Neo’s Governance Model Projected to Transform Blockchain Space
With the full-scale launch of Neo N3 MainNet approaching, the blockchain sector has also been undergoing a transformation with DeFi, NFT, and other innovations driving forward development.
Featuring a comprehensive array of features ranging from a built-in native prophecy machine to NeoFS, a decentralized storage module to NeoID, a decentralized identity authentication system, Neo N3 aims to leap to the front of the pack. With the aim of deploying DeFi, NFT, and future-oriented applications, Neo N3 will deliver unparalleled efficiency and security at a low-cost to become the foundation for next-gen blockchain.
To achieve this vision, the development team will unveil a completely revamped governance model along with a completely optimized underlying architectural layer. Building upon the current dual-token system of NEO and GAS, Neo N3’s governance model will also introduce a Council, which will incentivize users to use their NEO to vote while utilizing their GAS to participate in maintaining network security and ecosystem development.
From an architectural perspective, Neo N3 has also optimized to deliver a more streamlined user experience, including switching from a UTXO to a pure account model, reconfiguring the virtual machine, adding a state root service, upgrading block synchronization mechanisms, and introducing new data compression mechanisms. Since The release of the Neo N3 TestNet, performance is already up by approximately 50 times, and the MainNet is set to launch soon in the near future.
Dual token governance: 37% annualized user voting rewards expected
As of recently, the question that is now on every NEO holder’s mind is, “when will Neo N3 go live?”
Per N3’s development leads, ChainCatcher has learned that N3 will leverage a dual token system to split network governance and usage rights, thus allowing for a more balanced distribution of community benefits along with improved efficiency and reduced network security risks.
To that end, Neo N3’s new Council will play a key role in representing the interests of users. With Neo N3, NEO holders can elect council members and consensus nodes — who will manage the network — with NEO. Calculated every 21 blocks, the top 21 candidates with the highest number of votes will become Neo Council members, and the top 7 of these 21 members will become consensus nodes.
While the number of consensus nodes will remain unchanged at 7, Neo N3’s governance model offers greater decentralization along with improved block confirmation efficiency. Moreover, as nodes will be re-elected every 21 blocks, Neo N3’s governance system will also prevent “evil” nodes while delivering optimized security.
On any public chain, users constitute the majority, and are the reason for dApps cashing in, yet many platforms seem to disregard them in favor of nodes and developers while distributing benefits.
Under POW consensus governance models, arithmetic power is the right, and all the newly generated revenue is owned by nodes who maintain a monopoly over arithmetic power. Meanwhile, POS consensus models primarily distribute tokens to those who hold the most money — thus, distribution of benefits under both systems is far from equitable.
In addition, POW and POS models require users to pay high processing fees for transferring transactions and using on-chain applications. As a result, platforms such as Ether and EOS have been plagued by high fees, resulting in transaction congestion along with GAS fees worth hundreds of dollars on Ether. While EOS dos not charge GAS feeds, users still need to pay EOS for the right to use the CPU, which has resulted in some developers abandoning the network due to high costs.
On the Neo N3 network, every block will generate 5 GAS, and 80% of the newly generated GAS will be proportionally distributed to voters. To incentivize governance participation, NEO holders who have voted more will also receive more GAS. To participate, all users need to do is to register for a NEO wallet account once the MainNet has been launched.
A Neo community member Sam (pseudonym) predicted that while early voting might not immediately take off, users will also enjoy higher annualized returns. Assuming a voting rate of 20%, 1000 NEO will be utilized, and users can earn 31 GAS for a return of 37%.
Moreover, the Neo N3 will also distribute 10% of GAS to users who do not vote despite holding NEO, thus reflecting the team’s deep community commitment. Per Neo N3 development leads, this is to incentivize greater network activity. Per the team, “While not every NEO holder will vote, they will still need GAS to use the network or applications, thus necessitating them to buy GAS on a marketplace. As a result, some users might be disincentivized from participating which runs counter to the development of Neo N3.”
Moreover, the GAS generated by on-chain transactions will be split into two parts — network fees and system fees. Network fees will be awarded to nodes while system fees will be destroyed, thus creating a natural deflationary effect. Thus, greater network usage will result in more GAS usage and the destruction of more GAS. This in turn will result in increased GAS prices and higher returns — which will also incentivize greater governance participation.
On top of the 80% awarded to voters and 10% to NEO holders, the remaining 10% will be divided equally among the 21 Council members to incentivize good-faith governance and network maintenance.
Building the “Most Comprehensive Blockchain Development Platform”
Compared to mainstream public chains’ single-token governance model, Neo N3’s approach delivers lower network usage costs, optimized network security, and bolstered network efficiency. A simple and streamlined underlying technical architecture is also necessary to make Neo N3 more friendly to both developers and users.
Thus, the Neo team has made numerous innovations in this regard, including transitioning from Neo Legacy’s UTXO/Account hybrid model to a unified account model as well as a simplified smart contract system which can apply on-chain logic to any asset. The team has also reconfigured the virtual machine NeoVM for improved command speed, added a state root service, upgraded block synchronization mechanism, and added a new data compression mechanism.
According to official information, these optimizations can improve the overall performance of N3 by about 50 times compared to Neo Legacy, and the efficiency can rival that of the leading public chain projects in the current market. “If the official data is true, then Neo N3’s ecological prosperity is really worth looking forward to,” commented an industry insider.
These huge changes have also led to the fact that N3 and the current Neo Legacy MainNet are not compatible, so after the N3 MainNet goes online, users need to complete the migration of NEO and GAS within a specified period of time.
Regardless of what disruptive changes have been made to the governance model and what optimizations have been made to the underlying technology, it ultimately comes back to the service application operation, which applications developers can build on the Neo N3 network, and even directly determine the future ecological development direction of the network.
Neo N3 is positioned as the most comprehensive blockchain development platform on the network, and the team has built a full set of functional components into the N3 network, not sparing any segment that may be able to sustain and grow on the blockchain, and developers can call functional components to deploy various DApps at any time. This layout was not a random idea of the Neo N3 development team, but rather a result of following the market changes in upgrading the Neo N3 network to capture user needs.
The Neo N3 upgrade plan was in fact prepared and implemented two years ago. In February 2019, at the annual Neo event DevCon held in Seattle, USA, Neo founder Da Hongfei publicly revealed that Neo’s next upgrade will make Neo the most popular blockchain platform for developers by providing high performance, strong ecosystem support, and compliance solutions.
However, back in 2019, the entire blockchain market was still recovering from the bear market of 2018 which resulted in the market shifting to focus on exchanges and derivatives without a clear focus on developing on-chain ecosystems. At the time, the industry believed that games and finance apps represented the future of dApps. As such, Neo primarily focused on gaming DApps at the time with 11 such apps running on the network, thus constituting ⅓ of the network’s total 31 Dapps — in contrast, there were only 6 finance apps.
However, DeFi and NFT both broke out during the second half of 2020. As a result, gaming apps fell out of favor while Oracle-supported DeFi became popularized. Moreover, blockchain storage also gained in popularity as illustrated by the success of FileCoin since its launch in October of last year.
As such, it has become clear how public chains will develop. DeFi, NFTs, and on-chain storage are now key features along with price prediction mechanisms. In addition to optimizing its architectural layer and its governance model, Neo N3 will also integrate all of the above listed features — DeFi, NFT, on-chain-storage, Oracle — to create the most comprehensive blockchain development platforms.
Growing and Nurturing the Neo Ecosystem Internally & Externally
Once the platform is built, an ecosystem offering a complete array of services must be created to deliver value for users. Using DeFi as an example, a well functioning protocol requires various modules such as stablecoins, wallets, Oracle, and anchor assets to connect with mainstream tokens and enable stable operations.
To that end, Neo N3 aims to offer financial and technical support internally while also cooperating with other platforms to bolster its external resources. Established in 2018, the Neo EcoFund provides comprehensive support for ecosystem development while the Neo EcoBoost, launched in 2019, invested another USD100 million into the ecosystem development.
Per the Neo N3 team, Neo EcoFund and Neo EcoBoost will continue supporting developers. On top of the existing programs, Neo recently also launched the Early Adoption program which aims to attract both existing and new teams to Neo N3. Through these programs, developers — whether working alone or as part of a team — can easily find suitable funding programs for themselves.
On the technical level, the Neo N3 development team will also work with developers to debug any technical issues. Moving forward, Neo N3’s focus for the near future will be the deployment of infrastructural applications such as browsers and wallets along with DeFi and NFT related applications such as lending agreements and derivatives.
Externally, the Neo N3 ecosystem will be expanded through partnerships with various leading organizations. Currently, Neo is working alongside IWA members such as Microsoft and Accenture to develop and promote tokenization standards with the aim of driving enterprise adoption of blockchain, thus helping open the door for future partnerships between Neo N3 and traditional enterprises.
Moreover, Neo also works alongside Poly Network, an industry-leading interoperability protocol, to link other public chain assets and applications to the Neo N3 network. As DeFi and NFT continue to prosper, cross-chain transactions are becoming increasingly prominent with public chains such as Ether anchored assets to enable cross-chain activity. Per OKLink, the number of BTC anchored assets reached 250,000 as of June 17th, translating to USD1 billion in value.
As of now, Poly Network has already integrated Bitcoin, Ether, Neo, Ontology, Elrond, Zilliqa, Binance Smart Chain, Switcheo, and Huobi ECO Chain. As of Q1 2021, total transaction value between member chains has reached USD3.3 billion. Once these ecosystems are connected to the Neo N3 community, users can tap into almost all mainstream public chain applications through Neo N3.
DApp review shows that there are currently over 30 dApps running on the Neo network for a market cap of over USD1 billion, including DeFi platform Flamingo, the decentralized exchange Switcheo, Nash, the wallet O3, NeoLine, and the asset token-through platform Liquefy.
Neo N3 features various disruptive innovations, ranging from the underlying architectural layer to the governance model, which will deliver a comprehensive and user-friendly blockchain platform for developers and users. While work on Neo N3 started two years ago, its launch coincides with a turning point within the industry as DeFi and NFT drive the sector’s continued growth and development. As such, Neo N3 is now ready to seize the moment and catapult to the front of the pack.
This article is a transcript of a Chinese article originally published by “Chain Catcher” (链捕手).