Resource Tokens, Token Destruction and Governance: Interpreting aelf’s Economic & Governance Whitepaper
‘Stand at the intersection of technology and the humanities’ is Apple’s impressive slogan under the leadership of Steve Jobs, which has been embedded in every element of the company so far.
The success of traditional tech giants is worthy of comparison by the blockchain industry. If Apple’s path to the top lies in a delicate balance between technology and humanities, then blockchains’, especially public blockchain systems, is how to find the “holy grail” amid the explosive universe that makes up ecological, governance and market elements contained in the two cornerstones of ‘economics’ and ‘Computer Science’?
In the process of following up on some of the more mature blockchain projects, blockbeats recently found that amid aelf’s updates, was the release of their ‘Economic & Governance Whitepaper’, covering dozens of components such as token economy, handling fees and governance. There are three outstanding points, which contain the solution of the above-mentioned problems.
Fine-grained Resource Splitting, Token Tuning System
How to balance resources on a blockchain is a difficult problem for every project. High-quality public chains usually choose to issue tokens for the resources to distribute them through the market. This approach can meet developer’s needs, while avoiding the underlying resource price fluctuations, and thus building a predictable & stable environment for many developers.
For example, Gas in Ethereum serves as the fuel for in-network transfer transactions. In Eos, resources are split into CPUS, NET, and Ram, which are sold according to Bancor Algorithms. AELF has a more comprehensive and fine-grained division of related resources, including CPU, Ram, DISK, NET, READ Tokens, WRITE, STORAGE, and TRAFFIC tokens, which are used to measure DAPP’s on-demand use of resources.
The READ/WRITE Token is used to pay for the READ and WRITE actions to the state database when the transaction is executed (on demand use of CPU and RAM). Transaction size affects network TRAFFIC and final STORAGE. A STORAGE Token is used to pay for on-demand STORAGE resources and a TRAFFIC Token is used to pay for on-demand network bandwidth resources.
What are the specific use cases for these resource tokens in aelf? Consider the following side-chain scenario: Side-chain developers can pay for CPU Tokens, Ram Tokens, Disk Tokens, and NET tokens to have a single side-chain with independent computing and storage resources. Exclusive side-chains are priced by the time they are used. The unit price shall be determined by the production nodes and the developer through mutual consultation. The coupling of the divided Resource Token and the flexible charging mode provides an ideal solution for the basic resource supply that the developer needs.
According to the Whitepaper, Resource Tokens need to be purchased through ELF, and their prices are anchored in proportion. The Bancor model is adopted for resource token transactions, including determining transaction price, and there is no inquiry process. The instant exchange of the Resource Tokens to ELF can still be guaranteed even when there are only a few users and a few transactions.
On the one hand, this model mathematically restrains speculative behavior. If users buy more resource tokens at one time, it will cost more ELF to raise its price. If it does not, it drives down its price. On the other hand, it also promotes a higher degree of adhesion between the aelf’s main-chain and several side-chains, improving the synergy of the system.
We believe that the certification of these blockchain resources, at face value, is the marketization of resource pricing and the maximum reasonable allocation of relevant computing resources. In fact, it also activated the whole market’s attention of ELF resource ecosystyem.
When the price of these resource tokens fluctuates, more developers, speculators and users will pay attention to the aelf ecosystem through the news and social media, thus bringing a longer-term incremental dividend.
At the same time, because the resource Token is deeply bound to Elf in the circulation process, both production nodes and developers can negotiate the price and Token use, which also indirectly enhances the governance and participation of each role in the aelf ecosystem.
Multi-Destruction, Long-Term Deflation
In addition, aelf has innovatively introduced multiple destruction mechanisms to implement different burning strategies depending on the behavior of the chain. 10% of transaction service fee is destroyed when the user transacts on the chain; and 50% of the transaction service fee of the purchasing Resource Token is destroyed. If the production node does not produce blocks for a cumulative 72 hours during the current session, the pledged ELF will be destroyed. When all nodes are not re-elected, 10% of the re-election dividend pool shall be destroyed.
Since no elf tokens will be created after the original minting process, the aelf multi-destruction mechanism ensures that ELF can be placed in a long-term deflationary economic model.
|2010-2017||Profit growth||Earnings per share growth||Profit growth minus Earnings per share growth||Change in debt ratio||Repurchase amount (USD billion)|
|Essential consumer goods||20%||35%||-15%||5.87||164|
|S & P 500||36%||41%||-6%||6.60||1098.1|
The Relationship between the repurchase amount and profit growth | Source: Bloomberg
In traditional financial markets, there exists a mechanism similar to the destruction of passes: Share Repurchase. This was only re-approved in 1982 by the SEC as a legitimate valuation adjustment path. In recent years, there has been a significant expansion to this trend, accompanied by the U. S. Stock Market Bull.
According to a research report published by Tianfeng Macro in March 2018, the share repurchase of U.S listed companies reached USD $1085 trillion, accounting for nearly 3% of GDP and 125% of operating profit. Repurchase and cancellation of shares will reduce the number of shares in circulation, thus boosting earnings per share. At the same P/E valuation, the share price will rise.
BraveNewCoin Bitcoin is the most deflationary model, and here’s how its price changed after the second halving Source: Bravenewcoin
In the blockchain market, we can also see a large number of due to deflation of the pass model. However, the example of a positive guide to secondary market prices, whether it is the halving of the currency in POW or the destruction of team holdings on some trading platforms, illustrates this point.
In the whole public chain and side chain segment, there are no other projects in the market that can implement the destruction. This attempt by aelf is noteworthy.
Main/Side Chain Compound Ecology, Multi-level Management System
aelf ecology is a complex system of main chain and multi-side chain. There are many kinds of community users, scenes and demands in this public chain. In order to achieve the maximum consensus and the highest efficiency, a multi-level governance mechanism is necessary.
To this end, aelf has introduced a Parliament Governance Model, an association governance model, Referendum Governance Model, and a customized governance model that meets the diverse needs of the aelf platform ecosystem. Furthermore, the adaptivity between the main chain and the side chain is given.
In aelf, the production node uses a parliamentary model to govern important transactions. In the initial state, the production node is a member of parliament. The production node can make decisions on the deployment & upgrading of the main chain contract, the creation of the third party Tokens and ELF connector, the creation of the side chain and the deployment & upgrading of the side training contract. This transaction is executed only if more than 2/3 of the production nodes vote in favor.
Members of parliament may follow the following steps to create and use a new parliamentary organization:
- Create a parliamentary organization and set the conditions that trigger transaction execution (the members are production nodes).
Examples of trigger conditions: More than 2/3 production nodes voted YES, less than 1/5 nodes voted NO & less than 1/5 nodes abstained, the number of participants is not less than 3/4.
- The members of the Parliamentary Organization express their opinions: YES, NO or abstained from voting.
After the conditions are met, the execution of the transaction is triggered.
In addition to communities, there will be many small organizations within the aelf platform that are set up to achieve certain goals, and also require effective governance tools to collaborate on their own affairs. For example: Dao (distributed autonomous organization). aelf provides an association governance model that specifically addresses governance within the Association. In the main/side chain, the members of the Association jointly manage the account assets through the Association Governance Model.
For the description of the association governance model in the Whitepaper, Use Association Governance as follows:
- Create an association, ADD members to the association, and set conditions that trigger transaction execution.
Example triggers: There are five members in the association, only more than three members vote YES, less than two members vote NO, less than two members abstained, and at least four members participate in triggering transaction execution.
- Members of the Association express their opinions: YES, NO or abstained from voting.
- After the condition is met, the execution of the transaction is triggered.
Production nodes can not decide all the affairs alone. Some extremely important affairs, especially the affairs involving the user’s rights, must include all users in it, appealing to the user’s passion for joint governance. The user governance model is built for this purpose.
There are two Referendum Governance Models in aelf, the first is to execute a transaction after meeting the set conditions (yes/no/abstention), and the second is to set options, which the user chooses according to his opinion.
The first method to use a Referendum Governance Model:
- Create a referendum organization, set the type of Token for the referendum and trigger conditions (amount of Tokens pledged) ;
Examples of trigger conditions: A total number of votes is not less than 1,000,000, the number of YES votes not less than 500,000 votes, the number of NO votes is less than 100,000 votes, and the number of abstaining votes not more than 100,000 abstentions.
- Call on the public to participate and express their opinions using the setting Token: Yes, No or Abstention.
- Trigger the execution of specific transaction after the set conditions are met
The second method to use a Referendum Governance Model:
- Create voting items and set the referendum options: the type of Token used for voting, whether it is locked, the start and end time of voting, etc.;
Voting example: Set the token type to VOTE, lock to true, the voting start time is now, and the end time is one week later. When the time is up, voting will end automatically;
- Call on the people to vote on the referendum options;
- After the vote expires, the vote is completed.
The Referendum Governance Model is a decision-making mechanism for important issues related to the interests of community groups, and is applicable to the decision of key issues in the main chain. Users can elect production nodes and candidate nodes by voting for them, and receive the corresponding incentives.
In addition to the three governance models mentioned above, in order to meet more complex governance scenarios, aelf provides the ability to cascade governance, connecting multiple of the same or different types of governance models in series or in parallel to form complex customized governance models. Decisions can only be performed if every organization agrees.
In the aelf testnet blockchain explorer, we can also see that the functionality is ready to launch, but it’s still at an early stage. As can be seen from the user interface, its underlying implementation is through the proposal, sending some transactions to execute the smart contract. So theoretically any contract-related affairs on aelf can be controlled through this series of governance models, for example, multi-asset management, the implementation of contract upgrades.
aelf’s Customized Governance Model can be described as a fairly bold governance attempt, compared with Tezos, EOS, cosmos and other chain governance modes, it has more choices. But the market’s preference for this model still needs to be tested online.
As you can see from aelf’s Economic & Governance Whitepaper, the team has had more in-depth thinking about the latest hot spots and the true uses of blockchain. There have also been a number of bold attempts, including more detailed resource systems, unique destruction mechanisms, and multilevel governance systems to meet the needs of more common users, developers, and businesses for blockchains. The direction of the aelf team is a bit unorthodox compared to other blockchain projects, but this overly detailed form might be just what most the industry really needs.
Due to the limited space of this paper, there are more models in the new whitepaper that are not mentioned, such as dividend pool, side-chain incentive and fee model, investment contract, etc. For more economic and governance models that are not explained in this paper, please refer to the aelf whitepaper: