Token Economy Audit: Constellation Network

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Constellation Network is a pioneering force in the realm of decentralized networks, aiming to revolutionize the way we interact with Web3 applications. By leveraging a Directed Acyclic Graph (DAG) architecture, Constellation offers a unique approach to consensus and transaction processing, resulting in unparalleled speed and scalability. This innovative technology empowers developers to build high-performance, user-friendly applications without compromising on security.

Central to Constellation’s ecosystem is the Hypergraph Network, a robust infrastructure that supports a wide range of decentralized applications. This network, combined with the DAG token, provides the foundation for a thriving ecosystem where developers can create and deploy their projects seamlessly.

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Constellation faced an issues with its tokenomics, and decided to go for a restructuring.

The proposed restructuring aimed to transition from a finite data pool-dependent system to a sustainable, flexible supply model, ensuring predictable rewards and funding mechanisms for validators, stakeholders, and protocol development.

The goal was to transition DAG tokenomics into a sustainable, flexible supply model, ensuring extended rewards and proper incentives for all ecosystem stakeholders.

Constellation Network worked on a new design and required an audit, to ensure that the token economy is robust. This is what we did

Tokenomics Auditing

Tokenomics auditing consists of a sequence of steps which include structural analysis, and simulations.

The first step it to state the goals of the system, so that we can ensure they are being met. The following section (copied from the audit) states said goals:

The goal is to transition $DAG tokenomics into a sustainable, flexible supply model, ensuring extended rewards and proper incentives for all ecosystem stakeholders:

• Refunding Constellation Network’s treasury with 450 million DAG and simplifying the ecosystem by eliminating the Data Pool.
• Remove the maximum supply cap.
• Fund all incentives through controlled inflation.
• Retain snapshot fees as a deflationary mechanism.
• Ensure secure and predictable incentives for validators.
• Provide predictable and transparent protocol financing.

In this particular instance, the primary tool used to analyse the token economy was simulations.

The key changes in the updated tokenomics included an updated rewards schedule based upon the following formula:

The intention behind this formula was to control inflation.

Setting up the simulation

Constellation Network had already set up a simulation that was using a basic pricing model. However, the pricing model used was limited, and required an adaptation to a more realistic one.

The more realistic was model was based upon a random walk that used real data to simulate price action.

The model was then used to run multiple Monte Carlo simulations in order to better understand how token price affects inflation, based upon the previous formula.

The simulations demonstrated that inflation goes down over time, while supply saturates, as can be seen from the figures below.

The full report can be found here.

Tokenomics Auditing

Tokenomics auditing is both an art and a science. It combines multiple different tools, in order to test whether a token economy is resilient, and what can be done to improve it.

Tokenomics design and auditing are essential, not only in ensuring a token economy works in the way it should, but also in building trust within the web3 community, and raising investment.

If you are interested in tokenomics design and auditing services, make sure to visit our tokenomics services page and get in touch.

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This blog was originally published on https://thedatascientist.com/