5.8.3 Token distribution
Token distribution is pivotal in ensuring a balanced and functional blockchain network, primarily when it entails a multitude of participants: consortiums, nodes, and users. Monitoring the dispersion of tokens enables the understanding of network dynamics and aids in making strategic decisions, typically employing measures like the Gini coefficient to ascertain equality or disparity in distribution.
Participant Categories:
Nodes:
o Nodes, accumulating tokens via minting, follow a predefined model where initially dominant nodes (often consortium-owned) with higher transaction processing rates, gradually make way for a diverse range of participants.
o Eventually, a handful of leader nodes become prominent, managing a substantial portion of network transactions, and therefore, accumulating a noteworthy quantity of tokens.
o Tokens are perpetually circulated to users by nodes, fostering an active economy within the network.
Users:
o Users maintain tokens, sometimes utilizing them in Decentralized Finance (DeFi) applications.
o The wealth among users, initially concentrated, dilutes over time, even while adhering roughly to a normal distribution.
Consortium: Initially holding 20% of tokens, the consortium progressively reduces its dominance by systematically distributing tokens as per a preset off-chain policy.
While the simplified approach of token distribution and usage of the Gini coefficient might lack the granular accuracy of alternative metrics like Theil indices, it presents a feasible means of understanding and making decisions based on visible trends, especially in resource-limited scenarios.
Transaction Reward Rate (TRR):
Transaction distribution is vital to ensure fairness and sustainability in a blockchain economic model. Nodes, categorized into "highly active" and "moderately active" based on their activity level, handle transaction validations.
Highly Active Nodes: Initially 100%, decreasing to 20% as the network evolves.
Moderately Active Nodes: Increasing in proportion conversely to the highly active nodes.
Transaction distribution adapts over time, shifting from initially all being processed by highly active nodes, to a more distributed model as the network matures. Introducing stochastic processes, like a normal distribution with Gaussian noise, simulates the intrinsic variability in transaction processing, reflecting a more accurate portrayal of a live blockchain network.
The TRR is integral to understanding the economic and operational dynamics within the blockchain network. Defined as the average number of tokens rewarded per transaction processed, it's formulated as:
This metric is pivotal as it encapsulates the economic motivation for nodes to engage in transaction processing, ensuring both the security and functionality of the network.
Nodes-Users Token Flow:
Understanding the flow and distribution of tokens among nodes and users is crucial in maintaining a balanced blockchain economy. Tokens are not perennially hoarded by nodes. A particular percentage is expended monthly, ensuring token circulation and economic vitality. Conversely, token accumulation occurs, indicative of wealth accumulation by nodes for their network services. Users acquire tokens directly from the consortium and through node transactions. Visualizing this dynamic over time, our model calculates and plots token balances for nodes and users monthly, providing insights into the network's economic health and viability.
Nodes verify transactions and are rewarded through a minting mechanism, determined by the TRR. They spend a certain percentage of their token holdings monthly, contributing to the network's economic liquidity.
Users acquire tokens both directly from the consortium and via transactions with nodes.
Visualizing the dynamic interplay between nodes and users, as well as comprehending the ensuing token flow, is imperative for evaluating the health and long-term viability of a blockchain network. This model underscores the economic interplay in the network, providing a roadmap for understanding and potentially navigating the economic phenomena within the blockchain environment.
Consortium-Users Token Flow:
The flow between consortium and users is another vital aspect to explore, as it reveals how the initial token distribution strategy and subsequent allocations unfold in the practical functioning of the network. A detailed exploration would consider parameters like pre-established distribution policies, transactional dynamics, and behavioral economics of users in token utilization and storage, providing a comprehensive overview of token movement and accumulation in this subset of the network.
User's token distribution:
User token distribution may vary significantly based on several factors, including user behavior, incentives, and external market conditions. Ensuring an equitable and functional distribution among users requires insight into these dynamics, potentially involving modeling around user acquisition, spending, and holding patterns.
An in-depth analysis would further delve into user categorizations, exploring token utilization patterns across different user Within the framework of the model, the target characteristic is set for the gradual equalization of token ownership with reaching a normal distribution after a specified period of time t* (10 months by default). demographics and behavioral profiles.
TDI Practical Calculation:
The alternative algorithm provided for calculating Token Distribution Inequality (TDI) bypasses the complexity inherent in traditional measures like GINI or Theil indices. By calculating a ratio between tokens held by the lower and upper percentiles of holders, a straightforward, comprehensible insight into wealth disparity within token holders is obtained.
Using a deterministic approach, the algorithm presumes a known evolution of token distribution among users, transitioning from 10% of users holding 90% of tokens initially to 40% holding 60% ultimately. While it might not encapsulate every nuance of the token distribution process, this method furnishes a simplified overview of distribution dynamics, facilitating intuitive understanding and informed decision-making.
Where:
o X is a predefined lower percentile of token holders, e.g., the bottom 10%.
o Y is a predefined upper percentile of token holders, e.g., the top 10%.
To calculate the TDI:
Rank all token holders based on the number of tokens they possess.
Calculate the total number of tokens held by the bottom X of the ranked list.
Calculate the total number of tokens held by the top Y of the ranked list.
Divide the sum from step 2 by the sum from step 3 to get the TDI.
Consortium Influence Index (CII):
The Consortium Influence Index (CII) elucidates the consortium's token possession relative to the total tokens in the network, expressed as:
This index becomes crucial in evaluating the consortium's control and influence within the network. A higher CII indicates a more significant consortium influence on the network's economic dynamics and, potentially, its governance structures. Continuous monitoring and ethical management of the CII are essential to maintain network trust and stability.
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