The Kadena Token Economic Model

Will Martino
Oct 30 · 11 min read

Authors: Anastasia Bez, Will Martino, Monica Quaintance

Kadena has designed a token economic system that aligns the incentives of all participants. As Kadena is a public blockchain platform, the main allocation of coins is distributed through mining. There will be a genesis block with allocations to investors, contributors, and the platform reserve. The rest of the coins are created as mining rewards.

Some projects sacrifice security when using Layer Two solutions, while others sacrifice business adoption when using Layer One protocols. Short term functionality becomes an obstacle to long term growth. Kadena is specifically structured with longevity, stability, and functionality from the start.

Coins from allocations become available gradually, creating stability. The network and token schedules are designed for sustainability, with an adoption curve to ensure that the economy will scale instead of spiking. For this reason, there is a balance between the coins coming from mining and those which are allocated in the genesis block. Staggering the release schedules ensures that proportions remain equitable.

Network Overview

Tokens in Kadena are as simple as, and function in an identical way to, Ethereum. Coins are generated through mining. Existing coins may be:

  • directly transferred between users
  • used for creating new smart contracts
  • used for paying the gas cost of executing smart contracts

Kadena’s smart contracts are written in Pact, an open-source, formally-verifiable, human-readable, and Turing-incomplete language. Pact is designed for ease of use and adoption by developers and non-technical professionals alike. Gas is paid to the network for the execution of Pact smart contracts on the Kadena blockchain.

Overall Kadena Token allocations: 70% miners, 20% platform reserve, 7% investors and others, and 3% contributors
Overall Kadena Token allocations: 70% miners, 20% platform reserve, 7% investors and others, and 3% contributors

1. Mining

The majority of the coins in the Kadena economy are mining rewards. As Kadena is a Proof of Work network, it relies on decentralized mining for the network’s function and growth. Miners receive block rewards for validation/production of blocks. The block reward will be in the platform’s native cryptocurrency, Kadena (KDA). Miners will also be able to receive KDA as transaction fees or gas payments for the execution of smart contracts. The minimum fractional unit of KDA is a “Hop,” a trillionth, named after Grace Hopper.

Block rewards are readjusted against a set schedule every six months, with roughly half of the remaining minable coins issued as block rewards every 20 years. Since Kadena has a fixed quantity of tokens, Kadena is mineable for approximately 120 years. In practice, this makes the economic model fall between a strictly inflationary (Ethereum) system and a capped/deflationary (Bitcoin) system.

Unlike PoW projects that have come before Kadena, where the interests of miners are at odds with that of users and businesses, Kadena’s Chainweb protocol aligns all users’ interests. Kadena is built to scale from the start and initially launches with a 10-chain network that can be hard forked to add additional chains when adoption overshadows existing throughput.

Coins in circulation over time
Coins in circulation over time

2. The Platform Reserve

Kadena takes the long view on blockchain. The platform reserve is not released until years 2 through 5 after launch. The platform reserve is oriented towards the post- inflection point of smart contract adoption, as opposed to positioning for divestment.

In the next decade, business adoption of public smart contracts technology is expected to take place. When that happens, crypto will have a cyclical problem. Widespread adoption means that business-oriented services are necessary. However, these services are often low-margin and demand large native capital reserves to function. By the time these services are required, the native currency is generally too valuable and volatile for the necessary quantity of native currency to be amassed. The platform reserve may be used to capitalize future crypto-native services that our community will need. The long-term intent of the platform reserve is to act as a treasury for future operations through monetization, and not divestment. Since the platform reserve is allocated in the genesis block and vests over five years, the platform reserve is unconnected to hash power and confers no governance or control over the network. The platform reserve is an investment in the longevity and success of the network. It will enable opportunities for businesses of all sizes.

Examples of our plans for the platform reserve include:

Traditional Insurance: Once significant business adoption of smart contracts begins, businesses will need to insure their contracts. As custody platforms, exchanges, and dApps mature, they will need some form of insurance. Security breaches such as Parity’s Multi-Sig Wallet, or the DAO, or Mt. Gox hacks would have been far less damaging fiscally and in terms of public trust had the underlying infrastructure included insurance in the native currency. Insurance is one of the primary holding pens for large sums of currency in existing monetary systems. This is no different with cryptocurrency except that the volatility of cryptocurrencies means insuring in the native currency carries tremendous risk. It is a natural development for the platform reserve to be partially monetized via insurance products that are capitalized in native cryptocurrency.

Smart Contract Security Audits as Due Diligence for Insurance: Insurance is necessary but not sufficient for business to be conducted through blockchain-based smart contracts and the crypto sector as a whole to grow. Users need a system for finding bugs and verifying code, known as Formal Verification. Kadena’s universal smart contract language Pact supports Formal Verification. While some companies offer “smart contract audits,” these audits are a best effort where vendors are selected based on reputation. In the next few years, Kadena aims to upend this model and offer audits that formally verify smart contracts and then provide insurance for the verified smart contract. As the verifier is still built by people and people are fallible, the insurance product is a safeguard. This process creates a virtuous cycle, in that novel or advanced contracts may require extending Pact’s open source verifier’s coverage. By offering insurance linked to the verifier’s capabilities, we can fund the iterative advancement of the verifier.

Volatility Risk of Gas: The volatility associated with the price of gas must be addressed since it poses a significant risk. Kadena plans to provide products (swaps etc.) for businesses to hedge their risk. A significant sum of KDA is needed to sustainably capitalize the providers.

Community Gas Station Grants: The most future-tech service that the platform reserve can offer is “gas stations.” Gas stations are accounts that refund all gas utilized to execute specific smart contracts to users. When combined with Pact’s ability for dApp developers to co-sign transactions and pay for a user’s gas costs in using a dApp, we see gas stations as a powerful way for the platform to cover many years of gas costs. This approach solves a major user experience issue associated with dApps; new dApp users will no longer need to purchase crypto to interact with a dApp. Gas grants facilitate an accessible, easy experience for onboarding new users to the platform.

3 & 4. Key Stakeholder Allocations: Investors, Contributors, and Others

Presales: To date, Kadena has completed a SAFT Round 1 and Round 2. The SAFT Round 1 sold 4.5 million coins at $0.50 per coin in Q4 2017 and the SAFT Round 2 sold 17.2 million coins at $0.75 per coin in Q1 and Q2 2018. These coins come out of lockup on a monthly basis over a one-year period, starting the month after the network’s public launch.

The money raised from the Round 1 and 2 SAFTs has allowed Kadena to grow the team and sustain operating costs, hiring highly skilled people to ensure a successful network launch as well as building out business collaborations for post-launch opportunities.

LEGAL DISCLAIMER: Our lawyers require us to tell you the following.

THIS IS NOT AND IS NOT INTENDED TO BE AN OFFER AND SALE OF SECURITIES. IF YOU ARE INTERESTED IN PARTICIPATING IN THE TOKEN SALE DESCRIBED BELOW, ALL INFORMATION, DOCUMENTS, AND DETAILS CAN BE ACCESSED THROUGH www.coinlist.co/kadena (THE “OFFICIAL SITE”) INCLUDING THE DEFINITIVE OFFERING DOCUMENTS AND INSTRUCTIONS ON HOW TO EXPRESS YOUR INTEREST IN THE SALE AND COMPLETE THE REGISTRATION PROCESS. THE OFFICIAL SITE IS THE SOLE SOURCE OF INFORMATION REGARDING THE OFFERINGS. DO NOT RELY ON ANY OTHER SOURCE OF INFORMATION REGARDING THE OFFERINGS OTHER THAN THE OFFICIAL SITE.

Token liquidity pie graphs at launch, 6 months after launch, 12 months after launch, and 15 months after launch.
Token liquidity pie graphs at launch, 6 months after launch, 12 months after launch, and 15 months after launch.

Token Sale

At the beginning of November, Corro LLC, our affiliate, will be launching two coinciding token sales on CoinList’s platform.

  • CoinList Non-US: This offering is available exclusively to non-US buyers. Similar to an IEO, tokens purchased will be liquid exclusively on CoinList’s RFQ exchange shortly after the sale ends.
  • CoinList Global: This offering is comparable to a SAFT and is available to both US and non-US accredited investors. The tokens sold in this offering will be locked up until December 2020 and come out of lockup in equal installments in Dec’20, Jan’21, Feb’21.

Strategic Allocations: All other allocation coins fall into this category. These coins are for employees, advisors, consultants, business partners, the community, and for funding operations. The coins come out of lockup on various schedules starting at platform launch and continuing for the following three years. The decision for gradual vesting over a long time period is because we are committed to being a part of the longevity and health of the network. As excited as we are for launch, we know that it’s only the beginning. Our belief in the project is strong; the longer vesting creates aligned incentives with the community.

Timing

Mining on Kadena is live; watch the mining progress here. Transfer functionality is turned on in December and full public launch occurs in January. Full functionality includes transfers and smart contract execution alongside the ability to create dApps on the Kadena blockchain. During this burn-in phase prior to transfers being turned on, the total number of mined coins will be approximately two million.

A Brief Summary of Projected Major Token Milestones

October 30, 2019: CoinList Registration Begins

November 5, 2019: CoinList Sale Begins

November 29, 2019: CoinList Sale Ends

December 6, 2019: Kadena transfer functionality is enabled

January 1, 2020: SAFT Presale Round 1 and 2 begin to vest

January 11, 2020: CoinList Non-US sale tokens can settle to mainnet

December 1, 2020: SAFT Presale Round 1 and 2 finishes vesting, CoinList Global SAFT begins vesting

January 1, 2021: Platform reserve begins to vest

February 1, 2021: CoinList Global SAFT finishes vesting

— — — —

PLEASE BE AWARE: Corro LLC, Kadena Public LLC, and Kadena LLC are not responsible for, have not approved, and have not been involved in any pre-trading, funding pools or reselling of Kadena tokens. Any and all the details of the Kadena public sale will be announced through our official website, official social channels and should be the sole source of information. PLEASE DO NOT RELY ON ANY OTHER SOURCES OF INFORMATION.

Please ensure extreme care and due diligence in all matters regarding token purchasing and ownership. We are not responsible or liable for any loss of funds or other issues arising from actions taken by third parties, bad actors or your negligence.

The information provided on this website includes forward-looking statements that involve risk and uncertainty including as to (a) development and performance of the platform including as to scalability and security; (b) the ability to achieve, and timing of, a public launch; (c) the potential uses of the platform and Tokens and whether applications will be built to run on the platform and create demand for the Tokens; and (d) the application of federal, state and foreign laws and regulations, including with respect to whether this Offering or the Tokens might constitute a “security” and restrictions on the offer, sale, resale, use or trading of Tokens. Such statements reflect our beliefs, opinions and positions that we believe are appropriate under the circumstances and that are designed to help you understand our current thinking. No representation or warranty is intended as to these forward-looking statements and they are not guarantees of performance or results. By their very nature, these statements are subject to certain risks, assumptions, uncertainties and other factors and the actual results could differ materially from our statements. Do not place undue reliance on these forward-looking statements.

NEITHER THE TPA NOR THE TOKENS RECEIVED HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH THE U.S. SECURITIES EXCHANGE COMMISSION (THE “SEC”), AND MAY NOT BE ALLOWED TO BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS REGISTERED UNDER THE SUCH ACT AND QUALIFIED UNDER STATE LAWS, OR UNDER AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS OF SUCH ACT OR SUCH STATE LAWS IS AVAILABLE.

NEITHER SELLER NOR ANY OF ITS MANAGERS, MEMBERS, EMPLOYEES, ADVISORS, ATTORNEYS, OR REPRESENTATIVES, NOR ANY OTHER PERSON ACTING ON BEHALF OF SELLER, MAKES ANY RECOMMENDATION TO YOU AS TO WHETHER TO PARTICIPATE IN THIS OFFERING AND PRE-PURCHASE TOKENS. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATION OR PROVIDE ANY INFORMATION IN CONNECTION WITH THIS OFFERING. IF GIVEN OR MADE, SUCH RECOMMENDATION, REPRESENTATION OR INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN MADE OR AUTHORIZED BY US.

NO GOVERNMENTAL AUTHORITY IN THE UNITED STATES (INCLUDING THE SEC) OR ANY OTHER JURISDICTION HAS REVIEWED, PASSED JUDGMENT UPON, OR APPROVED THE TERMS OR MERITS OF THIS DOCUMENT OR THE ADEQUACY OR ACCURACY OF THE INFORMATION HEREIN.

NEITHER SELLER NOR ANY OTHER MEMBER OF THE KADENA GROUP WILL BE REQUIRED TO, NOR DO THEY CURRENTLY INTEND TO, OFFER TO EXCHANGE THE TPAS OR THE TOKENS FOR ANY SECURITIES REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER LAW, OR REGISTER THE TPAS OR THE TOKENS FOR RESALE UNDER THE SECURITIES ACT OR ANY OTHER LAW. REGISTRATION UNDER U.S. SECURITIES LAWS OR OTHER LAWS OR AN EXEMPTION FROM REGISTRATION MAY BE REQUIRED IN ORDER FOR YOU TO USE, RESELL, TRANSFER, ASSIGN, EXCHANGE OR OTHERWISE DISPOSE OF THIS TPA OR THE TOKENS.

Neither the TPA nor any Tokens is being registered in any jurisdiction outside of the U.S. and this Offering is not being offered and will not be sold to any Person residing in the State of New York, People’s Republic of China (not including Hong Kong and Macau special administrative regions and Taiwan), Vietnam, South Korea or any other jurisdiction where the offer or sale would violate applicable laws or would require us to obtain a license, permit, approval or other registration or other qualification that we do not possess at the time of the Public Launch (collectively, the “Disqualified Jurisdictions”).

Investment in the TPA and the Tokens involves a number of significant risks. The risk factors described in the TPA are not all the risks that you may face when investing in the TPA or the Tokens, and you should use them only as guidance. Additional risks and uncertainties regarding the TPA, the Platform and the Tokens that are currently unknown to us, or that we currently deem immaterial, may individually or cumulatively have a material adverse effect on our ability to develop or launch the Platform or issue or sell the Tokens. You should carefully consider those risks and perform your own diligence and analysis before participating in this Offering and agreeing to purchase the Tokens. Certain of those risks could materially affect our ability to launch the Platform and sell the Tokens, or the value or use of the Tokens before or after any Public Launch. You could lose all or part of the amount you paid under this TPA.

YOU ASSUME ALL RISK AND LIABILITY FOR THE RESULTS RELATED TO THIS TPA AND THE TOKENS, REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY US, BY WAY OF TECHNICAL ADVICE OR OTHERWISE, RELATED THERETO. THE RISK OF LOSS IN BUYING, HOLDING AND TRADING DIGITAL ASSETS AND RIGHTS THEREIN, INCLUDING THE TOKENS, CAN BE IMMEDIATE AND SUBSTANTIAL. THERE IS NO GUARANTEE AGAINST LOSSES FROM PARTICIPATING IN THE OFFERING. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER TRADING OR HOLDING TPAS OR CRYTPOCURRENCIES IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.

Kadena

Kadena is powering new ideas and business models with a hybrid blockchain platform that offers scale, security and simplicity. Kadena’s blockchain technology is in use today by Fortune 500 clients in finance, healthcare, and insurance.

Will Martino

Written by

Co-Founder of Kadena

Kadena

Kadena

Kadena is powering new ideas and business models with a hybrid blockchain platform that offers scale, security and simplicity. Kadena’s blockchain technology is in use today by Fortune 500 clients in finance, healthcare, and insurance.

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