Update to the Kadena Token Economic Model

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On January 15 2021, Kadena celebrated its one-year anniversary of the public launch of the Kadena Public blockchain platform, the only sharded, scalable Proof-of-Work smart contract platform that can meet the demand of true industrial-scale operations on a blockchain. It’s a good time to review the token economic model that drives the network, and we’re happy to announce that we’ve revised our platform emissions schedule to address inflation while still enabling us to provide economic infrastructure to drive growth.

Token Emissions

The overall emission of the Kadena platform happens through two processes: mining and release of allocated tokens. The vast majority of the overall emission is through mining. It’s important to understand the time-scale: mining is incentivized by rewards for each new block that slowly decrease over time.

  • At Mining Launch (November 2019): 2.018M tokens/month
  • Today (January 2021): 1.94M tokens/month
  • In 5 years (January 2025): 1.69M tokens/month

This decay continues over a period that lasts over 100 years. So, while Kadena’s total emission of 1 billion tokens sounds like a lot, it’s more important to focus on the total emission rate to grasp how the economy really functions in terms that are relevant to today. Here’s what mining-based growth looks like from now (January 2021) until 2040:

Kadena Mining Emissions 2021–2040

Platform emissions

The other source of tokens on Kadena Public come from pre-allocated tokens defined in the “genesis blocks”, the first block on each Kadena chain that all subsequent blocks are mined from. A significant tranche of the token economic model is the platform share. Examples of uses of the platform share include:

Even larger initiatives will be announced soon that could involve Decentralized Autonomous Organizations (DAOs) or other community-led programs to fund major projects and economic initiatives. The platform reserve is unconnected to hash power and confers no governance or control over the network.

Changing the Platform Emission schedule

The platform share emits 20% of the total emissions of the network, totaling 200M tokens in the end. As specified in the genesis blocks, this emission starts on January 1, 2021 and finishes by 2025, five years after network launch.

Previous Total emissions (Mining + unmodified Platform), 2021–2029

The genesis platform emission rate was designed to balance the need for strong economic support of major initiatives while recognizing that a slow emission rate is important for token economics, as well as to build trust in the overall project. The Kadena token model was designed and finalized in late 2017 and reflects best practices for layer-1 platforms at the time. Indeed, as Messari noted in their Q3 2020 Layer-1 review, Kadena has the second most community-favorable token distribution amongst the top 12 layer-1 projects.

Crypto, however, has come a long way since then, and in 2021 the understanding of crypto economies is considerably more sophisticated. As such, and with a lot of help from our incredible communities on Telegram, Discord, Twitter and elsewhere, we’ve recognized that we need to change this emission rate for the best interests of the ecosystem.

Why Change the Platform Emission Rate?

Token economics are a relatively new field, but they can be analyzed using tools from existing currencies and commodities. A token like KDA is emitted over time through mining and allocation release, and this can be compared to drilling for oil, mining for gold or minting new currency. All of these increase the supply of the product, which can interact with demand such that “oversupply” can reduce the value of the product, and vice versa. In the case of something like oil, this can be a dominant factor, whereas with something like gold, supply versus demand is but one factor amongst many determining value. Nonetheless, all other factors being equal, reducing the rate of supply can have beneficial effects. Indeed, protocols like Bitcoin, Ethereum and Kadena all have decreasing mining emission rates over time in recognition of this principle.

Today, we are announcing a reduced platform emission rate, effective immediately, that we feel strikes the best balance of our ability to aggressively develop the platform while ensuring that the token emission supports a healthy economy. It extends the emission timeline by 5 years such that emission completes by 2030, ten years after network launch.

New Total Emissions with reduced Platform emission rate

With the adjustment, the total emission rate of the Kadena platform decreases significantly. To illustrate, let’s look at the change in overall inflation for the upcoming year.

Inflation Rate Jan 18 2021 — Jan 18 2022, Old and New

  • Mining emission rate: 23% (unchanged)
  • Total emissions (mining + platform) with “old” genesis rate: 72%
  • Total emissions (mining + platform) with reduced platform rate: 46%

These numbers are based on the total coins in circulation reported in the Kadena Block Explorer on Jan 25 2021 of 98.8M circulating coins, and a mining emission of 22.9M coins in the time period Jan 18 2021 — Jan 18 2022. The platform emission decreases from 48M tokens/year to 22.08M tokens/year.

The Fine Print: Implementing the Reduced Platform Rate

Genesis blocks cannot be changed without a difficult and risky hard fork. However, allocations are “released” manually into circulation on the Kadena platform through the operation “coin.release-allocation”, which is only allowed to be executed once a given tranche is “unlocked”. For the platform share, this is a monthly event. Thus, the new platform emission rate represents our affirmation that starting with the upcoming genesis platform release on Feb 1 2021, Kadena will not exceed a platform coin release rate of 22.08M tokens/year and 2M tokens/month. Kadena reserves the right to further modify, decrease or increase the platform emission schedule in the future for what Kadena believes is in the best interests of the platform, Kadena, and the ecosystem.

Overall Token Allocation Model

While the overall Kadena Token Allocation model is unchanged, we’d like to take this opportunity to provide all the data in one place.

Mining share: 700M

This represents all coins that will be emitted through mining over 100+ years, as described above.

Platform share: 200M

This represents all coins that will be emitted as described above. Note that 3.7M was already released (on Jan 1 2021), so the remaining emissions are for 196.3M KDA over 9 years.

Investor, strategic, and contributor: 90M

The remaining coins are dispersed into numerous tranches, as follows:

  • Series A and Series B Investor sales: 21.4M tokens
  • 2019 Coinlist offering: 2.1M tokens
  • Contributor share (for employees, consultants, advisers): 30M. Note that 39% of these coins are already distributed with the remainder held in trust by Kadena.
  • Strategic share (for ecosystem initiatives and future sales): 36.5M

Burned at Launch: 10M

The Kadena platform was launched without a planned 10M tranche for the strategic share.

Total coins in economy: 990M

This represents the planned amount of 1B coins, minus the 10M burned at launch.

Current circulating coins: 98.8M (as of Jan 25 2021)

This represents all coins either mined or released from allocation, and also represents all transferable coins in the system at the time, as reported in the Block Explorer.

Unreleased Investor Coins: 10.98M

These are coins that are out of lockup for SAFT A and B investors, but the investors have not released them into circulation. This represents the holdings of over 50% of the original supporters of the project. They are “available” now, but we cannot predict, and have no control over, when these will be released.

Locked Non-Platform Coins: 16.05M

These are coins that will be coming out of lockup in the upcoming year at various times.

  • Investor locked coins: 2.38M.
  • Strategic/contributor locked coins: 13.67M.

Conclusion

At Kadena, we’re going into 2021 with exciting projects nearing completion: the multi-protocol DEX Kadenaswap is wrapping up an incredibly productive run in testnet where the community stepped up to find all sorts of issues and great suggestions for improvement. Chainweb 2.4 released on Jan 15 with native support for Ethereum and Ethereum-compatible bridges, representing the most difficult milestone for erecting bridges to Ethereum, Celo, Terra and beyond, with the next step being setting up our bridge relay program, and launching wrapped tokens. With this announcement, we seek to similarly turbocharge our token economy to leave no stone unturned in our quest to prove out Kadena as the best platform to take crypto into the new decade.

If you have questions or comments, please join the discussion! Outside of Medium, you are invited to engage with team members on Discord and Telegram.


Update to the Kadena Token Economic Model was originally published in Kadena on Medium, where people are continuing the conversation by highlighting and responding to this story.

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