#3: Secondary Fee Tokens and Finality in Blockchains

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Felix Lutsch
Sep 7, 2018 · 4 min read

Opinions & Observations

Staking and Secondary Fee Tokens

There are lots of ways cryptocurrency tokens can be staked. Generally speaking, staking only refers to the process of utilizing tokens in some way without actually spending them. This usually means tokens are being locked in a smart contract and the party putting up their tokens as collateral assumes some form of network responsibility and receives compensation for it. E.g. in the case of a Proof-of-Stake consensus protocol, staked tokens are used as the determining factor of voting power in the network.

Another type of staking model, pioneered by Gnosis and SpankChain, is to distribute a secondary token that is supposed to be redeemed for fees within the ecosystem to token holders depending on the amount (and time) they are locking up the native cryptocurrency. In the cases mentioned above $GNO and $SPANK holders are able to stake their tokens to receive $OWL or $BOOTY in return, both of which are redeemable for $1 worth of fees for the respective ecosystem services.

This last week SpankChain launched the first version of the SpankBank, meaning that they deployed the smart contracts and corresponding UI for $SPANK holders to generate $BOOTY, which will be used as the fee token corresponding to $1 worth of fees charged within the SpankChain ecosystem.

This model has been examined by Twitter user Andrew Kang, who questioned the stability of this $1 peg, which resulted in an interesting discussion (see embedded Tweet below) around how Gnosis and SpankChain respectively try to ensure that $OWL and $BOOTY maintain their $1 fee equivalence featuring both projects CEOs.

Finality in Blockchain Consensus

An important notion influencing the useability and adoption of blockchain technology is finality. In current Nakamoto-style Proof-of-Work consensus systems, transactions can only be regarded as non-revertable, or finalized, after some number of block confirmations. This property, which is referred to as probabilistic finality, makes using such cryptocurrencies undesirable for many applications. Users usually do not want to wait for up to 60 minutes to be sure their transaction got accepted by the network.

The article linked above written by Alexis Gauba from Mechanism Labs introduces types of finality, discusses these in light of the CAP theorem and provides an overview over which trade-offs some of the most well-known Proof-of-Stake protocols like Tendermint, Casper, Algorand and Ouroboros are accepting with regards to finality. If you want to learn briefly about the history of consensus and finality in blockchains, you can also check out this recent blog post by Edward A. Thomson from the Web3 Foundation.

News & Updates

Dai Savings Rate and the First Maker Foundation Proposal

Maker, the team behind the stablecoin $DAI, is about to take the first step towards decentralized governance of the monetary policy that is supposed to hold the stablecoin at its desired peg. With the first foundational proposal taking place on the 12th of September, holders of the $MKR token will be able to vote on whether they agree with the five core principles that the Maker Foundation Team put forth to govern the ecosystem around the Dai stablecoin.

Additionally, Maker announced the introduction of the Dai Savings Rate (DSR), a form of interest rate paid out to $DAI holders that lock their stablecoins in a smart contract. If you think about Maker as a bank, the DSR contract could be compared to a savings account that accrues interest on unused holdings. The DSR is supposed to help stabilize the stablecoin around its $1 peg by increasing when $DAI trades below $1 and decreasing when $DAI trades above $1.

RChain Testnet Launch and Staking Economics

As part of the Berlin Blockchain Week, RChain launched its first public testnet during the third developer conference RCon 3 that took place on the 5th and 6th September. RChain is a smart contract platform based on the programming language Rholang utilizing a form of the Casper Proof-of-Stake consensus protocol. The properties of Rholang allow for concurrent execution of computation, which results in orders of magnitude higher transaction throughput compared to currently available public blockchains.

During the conference the RChain Coop, among many other things, proposed the initial staking economics, which are determining how fees and seignorage will be paid out to stakers within the first 18 months. One part of this is the validator sale, an incentivization of potential validators who are offered discounts of up to 24% on the spot price of $RHOC in the form of up to 80 million yet-to-be created $REV tokens for commiting to stake on the RChain blockDAG for at least 6 months.

DFINITY Presale Completion

The final update this issue is about DFINITY aka the “Internet Computer”. The project around Dominic Williams announced the completion of its presale round, which raised further 102 million Swiss Francs among others from illustrious investors such as Andreessen Horowitz (deployed from the a16z crypto fund) and Polychain Capital. Funds are mainly going to be used to build out the team that Williams refers to as the “NASA for decentralization” in the announcement. The completion of the presale puts the post-money valuation of DFINITY tokens at nearly $2 billion, which would currently put the project at #10 of CoinMarketCap, above competitor smart contract platforms like e.g. Tezos and NEO.

The DFINITY network will utilize a new form of consensus algorithm known as Threshold Relay, which is a stake-based protocol that relies on an unmanipulable source of randomness provided by a cleverly constructed random beacon for the selection of validating entities.


In the postscript of this issue, I would like to thank all attendees and projects that presented at the meetup that Chorus One co-hosted with CoinFund in the Blockchain Embassy Berlin as part of the Blockchain Week Berlin.


Opinions expressed are my own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.
https://twitter.com/chorusone | https://twitter.com/StakingEconomy

A twice monthly recap of news and observations focused on Proof-of-Stake networks.

Felix Lutsch

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Staking Economy
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