Namada Community Genesis Process, Cryptoeconomic Mechanisms, and the Genesis Allocations

Published Jul 31, 2024|7min read

The Namada protocol comes with many innovative mechanisms, such as the Multi-Asset Shielded Pool (MASP), a Zero Knowledge (ZK) scheme that enables the Namada sovereign network to be the shielded token hub for the multichain.

The protocol innovates in many other parts of the stack, such as Cubic Proof-of-Stake (CPoS), Shielded Set Rewards (SSR), and on-chain Public Goods Funding (PGF). This article covers the community genesis process, the Anoma Foundation’s proposed set of allocations, the protocol’s cryptoeconomic and governance mechanisms (and how they relate to the genesis parameters), and the purpose of NAM – Namada’s native token.

The Namada Genesis Process

The Anoma Foundation recently published the Namada protocol mainnet release candidate and will publish the Anoma Foundation’s proposed balances.toml file, which, if accepted by the Namada community, could be used by anyone to create and propose Namada’s genesis block.

In order to launch the Namada mainnet, members of the Namada community are discussing in various forums:

the Namada protocol mainnet release candidate
the genesis allocations proposal (this blog post)
the to-be-proposed balances.toml file
the genesis parameters
the transactions.toml file creation plan and process balances.toml
combining the parameters, balances, and transactions into the genesis block proposal
a mainnet launch date that must be agreed upon with the validator operators and active community members
the proposed 5-phase launch roadmap for Namada mainnet

This article aims to provide helpful information and context for the discussions and decision making processes.

The Role of the Native Token NAM

The Namada protocol requires the native token NAM, not only to pay for transaction fees, but also for:

securing the network with Cubic Proof-of-Stake network
rewarding participation in the shielded set (shielding rewards)
voting power in on-chain governance
funding public goods contributors

To enable these features, the protocol comes with the following on-chain mechanisms: Cubic Proof-of-Stake (CPoS), Shielded Set Rewards (SSR), Governance, and Public Goods Funding (PGF).

The Namada Genesis Parameters

Should anyone decide to use the open source code and documentation made available, they will have to decide on the genesis parameters, which are currently being discussed on the Namada community forum (see an ongoing discussion).

The following table lists the key parameters and includes example values to make it easier to understand the innovative cryptoeconomic mechanisms in the protocol and how the parameter choices can impact the behavior of the network. Note that this is for illustration purposes only:

A complete list of all customizable parameters in the Namada protocol can be found in the sample parameters.toml file.

The following section dives deeper into how each mechanism works and how the parameters impact the behavior of the network.

Cryptoeconomic Mechanisms in the Namada Protocol

Namada Cubic Proof-of-Stake (CPoS)

Namada features Cubic Proof-of-Stake as its sybil-resistance mechanism and PBFT, specifically CometBFT, as its consensus mechanism.

CPoS disincentivizes validators (the ones who operate the network) from deviating from the protocol or from consensus. In other words, CPoS incentivizes validators to maintain liveness (being online to validate and sign blocks) and safety (to not sign the same block twice or sign invalid blocks) of the Namada network.

CPoS rewards validators and delegators for securing the network by minting NAM, and the amount of rewards depends on the total NAM staked and the maximum annual inflation rate parameter value. CPoS uses a PD controller, a mechanism in the protocol that dynamically adjusts the inflation rate to change staking incentives to achieve a target staked-to-unstaked NAM ratio. If the current stake ratio is below the target, the mechanism will increase the inflation for staking rewards to incentivize more staking, and vice-versa if the current ratio is above target.

Validators

To become part of the consensus set, validators need to stake NAM to secure the network. The consensus set is an upper limit on how many validators can participate in consensus at any given time in the network, and this maximum number is a protocol parameter. The set of validators that are part of the consensus set is determined by the total amount at stake: the sum of the NAM that the validator has staked themselves together with the total NAM they have received in delegations. To determine which validators are part of the consensus set, the protocol ranks and selects the top validators by total stake. For example, if the limit of the consensus set is 100 validators, then the top 100 by total NAM stake will become part of the set.

The total amount of NAM is at stake, meaning that if the validator commits a safety fault (e.g. double-signing), up to that amount of stake will be slashed following the CPoS mechanism.

*In Namada’s Cubic Proof-of-Stake, the slashing rate is relative to the voting power*

A unique feature of Namada’s CPoS is that the amount slashed for a given infraction depends on the amount and proximity of other infractions detected. If multiple validators commit an infraction in the same or adjacent epoch, the slash rate for each of those validators can be drastically larger than if they were the only validator in the network to have misbehaved around that time. Cubic slashing thus can discourage validators from colluding as well as encourage validators who operate multiple nodes to diversify their security architecture.

Delegators

NAM holders that do not want to operate their own validators can still contribute directly to the security of the network and receive rewards by delegating their stake to a validator. Since the delegated NAM is also subject to slashing for safety and liveness violations, NAM holders are encouraged to do their own research on validators before staking with them, as well as to diversify their delegations among many validator nodes.

Namada Shielded Set Rewards (SSR)

Another unique cryptoeconomic mechanism is the Namada Shielded Set Rewards (SSR), which is part of the Multi-asset Shielded Pool (MASP). As on-chain data protection guarantees are the strongest the more tokens are at rest in the shielded set, SSRs are designed to reward users of Namada for moving tokens and keeping them in the shielded set.

*The Namada protocol rewards data protection guarantees as a public good*

The mechanism is token agnostic, meaning that the protocol can provide SSR for any native tokens (such as NAM) or non-native tokens that governance deems eligible for SSR. To receive SSR, users simply have to move the eligible tokens into the Namada shielded set and the protocol will automatically allocate rewards to the eligible accounts. The tokens in the shielded set are not locked; they can be freely used, which allows the mechanism to reward users for keeping their tokens in the shielded set (where they can send as many shielded transactions as they would like). Tokens are no longer eligible for SSR as soon as they leave the shielded set.

The amount of rewards in SSR are determined on a per-token basis by a PD controller, just as in proof-of-stake, but which targets specific amounts of each token in the shielded set. For SSR to work, governance needs to decide: which token(s) are eligible for SSR, what’s the target units of each token in the shielded set, and the maximum NAM inflation per annum for each token.

Namada On-chain Governance

The Namada protocol comes with an on-chain mechanism to determine future upgrades and changes in the protocol. To decide on future versions of the Namada protocol, after depositing some NAM, anyone can make protocol upgrade proposals. Governance proposals are voted on by NAM stakers, who vote yay, nay or abstain. The voting power of validators and delegators is proportional to their stake. By default, validators vote on behalf of the delegators, but any delegator can override their validator’s vote by voting directly.

Namada On-chain Public Goods Funding (PGF)

Public Goods Funding (PGF) is another innovative mechanism in the Namada protocol where a % of the NAM minted is dedicated to fund public goods that don’t have a private profit motive and are typically underfunded, such as technical research, educational materials, and technical contributions such as protocol improvements or open-source goods for the broader Namada ecosystem.

The PGF inflation rate is determined by governance and the funding is distributed by the PGF stewards (and can also be distributed by individual governance proposals). Anyone can submit a PGF steward candidate proposal, which is voted on like any other governance proposal. Candidates become stewards via a favorable majority vote, and stewards can submit public goods funding proposals. A PGF steward can resign from the role or be voted out by governance. PGF stewards are also eligible for a % of NAM inflation, also determined by governance, as a reward for their work in funding public goods.

The Namada Genesis Allocations (balances.toml)

As mentioned in the Namada genesis process, the Anoma Foundation is preparing to propose the set of genesis allocations for the balances.toml file that is needed for genesis.

The Namada community will be discussing the genesis allocations, the genesis parameters, and the software readiness in various forums in advance of coordinating a mainnet launch, should they decide to proceed.

The proposed total supply is of 1,000,000,000 NAM at genesis with no lockups, allocated among the categories below.

*Overview of the Anoma Foundation’s set of proposed Namada Genesis Allocations*

The genesis balances.toml file is in the works and will be published in an open-source repository for community review.

Next Steps for the Namada Community

The Anoma Foundation will publish the Anoma Foundation’s proposed balances.toml file in the upcoming weeks, which, if accepted by the Namada community, could be used by anyone to create and propose Namada’s genesis block.