One of the innovations in the CKB economic model: Nervos DAO


In the last Secret Ape Science and Technology Lesson, we have mentioned the innovations in the underlying public-chain CKB economic model of Nervos Encrypted Economic Network: Nervos DAO and secondary issuance policy. In this article, we have a deep understanding of NervosDAO, the role of NervosDAO, and the significance of NervosDAO’s existence.

Secret Ape Science and Technology Block Chain Lesson 34

We all know that the Smart Contract Platform allows people to look at contracts from a new perspective. In the past, when we signed a written contract, we added a clause: When disputes arise, both sides agreed to appoint a court for arbitration, that is to say, we still need to rely on it before we have a smart contract. Heart-centered institutions can arbitrate.

But when the society develops faster and faster, the cooperation between people becomes more and more complex. We hope that part of the work can be executed automatically to improve the efficiency of contract execution or arbitration. Based on the characteristics of smart contracts, we find that more functions can be realized. One of them is DAO (Decentralized Autonomous Organization). Before the popularity of DAO, another is called DAC (Decentralized Autonomous Corporation). The development of these organizations may be to make up for the deficiencies of the existing system.

You should be impressed with the DAO promoted by Slock. it in Germany in 2016, but unfortunately after the DAO vulnerability was attacked, many potential ways of attacking were discovered, which led to the final plan being suspended. To learn more about The DAO, please refer to the article in EthFans:
Three Minutes Understanding The DAO, the Most Adverse Block Chain Crowdsourcing Project in History

The NervosDAO we’re going to talk about today is a role migration, not a protagonist, but an auxiliary regulator, which may be an interesting attempt. In the past, in the organization and operation of DAO, the ideal state was a token-to-vote to determine the next step of the whole ecosystem.

However, it involves more human factors, and there are more cognitive or operational thresholds, resulting in the low voting rate in the autonomy of various block chains. So putting DAO on top of the most important function, the most likely problem is that users can not keep up with it. If DAO is designed as a subsidiary role, it can also help all people in the ecosystem to adjust their asset status. Perhaps more users will be willing to participate in the organization.

Before analyzing NervosDAO, let’s compare how the regulator in nature works. You should have heard of the Amazon Tropical Rainforest, which is called the lung of the world. It can regulate the ratio of carbon dioxide to oxygen, humidity and rainfall in the region. The contribution of the tropical rainforest to the ecosystem is self-evident. NervosDAO helps to regulate the ecosystem.

Tropical Rainforest in Nervos Ecology

NervosDAO is a contract written at the bottom of the system that automatically assigns the secondary issue of CKB to the holder locked in the NervosDAO contract. If the holder is willing to sacrifice the liquidity of the token, he can get systematic compensation so that the holder is not diluted by the secondary issue.

According to the Nervos economic model proposal, the characteristics of the original token CKB are as follows:

  • It represents a kind of storage space, the total amount of CKB issuance is the upper limit of storage space, so it is a limited resource.
  • Resources will increase steadily according to the issuance policy. If you do not lock your own KB in the Nervos DAO, then the holdings of the KB will be diluted by the secondary issuance.
  • Because storage space is the resource that developers need, developers’demand for storage space and the supply and price of CKB in the free market will produce a game market.

So the regulation mechanism of NervosDAO comes in handy. What we refer to here is whether NervosDAO can circulate freely for CKB.

Coin holder vs. NervosDAO

As for asset management, there are many factions on the market, so I won’t mention much here. But the general summary can be divided into short-term, medium-term and long-term. Here, the time dimension is used as the basis of analysis.

Long-term holder

This part of the money holder will treat CKB as an asset similar to Bitcoin. We all know that owning a bitcoin represents having one in 21 million bitcoins (scarcity). For long-term money holders, when he looks at the asset, he looks at the stable growth space of the asset. By analogy with gold, its output is very limited, so over the decades, when many assets are unstable, we can see that many people will transfer asset allocation from the housing market or the stock market back to gold.

This is a sense of security that gold brings to the general public. Even after decades, gold still has a high value-keeping ability because of its rarity. The advantage of NervosDAO for money holders is to maintain the scarcity of assets, so long-term money holders will like the design of NervosDAO very much.

Short and medium term holders

These holders will be more flexible in allocating their assets. If they have idle CCBs, they will tend to find a better way to fight inflation than NervosDAO. If not, NervosDAO is their next option. Because of CKB’s asset model design, if the rental interest rate is higher than Nervos DAO, or if the lease has a shorter lock-in period, it will be a more friendly option for short-and medium-term holders.

So for short-term and medium-term holders, they usually make corresponding decisions according to the market reaction, so that they can keep a certain operating space, rather than putting all the risks in a fixed plan, which is also the impact of NervosDAO on this part of the holders.

Developer vs. NervosDAO

For long-term lock-in CKB users, it should be understood that a good platform must have enough high-quality developers, so in addition to their perception of the price of CKB, another recognition is that their own CKB can also be used for development applications, they will consciously help the development of the ecosystem. People.

For developers, how will too many coinholders lock CKB in NervosDAO affect developers? If too many money holders lock in CKB, the supply of CKB will be less, and the price of CKB will rise when the demand remains unchanged. If there is too much CKB locked in, the price of CKB will lead to too high cost of developers because of too low supply, which will have a negative impact.

But for these lock-in CKB users, when the price rises to their satisfactory price, it will also increase the motivation of users to sell (after the unlocking of CKB). When more CKB is sold, it will increase the supply of CKB. When the demand remains unchanged, the price of CKB will fall to an acceptable range, which is also the case. It shows that NervosDAO can provide adjustment function so that the price of CKB will not fluctuate greatly.

Between buying and selling, you can protect the scarcity of assets through NervosDAO, or you can choose a leasing scheme. This is why “Free Market + NervosDAO” enables developers to make relatively favorable strategies according to market conditions.

Miners vs. NervosDAO

Because the average miner has a shorter period of holding CKB, the excavated CKB needs to be realized through the exchange to pay for the corresponding electricity charges, so the miner’s consideration is more: “locked in NervosDAO’s CKB vs. developers use CKB” ratio, because the users locked in NervosDAO will be from the second level. Additional development is taken away, and the proportion used by developers will be paid to miners.

On the surface, miners should be more supportive of CKB development, rather than lock-in, but on the other hand, the more NervosDAO proportion, the less flux in the market, the more value of CKB. The higher the proportion of NervosDAO, the lower the output of miners because of the shorter period of CKB possession by miners. However, due to the regulation mechanism of “free market + NervosDAO”, under the condition of constant demand, the final income of miners should be close to the same.

New trust model

I believe that after reading a series of Nervos economic model articles, you will find a characteristic that in Nervos ecology, every single point will affect the whole ecological changes:

Miners Build Safer Development Environment Attract More Developers and Value-preserving Assets
More Developers Higher Platform Investment Value and Miners’Income
More money holders higher miners’income and better developers brought by more users

But ultimately miners, developers and coinholders all share the same goal: win-win harmony. In a public chain ecosystem, it is not enough to do the code security well, but to closely integrate the system architecture with the economic model, and through economic induction, all participants can get the corresponding benefits while paying in the ecosystem.

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One of the innovations in the CKB economic model: Nervos DAO