Economic Model

5. Economics

Note: this is a preliminary outline of the overall intent for the Taraxa network's economics. These designs will be finalized at network launch via the governance process by stakeholders from the community, and they are subject to alterations via the same process.

5.1 Token Supply

The overall Taraxa token supply is 10 billion tokens, with all tokens minted in the genesis block at network launch.

There will be inflation (see the section on Rewards) which comes in the form of block rewards providing staking yield, but will only inflate upon stakes that are in circulation - i.e., any network stakes held by the Foundation (including unissued community grants) will not receive any such yield and thereby no inflation.

This means that whatever the Foundation holds to help secure the network will be a constantly diminishing portion of the overall token supply, over time minimizing any centralizing effect this may have on the network.

5.2 Token Distribution

The target tokens distribution will be as follows,

Distribution

%

Private sales

24.1%

Public sales

25.9%

Team

15%

Foundation

20%

Community grants

15%

  • Private sales took place and has ended in 2018.

  • Public sales refer to the tokens that the foundation will inject into the market to fund ongoing development and ecosystem support.

  • Taraxa’s founding team members are committed to the long-term success of the network and will hold their token allocations for an extended period.

  • The Foundation intends to keep a certain number of tokens to continue contributing to the Taraxa ecosystem and to participate in the decentralized network operations.

  • Community grants are given out over time to incentivize positive contributions to the Taraxa ecosystem. This could range from bug bounties, to community building, or applications development.

5.3 Token Utility

Transaction Fees

Token holders may use the token to initiate and pay for the cost of processing transactions, these transaction fees are paid to the validators of the network. More on transaction fees in the Rewards section.

Validator Eligibility

Token holders may choose to stake their tokens via bonding to become an eligible validator of the network, responsible for processing the network’s transactions and maintaining the network’s overall security and integrity.

To become a validator, a fixed number of Taraxa tokens will need to be staked. Since the total token supply in the network is fixed, the maximum number of validators is also fixed. These rules will be set at network launch and are subject to change per stakeholders’ voting.

5.4 Staking

Staking is a mechanism for stakeholders to signal their commitment to help maintain and grow the Taraxa network, and they are rewarded (see Rewards section) accordingly. To stake, the stakeholder needs to bond Taraxa tokens for a period, in return gaining additional weight in voting in governance-related decisions and become eligible to participate in the Taraxa network’s consensus process and earning rewards. Staking Period

For simplicity, the staking period will be based on a fixed timeframe to be determined at network launch. The actual timeframe (as all time-related metrics) are governed by the number of Periods elapsed on the Taraxa network.

At network launch there may a special set of launch nodes that have a longer staking period with greater rewards. Details are to be determined. Staking via Bonding

Bonding of Taraxa tokens is needed in staking in order to provide stable expectations for eligibility. To bond a token is to lock a token into a fixed period of time (as determined by the number of Periods on chain), during which the bonded token is not tradeable or usable – besides granting the privileges in validation eligibility and access to current state storage on the network. Stake Delegation

Not everyone who wishes to help secure the Taraxa network wishes to deal with the actual operational details of running a node. These stakeholders can choose to bond their stake and then delegate it to another entity to operate a node on its behalf. How the proceeds from the stake are divide are negotiated between the stakeholder and the node operator. Stake Alterations

When a stakeholder wishes to bond or withdraw (at the end of the staking period) his / her stake, there is a buffer period (e.g., a few days) before such changes take effect. Since the staking amount is fixed, fractional stake alterations aren’t possible. The reasoning behind this buffer period is two-fold.

The first consideration is security. Because staking endows critical privileges on the network, namely the right to validate transactions, it is critical that the network has full understanding for eligibility. The network and the community need to be given ample time to note any such changes and be confident in their determination of any changes in eligibility resulting from the staking alterations.

The second consideration is economic. When large quantities of tokens are either added or removed from the staking pool, it could have an impact on the secondary markets for both the tokens themselves as well as the storage rentals (i.e., those with bonded stakes could rent out the storage they’re entitled to DApp developers). Having a buffer period will give the community ample notice to react to the change.

Target Staking Rate

The network will have a target staking rate the entire token supply to be determined at network launch. This is the “desired” number of tokens in the overall supply that is locked into stake, leaving the remaining tokens used for fees on the network. Having a target staking rate is meant to encourage the community to stake their coins and help secure the network.

The target staking rate is tentatively set at 67%, which if reached will deny the 1/3 attack vector.

5.5 Rewards

Rewards in Taraxa are made up of block rewards and transaction fees.

Block Rewards

Block rewards are meant to incentivize stakeholders to help secure the network by participating in validation by driving up the overall network’s staking rate. This is especially important in the early days of the network where fees may not meet node operators’ ROI expectations.

Block rewards come in the form of inflation on top of the staked tokens. Since only nodes with sufficient staking or have received sufficient delegated stake are eligible to produce blocks, the amount of block rewards can be thought of as a direct yield on top of the total staked token supply.

To incentivize the community to reach the target staking rate, the yield will be progressively increasing until it peaks at the target rate, then falls down as the network exceeds the target rate.

We tentatively set the maximum staking yield to be 20%.

Block rewards are dispersed to staked validators the successful completion of these activities,

  • Proposing valid blocks in the Block DAG

  • Proposing valid consensus blocks on the PBFT chain

Transaction Fees

Taraxa will make use of the same first-price auction mechanism currently being used in BTC, ETH, and almost all other blockchain systems.

The primary criticism against the fees in classic systems such as BTC and ETH are that, they are 1) too high, and 2) too volatile. However, these symptoms are primarily driven not by the pricing mechanism itself, but rather by the throughput limitations of these networks. To put it simply, if the system is not at its maximum throughput limit, the block proposer has no incentive to prioritize between which pending transactions to include in a block – they’d simply place all available (and eligible) pending transactions into the next block.

As a sidebar, this isn’t entirely true in practice, as the network propagation speed consideration during competitive mining could adversely impact inclusion as well. In the Taraxa network however, there is no competition between the staking nodes so this adverse incentive should not exist.

Because of the very low maximum throughput in systems such as BTC and ETH, these networks are almost always operating at their maximum throughput, forcing users into constantly paying premiums to be included in blocks earlier, driving up both fee prices as well as fee volatility. In a far higher-throughput system such as Taraxa, we expect this to be far less of a consideration.

Just like block rewards, fees are going to be dispersed to staked validators for the successful completion of same activities,

  • Proposing valid blocks in the Block DAG

  • Proposing valid consensus blocks on the PBFT chain

No Slashing

Taraxa will not implement a slashing or punishment mechanisms at this moment.

It is incredibly difficult to design economic incentive schemes that properly motivate players in a system to behave in ways that are deemed constructive. As a rule, such mechanisms need to be as simple as possible, as more complexity creates more opportunities to game these mechanisms.

Reward mechanisms are already difficult to design and get “right”, punishment mechanisms are even harder, as a faulty punishment mechanism generating false positives is far more likely to incite a backlash and inject vitriol into the ecosystem.

At this point in time, we believe the lack of a reward should be sufficient “punishment” without the need to add further complexity.