The AKRO Tokenomics 101: Part II — the full scope of the AKRO token model
In the first part of our blogpost series, the AKRO tokenomics 101 we explained how AKRO would be used to validate blocks in the AKRO chain. Let us dig deeper in this second installment, and understand in full what AKRO can do within the AkroChain.
The main goal of Akropolis is to deliver a product that will serve millions of people taking part in online and offline communities, such as DAOs, cooperatives, mutuals and savings groups. We are building a protocol layer for secure mutual financial cooperation, community-based savings, investments, and social security services. However, releasing good products is not only about the use-case: we have to make them scalable and interoperable with as many networks/protocols and digital assets as possible.
The first version of Akropolis MVP and crypto-financial primitive C2FC were released in the Ethereum ecosystem. But, using Ethereum as a basic blockchain layer cannot provide the scalability and interoperability for our product. Despite all the advantages of Ethereum, we understand, that our Ethereum-based product releases can be used only on public testing of business logic by early adopters and active members of the Akropolis community. Therefore, a future milestone of our project is to have a domain-specific chain, the AkroChain — which we are building using the Substrate framework. Therefore, our AKRO token model design will evolve over time.
As mentioned in the first installment, we need to ensure the security of the AkroChain by enabling dPoS consensus run by block validators. The number of validators is finite and any AKRO holder can contribute to the network security by token delegation. At the network launch, there will be 30 validators that are defined for every epoch (round). Each round will take approximately 30 minutes. The minimum stake for became a validator is 1,000,000 AKRO tokens. However, the node is not required to acquire 1,000,000 tokens — they can be pooled from the community by token delegation. When it comes to launching a node-candidate for validator positions, only 100,000 AKRO will be required as an initial stake.
To incentivize validators, we have considered two possibilities: high inflation during the first years of the network operation or granting them other sources of rewards, besides minting new coins. Projects such as Bitcoin, Ethereum and many others are based on the inflationary model to attract miners. In our case, we don’t see the point to use this model and therefore we implemented an additional (albeit relatively low) fee into our product, besides the basic network commission for transactions: the “cost of service”.
The cost of service is a special fee applied to selected operations in the Akropolis ecosystem. This fee is implemented with two goals: the first goal is to provide the necessary incentives to network validators based on additional income — which will increase with network growth. The second one is to motivate AFOs to take part in the network consensus as validators or delegators. Every AFO can compensate the charged fees by earning rewards from the validators’ work (or from tokens delegation). If the token stake of certain AFO is relatively large, it can even earn additional rewards for its members on the delegation, and not only compensate for the “cost of service” fee. As we consider AFO as the elementary unit of our network (or network host), it is important to make network consensus run by a large set of the internal actors rather than several “whale” token holders.
The logic of community trust and governance mechanics: every AFO could use tokens, delegated to a validator as collateral for attracting loans. If the AFO doesn’t need financing, it can use tokens in the Community trust model and delegate “collateral” rights to another AFO, receiving the stability fee as a reward. The values of key network variables are defined by AKRO holders in the governance process. For the reference of the voting model, we used the MakerDAO approach. The principal governance mechanics remains the same. The proposed update of token design adds mechanics, related to the AkroChain consensus to the previously proposed features.
The Consensus algorithm of the AkroChain
The AkroChain will be launched as a public blockchain and operate based on dPOS consensus algorithm. The choice of building the AkroChain has as goal to make the voice of each AKRO holder valuable by granting the possibility to influence the decisions on validators selection by token delegation. The mechanics of dPOS is based on epochs (or rounds). For each round, a new set of validators is selected. The principal rules of our dPOS implementation are presented below:
- The set of validators in the network will be limited by a certain number. At the network launch, there will be 30 validators slots (30 top nodes sorted by the stake size);
- The minimal number of tokens, required to become validator is 1,000,000 AKRO. The node has to own 100,000 tokens while the remaining part can be attracted from community members (delegation);
- Each AKRO holder can delegate their tokens to a selected validator, receiving part of his reward. Validators charge maintenance fees for his services;
- If the node’s offline, failed the chain synchronization — no reward will be granted to it and it shall be dropped from the top-30 list;
- In the case of dishonest/fraudulent activity of a node, its stake will be slashed;
- The set of top-30 validators is defined for every round. Round time is set as 30 minutes.
The values of all mentioned parameters such as a number of validators, maintenance fee, round time are initially defined by the development team. After the network launch, all parameters can be changed in the governance process by voting.
At the moment, our team is working on the AkroChain implementation and relevant integrations into the ecosystem according to logic, mentioned above. Stay tuned, our fellow Akropolis community!