Arcana Token: Technical Paper v1.1

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Presented by:

Mayur Relekar | Founder, Arcana | LinkedIn

Abhishek Chaudhary | CTO, Arcana | LinkedIn

Saurav Kanchan - Blockchain Lead, Arcana | LinkedIn

Rahul B.S. - Cryptography Research, Arcana | LinkedIn

Draft for open community review and subject to change Please note that it's still early days for Arcana and that this paper is a continuous work in progress. The fundamental philosophy and core concepts behind Arcana will always hold good but actual implementations may differ.

XAR - Arcana Utility Token

XAR - Arcana Utility Token

Here we present the economic model behind the Arcana network how it helps us achieve economic sovereignty. In addition, we also present a token inflation design that will help alleviate any teething issues in the early days and help bootstrap the economic model proposed. To develop a self-sustainable, closed-loop economy, all the network fees collected would be re-distributed as incentives for active contributors within the ecosystem.

1. Definitions

XAR XAR An ERC20 token. The Arcana network itself is simply a blockchain protocol that does not own or run any computing/storage servers, so third-party computing resources are required for processing transactions and running applications on the Arcana network, as well as the validation and verification of additional blocks/information on the blockchain. Providers of these services/resources would require payment for the consumption of these resources (i.e. "mining" on the Arcana network) to secure the network, and XAR will be used as the native network currency to quantify and pay the costs of the consumed computing resources. As an indication of the commitment to the system and service standard assurance, users would be required to stake an amount of XAR as a security deposit before they may participate in mining for the benefit of the network. This stake is used as the deterrent for penalising validators or service providers for various offences (e.g. illegally verifying blocks, rejecting tasks without reason, unacceptable downtime, or other malicious acts). Penalties include deducting the stake put up (or part thereof), reduction deducting incentives, or temporarily or permanently expelling the service provider from the pool. Through ancillary smart contracts, token holders may delegate their tasks to validators and provide them with the necessary XAR so that it is entitled to participate in network consensus – these validators are in turn free to charge competitive commissions to such holders (out of the mining rewards). The network mining rewards will initially come from token inflation and eventually be replaced by network revenue.

Customers An individual, team or enterprise that signs up with Arcana to explicitly consume services of the network.

Arcana Treasury Pool This is essentially a set of smart contracts responsible for receiving crypto payments from customers, managing the inflation of the Arcana token, managing staking and also associated rewards.

Validators Independent entities that work to secure the Arcana blockchain and the network at large. They validate transactions and propose/commit blocks to the Arcana blockchain and also participate in consensus.

Delegators Arcana token holders who contribute their holdings by locking them up for a certain period of time to bring economic security to the Arcana App Chain in return for a reward.

Arcana App Chain A delegated Proof of Stake chain run by an independent set of validators.

2. Model

Payments Customers make payments in fiat or stable coin in a pay as you go model. Bills are generated based on transparent usage logs, which users can pay with a credit card or with any stable coin from a whitelist. When a customer pays with their credit card, Arcana leverages a fiat to crypto on-ramp to convert to one of the whitelisted stablecoins.

Rewards Staking rewards are paid out to validator pools at regular epochs for the resources contributed by them. Validators run delegation pools and charge a certain commission for their service. When rewards are given out, validators keep their commission and hand out the balance to the delegators pro-rata.

3. Consensus

The Arcana blockchain implements a proof of stake consensus mechanism where validators are chosen to propose blocks in direct correlation to the number of tokens staked. Validators run pools to which token holders can delegate(bond) tokens in return for staking rewards. Arcana employs the Istanbul Byzantine Fault Tolerant(IBFT) algorithm to account for honest validators and strictly penalise malicious nodes. Validators are also required to separately stake tokens as a security deposit which are liable for slashing in case of malicious behaviour.

4. Inflation

In order to economically secure the network, it is crucial to get a significant amount of tokens staked with validators. XAR token holders need to be appropriately incentivised in order for it to be worthwhile for them to delegate tokens to validator pools to participate in maintaining network security, and keep them staked for lengthy periods. Arcana's eventual goal is for these rewards to come from network revenue but in the early days of the network, given the obvious lack of direct network revenue, we intend to bootstrap rewards by implementing a front-loaded inflation of the genesis supply.

To make the inflation front-loaded i.e. to have yearly inflation higher in the early days of the network and close to insignificant(or even absent) in the later days, we map the inflation to a logarithmic decay curve defined by the following equation:

I(t)=I_0·exp[−ln(2)·(t/T_{1/2})] \space\space\space\space\space\longrightarrow (eq\space1)

Where:

t

is some time in the future and

I (t)

is the Inflation at some time

t

I_{0}

is an initial, pre-decided APR for the network inflation.

T_{1/2}

is the default decay half-life

The supply at any given point in time can be calculated:

S(t)=S_0+[I_0·T_{1/2}/ln(2)]·[1 - 2^{-t/T_{1/2}}]\space\space\space\space\space\longrightarrow (eq\space2)

Where:

S (t)

is the supply at some time

t

S (0)

is the supply at the genesis

Additionally, we can also compute the maximum supply possible in the network using the following equation:

S_{max}=S_0·[1 + (I_0·T_{1/2}/ln(2))]\space\space\space\space\space\longrightarrow (eq\space3)

5. Staking

All token holders can stake their tokens with pools created by validators which form the basis of economic security on the Arcana network. Stakers are incentivised to do so by way of staking rewards which will initially be supplemented by network inflation and eventually by network revenue.

Staking rewards take into account multiple factors in determining the eventual rewards to an individual staker. The first of these is the staking compensation factor

C

which takes into account the duration that a staker is willing to bond their tokens to the pool:

C=0.5+0.5[min(T_i,T_{ideal})/T_{ideal}]\space\space\space\space\space\longrightarrow (eq\space4)

Where:

T_{i}

is the individual staker's staking/bonding duration. Minimum is 1 month

T_{ideal}

is the ideal staking duration of the network which is 1 year(12 months)

If a staker stakes for the minimum duration i.e. 1 month, they would receive ~0.54 of the rewards they would ideally get. If they stake for 12 months or more, they would receive the full quota of rewards due to them. This is done to incentivize longer staking durations in the network.

Additionally, the average compensation factor across the network

C^{*}

directly affects the inflation decay half life as follows:

T^*_{1/2} = T_{1/2}/C^*\space\space\space\space\space\longrightarrow (eq\space5)

By substituting the new decay half-life

T^*_{1/2}

eq\space2

above gives us the new total supply at any given point in time

t

S(t)=S_0+[I_0·C^*·T^*_{1/2}/ln(2)]·[1 - 2^{-t/T_{1/2}}]\space\space\space\space\space\longrightarrow (eq\space6)

From

eq\space5

, we can see that as

C^{*}

increases, the decay half-life decreases and vice-versa. But given

eq\space3

we know that the maximum possible supply of tokens in the network is a constant. So, intuitively, shorter stake durations lead to lower inflation at each epoch which ensures that even when markets are bearish, the lowered network emissions continue to support fair rewards and price stability.

6. Staking Rewards

Cumulative validator pool rewards in a pool

p

, at any time

t

can be calculated as:

R_p=D_p·[T_p/(T_n·\lambda)]·ln(S(t)/S_0)\space\space\space\space\space\longrightarrow (eq\space7)

Where:

R_{p}

is the rewards accumulated in a pool

p

D_{p}

is the number of tokens delegated to the pool

p

T_{p}

and

T_{n}

are the average staking durations in the pool and across the network respectively

S (t)

and

S_{0}

are the total supply at some time

t

and the genesis supply respectively

An individual staker's rewards in this pool

p

can be calculated as:

R_i=C_i·D_i·[R_p/D_p]\space\space\space\space\space\longrightarrow (eq\space8)

Where:

R_{i}

is the individual staker's rewards in the pool

C_{i}

is the individual staker's compensation factor as computed in

eq\space4

D_{i}

is the tokens staked/delegated by the individual to the pool

R_{p}

is the cumulative pool rewards as computed in

eq\space7

D_{p}

is the number of token delegated to the pool by all stakers

If we consider a commission charged by the validator, then

eq\space 8

changes to:

R_i=C_i·D_i·[(R_p-comm)/D_p]\space\space\space\space\space\longrightarrow (eq\space8)

Where:

c o m m

is the absolute validator commission in the pool

p

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