An Intro to Alliance 🤝

The Kujira mainnet is now running Alliance 0.1.0! Alliance is quite new and we’re one of the first to use it. Terra, the team behind the module, have done a really excellent job of explaining everything, so expect plenty of quotes and links to their Alliance Docs.

We’ll go over what Alliance is, how it works, and why we’re implementing it, so let’s start with a definition from the Alliance Docs:

Alliance is an open-source Cosmos SDK module that leverages interchain staking to form economic alliances among blockchains.

That’s really the crux: most chains give stakers of their L1 a yield. Alliance enables stakers to earn that yield with tokens other than the chain’s L1. This means tokens other than KUJI can be staked to earn a share of yield generated from our dApps. In return, KUJI stakers earn yield from contributions coming from other protocols.

That’s the TL;DR. Let’s unpack the What, How and Why.

WHAT ALLIANCE IS

Alliance is an open-source Cosmos SDK module built by Terra. It has been audited by FYEO, and you can view the full report here. Alliance forges strong ties between chains by allowing them to use one anothers’ L1 to secure networks. That’s a topic for another post. This one is going to focus on how Kujira is using Alliance to strengthen our ecosystem by uniting the protocols within it.

The Alliance module is implemented through governance. Once done, Alliance allows tokens other than the L1 Native Asset to earn yield from staking. These could be the L1’s of other chains, LSDs, or app tokens built on the chain.

By adding app tokens to Alliance, we foster a tight, integrated ecosystem between the protocols within the Kujira chain, where revenue is pooled together to create a rising tide that lifts all boats.

As a token without any inflation, staked KUJI currently earns yield from the use of Kujira products like BOW, FIN, ORCA and BLUE.
Alliance expands the pool by including other sources, like launches on PILOT. And when the tokens of dApps are added to Alliance, they add to the pool and also earn from it. The pool is made bigger, and then shared more widely.

Each token in the alliance retains its unique utility, use case, circulation, price and tokenomics, but they all share a common opportunity for revenue.

Of course, there are factors to consider. Let’s explore those now.

HOW IT WORKS

There are a number of variables in the execution of Alliance, but the most important one to consider for our purposes is the RewardWeight. Quoting from the docs once more:

To preserve the role of a native staking asset and to prevent the power dilution of a chain’s native assets, each Alliance asset added to a chain is given a RewardWeight. This parameter determines the amount of staking rewards a staked Alliance asset will generate in proportion to a natively staked coin.

It’s important to preserve the strength and security of the chain, so the native asset is always assigned a RewardWeight value of 1, and all other assets are given RewardWeight values relative to that. This value determines how much of the collective pool is allocated to the stakers of that token.

From the Alliance Docs:

The amount of rewards an Alliance asset accrues is determined by the asset’s Reward Weight. This parameter is set by governance and represents the maximum proportion of rewards an asset will earn, relative to the total rewards of the chain.

Here’s a practical example of that in action:

Imagine Kujira has two staking assets: KUJI is the native staking asset, and FUZN is the Alliance asset. Kujira generates annual revenue of $1,000,000 and Fuzion generates $300,000. Their combined annual revenue is $1,300,000.

As the Native Asset, KUJI always has a RewardWeight of 1. If FUZN is assigned a RewardWeight of 0.3, the rewards shared by stakers of FUZN will be 23% (0.3 of 1.3) of the total rewards of the chain. The remaining 77% of rewards will be distributed to KUJI stakers. FUZN stakers would therefore get 23% of $1,300,000 or $299,000. If one wallet owned all of the staked FUZN, that wallet would earn all of the yield.

Without Alliance, KUJI stakers would get 100% of the smaller revenue pool. With Alliance, they get a smaller % of a bigger pool. The more assets added, the smaller the % and the bigger the pool. Instead of relying on Kujira alone, all of the protocols involved are brought together.

The example illustrates how the RewardWeight is independent of variables like token price or the percentage of circulation supply staked. It’s a relationship between the two assets, anchored on the Native L1.

There are plenty of other variables, like the TakeRate, RewardStartTime, RewardDelayTime, RewardChangeRate and RewardChangeInterval.

All of these can be tweaked to improve the performance of Alliance, and will come into play as new dApp and chain tokens get added.

WHY WE’RE DOING THIS

Remember, we’re creating an ecosystem where collaboration and integration benefits all participants. That’s going to take time, effort and iteration to fine tune this until it’s a high performance machine.

Alliance assists our long term goals of building a robust, integrated and sustainable ecosystem in a number of ways.

Alliance promotes cooperation which is why we’re so keen on implementing it. This tightly integrates the protocols built on the Kujira chain into the flywheel of value creation. It means we all benefit when our collaborators succeed, and we work with the projects we believe can really make an impact..

Alliance is optional. You can build on Kujira without being part of Alliance. If you want in, great, if you would rather not, also great. And if you change your mind, that’s fine too.

Alliance invites collaboration. When protocols are integrated, it creates a self-propelling feedback loop of altruism and support. Helping fellow Alliance protocols achieve better revenue streams means more yield to the stakers of ALL alliance assets (including yours).

Alliance attracts builders. An established ecosystem they can plug into and generate returns for their stakers immediately, integrate with other dApps and protocols and find market support right from the start? What builder wouldn’t find that appealing?

Alliance encourages staking. More staking (and more validators) means more chain security. And more security makes a chain safer, which creates a more appealing offer for users and a more attractive foundation for builders.

We’ve been focussed on laying the foundations for a sustainable financial ecosystem. Alliance is part of the next level; one in which the parts unite to make a whole much greater than their sum could ever amount to alone.

We hope you’re along for the ride.