Nervos CKByte Distribution, and Why We Are Burning 25% in the Genesis Block

What are CKBytes?

The Common Knowledge Byte (referred to as CKByte for short) is the native token of the Nervos Common Knowledge Base blockchain (a PoW based blockchain supporting multi-asset). It represents ownership of a piece of the CKB blockchain’s current state. For example, if Alice owns 1000 CKBytes, she can use those 1000 bytes to store assets, application state, or other types of common knowledge on the CKB blockchain.

CKBytes can be used as a means of resource management or as a store of value. CKByte ownership is analogous to land ownership, you can rent out your space, use it to store assets, smart contracts and other types of “common knowledge”, or for value preservation you can simply “hodl” in the NervosDAO.

CKByte Token Issuance

There are 33.6B CKBytes in the genesis block, another 33.6B CKBytes in the total base issuance and a continuous secondary issuance of 1.344B CKBytes per year.

Genesis Block

  • 33.6B CKBytes in the genesis block, with 25%, or 8.4B CKBytes immediately burned (we will explain this later)

Base Issuance

  • 33.6B CKBytes in total will be issued with annual base issuance halving every 4 years, similar to Bitcoin. The base issuance tokens can only be obtained via mining.

Secondary Issuance

  • 1.344B CKBytes per year.

CKBytes Token Distribution

Genesis Block
The 33.6B CKBytes in the genesis block are distributed as follows:

Base Issuance
The base issuance of CKBytes is similar to the issuance of Bitcoin. Nervos CKB uses proof of work and incentivizes miners to recognize the longest chain as the network’s canonical state.

The base issuance reward halves approximately every 4 years, until all the base issuance tokens are mined out. All base issuance tokens are rewarded to miners as incentives to protect the network.

Secondary Issuance
On top of the base issuance, we add a secondary issuance, which can be seen as an inflation tax on CKByte holders storing state on the blockchain. The CKBytes from secondary issuance will be distributed to 1) miners, 2) a special smart contract called the NervosDAO, and 3) the treasury.

Token holders using their CKBytes to store state (occupying state in the CKB blockchain) will not receive any CKBytes from the secondary issuance. This inflation tax is how they pay state rent to miners.

Users who hold CKBytes, but are not using them to occupy state, can deposit and lock their CKBytes into a special smart contract called the NervosDAO. The NervosDAO will receive part of the secondary issuance, and negate dilution effects to long-term holders.

  • Miners will receive part of the secondary issuance proportional to “occupied CKBytes” divided by “all existing CKBytes”.
  • NervosDAO Holders not using their CKBytes to occupy state can deposit and lock them into a special contract called the NervosDAO. The NervosDAO receives part of the secondary issuance and this negates the dilution effects to long-term holders.
  • Treasury : For liquid CKBytes, which are neither being used to occupy state nor locked in the NervosDAO, secondary issuance rewards will go toward the treasury, providing sustainable funding for protocol maintenance and ecosystem development. The treasury won’t be activated until the Nervos Foundation has spent the ecosystem fund that’s reserved in the genesis block. Before the treasury is activated, this portion of secondary issuance will be burned. The treasury will be activated upon approval through the governance mechanism and implemented through a hard-fork.

To demonstrate how secondary issuance is divided, let’s suppose at the time of a secondary issuance event, 60% of all CKBytes are being used to store state, 35% of all CKBytes are deposited and locked in the NervosDAO, and 5% of all CKBytes are kept liquid. 60% of the secondary issuance will go to miners, 35% of the issuance will go to the NervosDAO (distributed proportional to locked tokens). Use of the rest of the secondary issuance — in this example, 5%, will be burned until the treasury is activated.

After base issuance stops, there will only be a secondary issuance of 1.344B CKBytes per year.

The Token “Burn” Explain

Why bother to burn 25% of the tokens in the genesis block? Why not just issue fewer tokens?

When we say “burn 25% of Nervos CKBytes in genesis block”, the 8.4 billion CKBytes will be sent to an address owned by Satoshi. This essentially means that no one will move or touch those tokens (unless Satoshi comes back and that would be another story :P).

The 8.4 billion CKBytes will not disappear (as normally you will assume burned=disappear), more importantly, it will have an impact on the secondary issuance.

The Nervos Foundation will write data to occupy 15% of the CKBytes in the genesis block, while leaving the other 10% CKBytes of the genesis block liquid (not being locked into NervosDAO!)

In this way, even if no CKBytes are being used to store state, or if all circulating CKBytes are deposited into the NervosDAO, miners and the treasury will still receive CKBytes from secondary issuance.


Please note: It won’t always be that 15% of secondary issuance goes to the miners and 10% goes to the treasury. Those number will go down as more tokens are mined out. The diagram above says “at least” which is only accurate at the time when the network launch.

Thanks to Williams Lai, knwang, Matt Quinn, Kim Fournier, Ben Waters and Jan Xie for reviewing this article.

Originally published on Medium

1 Like

Q1:

I can understand the necessity of base issuance and secondary issuance,but I can’t understand the necessity of distribution of Satoshi’s CKB.

Miners own the base issuance and when more CKB will be written with data,they will share the secondary issuance.

For the treasury,it’s alomost impossoble that all CKB written with data or locked in NervosDAO,so why set the at least 10% CKBtyes of the genesis block liquid?

Q2:

In the RFC of Crypto-Economics of the Nervos Common Knowledge Base,it has been described as:

The use of the rest of the secondary issuance - in this example, 5% of the that issuance - is determined by the community through the governance mechanism. Before the community can reach agreement, this part of the secondary issuance is going to be burned.

The use of rest of the secondary issuance will desided by the community,so why put the treasury out at right now?And the activate of treasury or not,it should desided by Nervos Foundation,it should desdied by the community or approved through the community at least.

Q3:
According to the data I know so far,I work out at the annualized returns of NervosDAO at the first year,it could be over 5%. Dose it has any discrepancies with the original intention of NervosDAO just to negate the dilution effects?

Q1:

The burn in genesis guarantees two streams of income in the most extreme cases:

  1. If adoption of blockchain tech takes much much longer than what we expect and ckb remain under-utilized or barely utilized after base issuance mostly drops to zero, we’d like to have the miners still have some baseline income so the blockchain can be secure.

  2. If almost all tokens are either used to store state or deposited into the DAO, there can be some baseline income to fund the treasury.

Note the 15% and 10% numbers will keep going down as the network matures as mentioned in the article.

Q2:

First, treasury will not be activated upon launch, and will require a hard-fork, which means it requires approval of the governance mechanism at the time of the fork. Let’s say at the time of its activation, after a few years of observation of real use patterns, the community or the governance mechanism of Nervos determines the percentage that would go to the treasury is too high, it’s expected that the number will be adjusted down. at the current moment we just don’t have real data to know what the percentage of CKBytes will be kept liquid, therefore lack the data to calibrate the treasury income. We’re basically using the genesis to set a small percentage (after a few base issuance halvings, this 10% genesis will be less than 5% of the secondary issuance) to protect against the worst scenario.

Finally, this is not in conflict with the RFC. The distribution of treasury fund will be subject to the governance mechanism and will involve the community. In fact, Treasury is merely a name to describe the destination of this part of secondary issuance. If through the governance mechanism, the community decides to activate it, the governance mechanism can decide where the fund goes. It’s entirely possible, for example, some of it will be burned, allocated to miners or any other purposes.

Q3:

I can’t really answer your question because I don’t know your calculations. But the purpose of the NervosDAO is to negate the secondary issuance effect and serve as an inflation shelter. It will also be implemented as so. The source code of DAO is coming up soon and you’re welcome to start the discussion based on the real implementation.

Kevin