[July 6 EDIT] This blog post has been edited from its original content to more accurately reflect its readiness as a proposal made by the Tendermint team rather than a made decision. Since it will ultimately be up to governance to decide whether or not the proposed ‘photon’ tokens will be created, this blog post should be read as such.
- This blog post was originally published on the Cosmos Blog.
Separating the Staking Token from the Fee Token
Many of you are familiar with the Atom. It is the native staking token for the Cosmos Hub, where its core utility is used as a means to secure the Cosmos Network and its primary utility is not derived from paying fees or doubling as a currency. The Atom should have low money velocity. Atoms can be seen as a piece of virtualized hardware — like ASICs used in Proof-of-Work — that are obtained in order for an entity to participate as a keeper in the network. Validators and delegators should be strongly incentivized to bond their Atoms for staking over long periods of time, which will reward them for lending consensus and greater security to the Cosmos Network.
Through extensive economic modeling, Tendermint’s research team proposes that this is the way forward towards an intelligently designed, secure Proof-of-Stake network.
What’s proposed is the Photon — this name will change in the future, but for now the ‘Photon’ codename will be used as a placeholder. The Photon is a secondary fee token that’s also native to the Cosmos Hub, where its core utility is used for transactional purposes; it should function as a much more liquid token than the Atom with substantially greater money velocity. Hence the name ‘photon’ — a fundamental particle characterized as a discrete packet of energy which carries visible light at high speeds.
NOTE: There will not be a crowdsale for the Photon. Photons will be distributed via a hard-spoon of the Ethereum account state and is the native currency of Ethermint.
The following is the reasoning which led us to the outcome of this multi-token design decision.
The Single Token Model
Many of you know that Ethereum is transitioning away from its Proof-of-Work model to a Proof-of-Stake one via an economic overlay called Casper. With Casper, Ethereum intends to use its existing fee token (ETH) as the staking token.
In this single token model, the economic utility of said token is twofold: staking and transactional. This introduces more liquidity into the token as greater utility is bundled into a single token and creates less of an incentive for people to stake their tokens. What’s more worrisome is that greater liquidity results in weaker network security, allowing potential attackers to stealthily accrue the amount of tokens necessary to attack a Proof-of-Stake system.
In a hypothetical scenario where Casper has been implemented in the Serenity Ethereum blockchain, let’s say a whale owns 5% of the total supply of Ether. If less than 15% of all Ether were staked, this whale could single-handedly pull off a 33% attack (Byzantine Fault-Tolerant threshold). This scenario is not unlikely to occur since the utility of Ether extends far beyond that of staking, which unfortunately inadvertently magnifies security risks for the network.
As a result, Cosmos is deploying a multi-token model in which the Atom is used primarily for staking and the Photon can be used primarily for transaction payments. Because Atom holders are heavily incentivized to bond their staking tokens, it would make it far more difficult for the attack scenario described above to occur on the Cosmos Network. If anyone tries to buy the amount of Atoms required to get 33% of the stake on the open market, the market for Atoms will become progressively more illiquid, causing the price of each successive Atom to become more expensive, greatly increasing the cost required to make an attack feasible.
Many Fee Tokens, One Ecosystem
Transactions sourced from various networks expend varying amounts of resources, so instead of ordering by the absolute amount of transaction fee via some exchange spot price, transactions are instead ordered by fee per resource, i.e. x Satoshi’s per byte. Instead of trying to get all the validators to agree on the prices of each of the tokens on every block, that block’s proposer uses their view of how much they value each token to order transactions when it’s their turn to propose.
Because building a multi-token ecosystem is core to the Cosmos Network, rather than force users to pay fees in a specific token in order to use the system, the Cosmos Hub accommodates a number of possible whitelisted tokens.
Tendermint team proposes that Photons are whitelisted as a secondary fee token to the primary Atom staking token. This will be written as a text proposal after launch for governance to vote on.
Read the full Cosmos Token Model paper: here.
Photon: A Multi-chain Token
The proposed ‘photons’ would be awarded as block rewards to the Cosmos Hub validators. Photons can be used to pay ‘gas’ fees on Ethermint zones as well as pay fees for any zone in the Cosmos ecosystem that accepts it as a fee token.
The Photon block reward will be minted at a constant rate of 500 Photons per hour, which leads to an inflation rate that asymptotically reaches 0. However, instead of starting from an initial supply of 0 and all the Photons going to Cosmos validators — which wouldn’t make for a very distributed initial allocation — we will propose to the Cosmos Hub governance a Hard Spoon to distribute all Ether holders an equivalent amount of Photons.
In Ethereum, a large portion of Ether is stored in smart contracts such as multi-sigs. Because of this, in order to allow everyone to claim their Photons, we would need to fork the entire Ethereum state, including contracts, into an EVM. We have an execution environment called Ethermint which can facilitate just this; it allows anyone to spin up an EVM chain running on Tendermint consensus.
This hard-spooned “Photon Zone” with the Photon distribution will be one of the first zones to connect to the Cosmos Hub shortly after launch. Once this happens, Ether holders can claim their Photons and migrate them to the Hub and then into the rest of the Cosmos ecosystem. Note that this Photon zone, due to being bloated with the current state of the Ethereum blockchain, is not intended to be used as a normal Ethermint zone for smart contracting purposes but rather as a way for users to claim their Photons. There will be other “clean” Ethermint zones connected to the Hub that users can use to build smart contracts and dApps on top of.