based on the activity levels of developers/users on aelf. But by looking at the Block Production rewards, we can see a crude base level of ELF input into the pool. The Whitepaper states that the block reward for the first 4 years is 0.125 ELF per block. At 2 blocks a second that equates to 21,600 ELF* per day added to the reward pool.
*21,600 ELF is the minimum to be added, this value will be larger due to transaction & resource fees which cannot be estimated in advance
Voter
This is the simpler incentive structure of the two options. In essence it is a simple staking framework in which a user votes for the node they desire to be elected by staking ELF tokens on that node through the aelf explorer. Any ELF staked needs to be locked for a time selected from 5 set periods, ranging from 3 months to 3 years. The longer the period, the higher the ROI %, with the longest period receiving a daily rate of 0.2%. After the locked period has finished, unless voters withdraw their votes or move them to another node, the staked ELF will rollover to another period of the same length for the same node with the compounded rewards added. At 20% of the 21,600 daily ELF from blocks for the voters, this equates to 4,320 ELF available to voters each day. Remember this is the absolute minimum as this doesn’t include any fees.
Node
Anyone is eligible to apply to become a node, as long as they meet the basic criteria. That is, they must stake 100,000 ELF as collateral which will be forfeited if they manipulate or act negatively towards the network.They must also have the minimum hardware requirements — 8 core CPU, 16GB Ram, 500GB HDD, and sufficient bandwidth. The 100,000 ELF will be returned to the holder when they step down from running a node, unless they were forfeited in the process.
There are two types of nodes in the aelf Ecosystem, Producer nodes and Candidate nodes. Producer nodes are the top 17** by votes which get elected to be block producers. Candidate Nodes make up the top 85** by votes as backup nodes who perform block verification and support the producer nodes.
**The number of nodes follows the following formula: Producer Nodes = 2n+1, Candidate Nodes = (2n+1)*5, where ’n’ = 8 and increase by 1 each year.
Since 60% of the Dividend Pool will go to the 17 producer nodes, they will each receive 1/17th of the 21,600 daily ELF from block production or 762 ELF give or take (depending on their individual vote and re-election weights) each day.
The Candidate nodes will receive a flat 20% of the total Dividend Pool divided by the number of nodes. 20% of the 21,600 divided by 85 Candidate nodes equates to around 50 ELF per day or about 18.5% ROI p.a. (based upon an initial investment of 100,000 ELF to be a node)
Sidechain Incentives
When a developer needs to create a sidechain or adjust the chains performance, they need to submit a proposal to be voted on by the production nodes. While a sidechain is running it will be paying an indexing fee which varies based on the resources required. They will also need to pay resource fees to ensure the chain functions to the required performance levels. All these fees will be added to the dividend pool
Sidechain developers may also opt into a revenue sharing model which the sidechain security is shared with the set production nodes, also providing them a set portion of the revenue earned by the sidechain.
Governance
In the initial stage, aelf production nodes will function as a democratic parliament. In other words, they are voted in by the people and decide upon decisions through the ‘majority vote’ concept. There are two other models that can be employed by the community — Association Governance Model and Referendum Governance Model.
Association Governance
The Association is an autonomous organization which is created by specific organizations and used to vote on decisions that affect it.
Referendum Governance
This approach requires users to vote for the desired production or candidate node to represent them in the voting process.
The governance is quite complex and will vary based upon the specific requirements of each individual sidechain. There are certain aspects of the aelf ecosystem which are currently set to always exist under the parliament model, in other words, will be decided upon by the production nodes.
The affairs governed by the parliament model are:
- Main chain contract deployment / upgrade
Although there are automatic contract inspections, for security, the main chain deployment and upgrade contracts need to be deployed / upgraded after approval by the parliament during the initial stage of the launch. (This is also the governance process of the main chain DApp)
- Create a third-party token and ELF connector
In aelf, by staking ELF, you can build a connector with ELF, and complete exchange with ELF. This rule is based on the Bancor model. Tokens that have established and enabled connections will follow the Bancor model for transactions. Operations that request the creation and activation of connectors use parliamentary organization governance.
- Adjust the reward rate for user votes
Users who vote will receive rewards from the network, subject to the vote lock-in time. Longer periods result in higher rewards. If the rate is to be adjusted, Parliament must agree to adjust the daily reward rate for one, two and three years. For the specific adjustable parameter range, please refer to 3.4.
- Adjust system contract method fee
The system contract transaction fee consists of two parts: one is charged according to the size of the transaction, and the other part as contract method fee is set by the parliament.
- List of tokens available as payment for transaction fees
Transaction fees can be paid using not only ELF but also other selected tokens (such as stablecoins). A list of tokens that can be used can be configured and is co-managed by parliament.
This is the first major document release after the testnet upgrade to aelf Enterprise 0.9.2, and has given many to think about in regards to the decision of becoming a node on the aelf blockchain. Certainly the incentives look quite attractive and appear to provide a high ROI with little risk.
