The AURA Token: Share in the Success of IDEX and Aurora Through Staking
The AURA token enables stakers to earn a share of fees generated by IDEX and future Aurora products. By staking AURA and helping secure Aurora’s fully-decentralized network, node operators will be rewarded proportionately to their percentage stake. As the fees from IDEX and other Aurora products increases, node operators will secure a larger network and therefore be able to claim ever larger rewards, allowing the community to share in the success of the project.
***Update (9/12): More information on the structure and release plans for AURA staking can be found in this post.
IDEX is currently a hybrid-decentralized exchange. The smart contract is used for custody of funds, trade, and settlement, while the IDEX servers manage the off-chain balances, orderbook, and trade dispatching. Careful coordination of the two is what creates the real-time trading experience, but this coordination relies on a centralized infrastructure for non-critical functions.
Future development will decentralize all aspects of the exchange such that every component, not just the smart contract, is operated by a peer-to-peer network. This network will add redundancy to the platform, with each additional node improving DDOS protection and resistance to malicious actors. Additionally, users will no longer be required to access IDEX through a website, but instead through an application run locally on their computer or phone, removing the risk of DNS hacks which have targeted both centralized exchanges as well as other DEX platforms.
Upcoming Network Development
The network software will be released in two distinct phases.
In the first phase, the network’s role is to replace IDEX’s off-chain database with a decentralized orderbook infrastructure. Each node will be required to store the orderbook, the off-chain state (user balances, last nonce, etc), and trade history, and will be responsible for keeping this data synced with all other nodes on the network. Nodes will utilize a proof-of-stake system to curate the orderbook in real time and serve it to traders using the local IDEX application.
When a trade is initiated the data will be routed to the closest node for validation. Upon successful validation the node will relay the completed trade across the network so that other nodes can update their orderbook accordingly. IDEX will continue to act as the transaction arbiter, queuing and broadcasting orders to the Ethereum blockchain in the correct order. While not fully decentralized this design will remove DNS vulnerabilities and improve DDOS protection and is a a major step towards full decentralization.
In the second phase, decentralization of the transaction arbiter will occur while at the same time IDEX transitions over to a sidechain architecture. Each node will now also be responsible for mining the sidechain to execute and settle trades. The transaction arbiter will be built into the mining code itself, ensuring that all trades settle in the correct order and that the sidechain state stays in sync with the off-chain database.
The Role of AURA
Coordinating this network requires an economic incentive to ensure that independent node operators all work towards the same goal. This incentive takes the form of AURA, our network token. Operators will be required to stake AURA tokens as a form of security deposit, and any attempts to thwart the system will be penalized through a loss of tokens. Operators that support the network honestly will be rewarded with fees from the exchange.
Node operators receive transaction fees from the exchange for their role in securing the network, akin to how Ethereum miners receive ether gas fees for their role in processing transactions. The amount of rewards passed to node operators is a function of many variables, but with some simple assumptions we can start to get an understanding of what these rewards might look like.
All value that flows into Aurora (IDEX trade fees, boreal banking fees, etc) will be used to advance the platform, either by compensating AURA stakers, covering operating expenses for further development, or building reserves and facilitating dApp profit sharing to support the boreal. Currently we plan to allocate 50% of fees directly to AURA stakers for their role in securing the network. The other 50% will be used to fund further development of the platform as well as fund the reserves backing the boreal stablecoin. This will increase the fees collected in the future such that eventually 100% of the value from the platform flows back to stakers.
Only accounting for IDEX and not considering any future products, fees to each operator are primarily a function of the following:
- IDEX volume
- Percentage of trades with IDXM free trades
- Amount of AURA being staked
E.g. in Q3 when AURA staking begins, IDEX has a daily trade volume of 75M USD, and 20% of this trade volume is from IDXM users who opt for free trades. With the 0.1% maker 0.2% taker fee structure this results in ($75,000,000 * 0.8 * 0.003 * 0.5) = $90,000 in daily staking fees.
AURA will take 5+ years for the majority of it to hit the market, so assume that at this time 25% of the AURA is unlocked and 80% of that (20% of the total 1 billion) are used for staking. This results in ($90,000 /200,000,000 AURA) x 365 days = $0.164 per year/per staked AURA.
AURA Distribution Rate
The AURA distribution process has been carefully tuned so that tokens are released slowly over time. This will ensure that the company continues to have sufficient AURA for use in growing the community and incentivizing behavior that will be most beneficial for long-term success.
10% (100m) of the total AURA tokens were airdropped on IDXM buyers in the initial public distribution event. An additional 20% (200m) has been allocated to the market making rewards program, with monthly payouts equal to 1% of the remaining amount (2m in month one, 1.98m in month two, etc.). The slow decay of payouts allows the program to continue indefinitely; five years into the program only 45% of the reward tokens will have been released, and the monthly payout will still exceed 1.1m AURA.
The remaining 20% of the public distribution will be used to accelerate the support and adoption of boreal banking. This could include grants to other dapp token communities that adopt and support the boreals or programs to reward early adopters of the loan program. Again our approach will be conservative to ensure that the AURA tokens are intelligently allocated to the most effective programs.
Please note that the estimates above are rough estimates and represent a point-in-time calculation to help people assess if AURA staking and node operation is right for them. The estimate does not consider the future growth potential of Aurora including the impact of migrating to our own sidechain, with the associated increases in scalability, or potential fees from boreal banking. However we hope that this provides more information on our development plans so that you can decide if you want to be a future staker of the Aurora network.
Please let us know in the comments or on our social media if you have any further questions.
Thanks to Phil Wearn, Forrest Whaling, Ray Pulver, and Brian Fernalld for helping craft this post.