Nervos DAO Explained
Since the Nervos CKB mainnet launch last week, over 650 *Million CKBytes have been deposited into the Nervos DAO (at the time of writing).
The Nervos DAO allows users to lock CKBytes (that are not being used) and receive rewards from secondary issuance. To check out the Nervos DAO on-chain info, you can reference the CKB explorer.
The token-economics of Nervos CKB have been designed to provide long-term CKByte holders an effectively supply-capped cryptocurrency similar to Bitcoin. In other words — by depositing in the Nervos DAO, your holdings will never be diluted by secondary issuance.
Although it may seem slightly complicated at first, the Nervos DAO (alongside every aspect of CKB) is developed in a totally permissionless, decentralized and trustless way. This means you will never have to rely on or trust a 3rd party of any kind to interact with the Nervos DAO.
For full info on the Nervos DAO, read the Nervos DAO Deposit and Withdraw RFC.
What is the CKByte Token Issuance?
Before understanding the operation of the Nervos DAO, it is necessary to understand token issuance on Nervos CKB. Beyond the CKBytes created in the genesis block, CKByte issuance is made up of:
A hard-capped issuance given to miners as block rewards. A total of 33.6 billion CKBytes will be issued, with the amount issued halving every four years. 16.8 billion CKBytes will be issued over the first four years, half of this amount will be issued in the following four years, and so on, until reaching 0 new issuance — the same as Bitcoin’s issuance model.
Issued at a rate of 1.344 billion CKBytes per year, every year. Based on CKByte usage, these rewards are divided among 1) miners, 2) Nervos DAO depositors and 3) a treasury fund (which is being burned until the ecosystem fund in the genesis block is depleted).
By depositing in the Nervos DAO, your holdings will never be diluted by this secondary issuance.
For more details on the Nervos DAO and CKB economic models, please see the Crypto-economics RFC and Positioning Paper.
Deposits and Withdrawals
In the Nervos DAO there are 3 transactions that need to be completed for a full deposit and withdrawal cycle:
- Deposit Transaction — this is the initial deposit of the amount of CKBytes you wish to lock in the Nervos DAO. As soon as this transaction has been included in a block, this block number becomes the start of the “reward” period, and your deposit is locked.
- Initial Withdrawal Transaction — this is the first step in the withdrawal process. You can send this transaction at any time to the Nervos DAO to indicate your request to withdraw, however, the block in which this transaction is included is the end of the “reward” period.
- Final Withdrawal Transaction — This is the transaction which withdraws your initial CKByte deposit + rewards accrued from the Nervos DAO. It must be done in a deposit period after the Initial Withdrawal Transaction.
How long after deposit will my tokens be locked, and when and how can I withdraw them?
Holders can deposit into the Nervos DAO at any time, though the timing of withdrawals is based on deposit periods. Each deposit period is 180 epochs (~30 days) starting from the time of your deposit.
You can keep your CKBytes in the Nervos DAO for as many deposit periods as you wish but you must request your withdrawal (the Initial Withdrawal Transaction) before the end of the deposit period you wish to withdraw in.
This can be a little tricky, so let’s look at a few examples:
You deposit CKBytes into the Nervos DAO during epoch number 100, and want to withdraw them in epoch number 281 (remember, deposit periods are 180 epochs long). If you did not process the Initial Withdrawal Transaction until epoch number 281 or later, you would need to wait until epoch number 460 to complete the withdrawal (the end of the following deposit period). If your Initial Withdrawal Transaction was before the end of epoch 280, you can then withdraw at any time after the end of epoch 280.
You can see that the Initial Withdrawal Transaction must be confirmed in a deposit period prior to the deposit period that you wish to withdraw in.
Your Deposit Transaction sends CKBytes to the Nervos DAO in epoch 10. If you wish to withdraw your deposit as soon as possible (after 180 epochs), you will need to submit an Initial Withdrawal Transaction before the end of epoch 190. You can then make your Final Withdrawal Transaction at any time after epoch 190.
Your Deposit Transaction sends CKBytes to the Nervos DAO in epoch 60. You submit an Initial Withdrawal Transaction in epoch 241 (after epoch 240 has finished). You can then make your Final Withdrawal Transaction at any time after epoch 420 (the following deposit period).
Note: There is no time limit on making the Final Withdrawal Transaction after the Initial Withdrawal Transaction has been processed. You can withdraw at any time after the first 180 epochs of making a deposit, as long as your Initial Withdrawal Transaction has been included in a block before the end of the previous 180 epoch ‘deposit period’.
What is the % return that I will receive? How is this calculated?
When CKBytes are locked in the Nervos DAO, rewards are issued to depositors at the same rate as secondary issuance. The amount of secondary issuance remains constant (1.344B/year) and therefore the initial annualized rate was 4% (Secondary issuance / Initial supply). However, as supply increases (due to issuance) this effective rate of 4% is gradually reduced.
Your percentage annualized return (or APR) will be equal to the percentage increase of total supply from secondary issuance. E.g if secondary issuance increases token supply by 3% over 1 year, your rewards over the same period will also be 3%.
Your Nervos DAO deposit’s APR = Secondary Issuance / Total Supply (over the time period of your deposit)
The exact calculations are documented in the DAO Calculations RFC. We hope the Nervos community can provide an online calculator shortly.
How can I make deposits and withdraws in Nervos DAO?
Here is a guide for using the Neuron wallet to make deposits and withdrawals in the Nervos DAO.
Any wallet can support Nervos DAO deposits and withdrawals and we hope more 3rd party wallets will integrate this functionality shortly.
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