The Energy Transition is at Stake
How the EWT Escrow Model Unlocks the Full Potential of the Energy Web Tech Stack
As our CEO Walter recently explained, service-level agreements (SLAs) are important tools when it comes to widespread commercial adoption of new technologies, especially digital technologies like software-as-a-service (SaaS) and cloud computing. They give enterprise customers confidence by providing guaranteed performance and availability of service at a fixed cost, and they give vendors clear delivery requirements and stable revenue.
We intend for EW-DOS to become a de facto standard for digital identity and infrastructure in the energy sector. For this vision to become reality, we need to figure out how to deliver the guarantees of traditional SLAs and the convenience of “-as-a-service” subscriptions—in the context of a public network operated by many different organizations from around the world.
Over the past year we’ve spent hundreds of hours researching technologies, brainstorming commercial and operational models, and speaking with members of our community to identify a solution. The result is an EWT escrow and subscription model for services in the Utility Layer of the EW-DOS stack that combines well-established elements from financial markets and enterprise IT procurement practices with features common in emerging decentralized finance and escrow applications.
In addition to promoting the physical, commercial, and political decentralization of EW-DOS, this model will catalyze the transition from pilots and proof-of-concept applications to mainstream adoption and commercial implementations. It’s also a triple-win scenario for the three primary stakeholders in the Energy Web community:
- Users of EW-DOS—especially enterprise customers like grid operators, OEMs, and energy companies—will gain easy access to performant, reliable services that help them realize the benefits of running applications on EW-DOS.
- Operators of EW-DOS, including EWC validators and technology vendors, can build stable, profitable business models around hosting infrastructure nodes in a public network.
- The EWT community gains a new way to use their EWT to contribute in the development and operation of EW-DOS infrastructure, which ultimately will accelerate digital transformation across the global energy sector and help to decarbonize the grid faster.
This article describes the key roles, processes, and value propositions of the escrow model at a high level. While the main components are already being developed into a working prototype, some of the fine details have yet to be finalized. Our intent with this article is to elicit feedback and questions from the community, so don’t hesitate to respond in the comments below.
How EWT Escrow Works
Just like in proof-of-stake (PoS) consensus models (and in traditional escrow models in financial and energy markets), the purpose of EWT escrow is to incentivize/reward honest behavior and discourage/penalize bad actors. However, instead of being used to achieve consensus in a blockchain, EWT escrow is used to achieve performance guarantees for digital services like key management, data storage, and high-volume messaging in the Utility Layer of the EW-DOS stack. These services are necessary to support all types of applications running on EW-DOS, from distributed flexibility markets, to identity registries for energy assets, to enterprise-grade settlement, and even decarbonizing blockchains themselves.
The EWT escrow model has two primary roles, which anyone in the global community can become:
- Service Providers (“Providers”) are organizations that operate Utility Layer service nodes. In order to become a qualified Provider, an organization must pass a basic KYC check and deposit a minimum balance of EWT into an escrow smart contract for a multi-year period. Once qualified, Providers can launch service nodes by depositing an incremental amount of EWT in escrow and passing a performance test for each node. To meet the minimum escrow balance requirement, providers can either acquire the necessary EWT themselves or accept EWT from external Patrons in the wider community. As long as Providers deliver services in accordance with the prescribed rules, they will earn a stable income on their deposited EWT.
- Patrons are individuals or organizations that deposit EWT in escrow on behalf of Providers (similar to the relationship between validators and nominators in Polkadot). Unlike Providers, there are no minimum balance thresholds or lockup periods for Patrons; anyone who holds any amount of EWT can participate. Patrons have the flexibility to withdraw or transfer their EWT from the escrow account(s) of Providers at any time, creating competition among Providers to deliver the most-reliable services (and thus earn the highest and most-stable income) and to offer the most competitive revenue-sharing models (to attract the most Patrons).
There is no limit to the number of Service Providers. In fact, to meet the enterprise performance requirements for applications running on EW-DOS, we anticipate the need for hundreds of Providers operating thousands of nodes globally to ensure sufficient geographic coverage and network reliability for millions of applications and end-users.
At this time, the expected minimum escrow threshold for becoming a qualified Provider will be in the range of 10,000–100,000 EWT with an additional 1,000–10,000 EWT per service node. The incremental escrow requirement for individual nodes means each node will be judged (in terms of payments and penalties) on its own performance, and it also helps prevent monopolization. The final decision on the threshold requirements will be made based on feedback from the EW-DOS community, and must balance the need to ensure reliability and guarantee trust for enterprise users without creating insurmountable barriers to entry for potential Providers.
In addition to incentivizing good performance, Provider escrow accounts are used to make the Utility Layer carbon neutral from day one. Each month, the escrow accounts will be drawn down to purchase renewables via Energy Web Zero.
Providers will be required to commit to delivering services for ~two or more years from the time of their initial enrollment (two years is a standard contract length for most enterprise IT services). During this period, deposited EWT will remain locked and if the Provider fully ceases delivering services they will forfeit their escrow balance. Providers who commit to a longer service delivery period will earn more each year than those who commit to the minimum duration. This multi-year commitment ensures that Providers are fully dedicated to delivering reliable services, and gives enterprise customers assurances about service availability and quality over a longer time horizon. After the initial commitment period, Providers may exit the Utility Layer service pool and withdraw their EWT from escrow by providing six months advance notice (which allows other Providers to backfill capacity as needed).
As long as Providers operate reliable service nodes that meet the performance standards (e.g., uptime, throughput capacity, latency) for each Utility Layer service, they will earn stable income through a combination of subscription payments and rewards from the Community Fund. Annual income for a Provider will be in the range of 10–20% of their EWT escrow account balance.
Initially, Providers’ income will be subsidized by the Community Fund , but over time as adoption (and subscription volume) increases, this subsidy will diminish. We expect that within 3–5 years, the Utility Layer will be driven by a sustainable commercial model where the vast majority of Provider earnings will be derived from subscription payments.
Patrons should expect to earn similar, if not identical, income as Providers (i.e., at least 10–20% of deposited EWT annually), though exact revenue-sharing arrangements will be determined by each Provider individually. To reiterate, there are no minimum escrow thresholds or commitment periods for Patrons. It is up to each Provider to define their own terms for Patrons, and natural competition encourages Providers to invest in appropriate infrastructure to ensure high-quality services, and to offer favorable terms to attract Patrons and maximize their own earning potential. When evaluating Providers, Patrons should consider not just revenue-sharing terms, but also reputation (e.g., overall historical performance) and individual node metrics.
In the event that a node fails to deliver services in accordance with the performance standards, the offending node and its Provider each lose a portion of their EWT deposit (similar to slashing in other crypto staking models). Accordingly, Providers are strongly incentivized to invest in appropriate resources and backup systems to ensure that nodes do not experience unplanned outages (especially if they have accepted EWT from external Patrons). If they fall below the minimum threshold, they must replenish their balance to remain eligible to host their node(s). Importantly, Utility Layer services are designed so that the failure of any given node does not materially impact the overall service. Much like electric grids, the Utility Layer is built to withstand the unexpected loss of individual components.
What to expect moving forward
Our goal is to launch the first Utility Layer services, complete with escrow and subscriptions, in production by Q3 2021.
Here’s what to expect between now and then:
- In the next two weeks, we will publish more information outlining the service subscription model and explaining how EW Switchboard is used to manage both escrow and subscriptions.
- In April 2021, we will release a series of video demonstrations, technical documentation, and a clickable prototype for the escrow and subscription models.
- In May 2021, we will conduct an alpha release of escrow and subscription tools on our testnet Volta.
- In June 2021, we will conduct a beta release of escrow and service components on the Energy Web Chain (EWC), with an initial cohort of Service Providers from the EWC validator community.
- Throughout the remainder of the year, we will focus on scaling the Utility Layer service network, onboarding additional Providers and Patrons from the wider Energy Web community, adding new Utility Layer services, and integrating the escrow and subscription models with exchanges and other external systems to make it even easier to participate.
We’ll also be publishing a steady stream of articles, tutorials, and demos in the coming months to further explain the operational and commercial details of the escrow model. If you have questions or ideas, drop us a note in the comments below! To stay up to date with the latest information, follow us on Twitter or join our Telegram community.
