Nervos DAO Quickstart by Nervos Network
What is the Nervos DAO?
Launched in 2019 for $CKB by Nervos Network, the Nervos DAO is an entirely decentralized, trustless, and permissionless feature of the $CKB economic model. Similar to staking, users earn rewards on $CKB deposited into the Nervos DAO, however, unlike staking, the Nervos DAO issues rewards through what is known as secondary issuance.
To understand secondary issuance, it is important to have a basic grasp on the token economics of $CKB. Every decentralized blockchain has it's own token economics, or 'tokenomics' for short, in order to provide incentive for users to use the network and to use it fairly. $CKB's tokenomics may appear complicated at first, but they're actually very similar to Bitcoin's token economics. The first step is understanding what purpose does the Nervos DAO serve in $CKB's economic model?
👉** The primary function of the Nervos DAO is a very important one, and it is to shelter holders from inflation.**
Note: The Nervos DAO is also not a 'DAO" (Decentralized Autonomous Organization) as they have come to mean in the web3 industry. However, the Nervos DAO is an ongoing project by Nervos Network, and new features are constantly in development, such as a prospective decentralized autonomous organization.
Basics of $CKB Tokenomics
Similar to Ethereum, $CKB is a inflationary asset, meaning it does not have a supply cap, however, through $CKB's tokenomics and the Nervos DAO, the $CKB is effectively deflationary for long-term holders, similar to Bitcoin.
By having no supply cap, $CKB miners can be compensated without the risk of rewards becoming too small to provide adequate security. Paired with the Nervos DAO, $CKB holders can offset the inflation that's generated from rewarding miners.
👉 Nervos Network uses this economic model because it sustainably rewards both $CKB miners AND $CKB holders.
Additionally, this economic model serves many other purposes, which you can read about in Crypto Wendy's White Paper on Nervos Network by Jordan Mack, senior software engineer at Nervos Network. But the main purpose we are going to cover in this article is securing the needs of both $CKB minors AND $CKB holders through Secondary Issuance:
🔗 What Secondary Issuance?
Secondary Issuance is what's primarily used to pay miners for their service in securing the network! It provides predictable and transparent incentive for long-term miners to commit to securing $CKB.
Issued at a rate of 1.344 billion CKBytes per year, every year. Based on CKByte usage, these rewards are divided among 1) miners, 2) Nervos DAO depositors and 3) a treasury fund (which is being burned until the initial $CKB ecosystem fund in the genesis block is depleted). This is what causes the effects of inflation in the $CKB ecosystem. But by depositing in the Nervos DAO, your long-term holdings will never be diluted by this secondary issuance.
⛓️ How the Nervos DAO Works:
$CKB miners are paid based on the amount of state storage (digital space) they use on the $CKB network. Therefore, users must pay state rent to the miners for the space on the network they use.
By depositing $CKB into the Nervos DAO, you are essentially just holding $CKB, not using any space, and therefore, you don't need to pay state rent to miners!
The interest rewarded in the Nervos DAO is calculated to always match the inflation created by Secondary Issuance, effectively offsetting inflation for the $CKB holders.
(Note: The Nervos DAO is often referred to as a method to 'stake' your $CKB, but that is not true. While both staking and the Nervos DAO compound rewards onto deposits, the process is entirely different given that staking is for proof-of-stake coins and $CKB is proof-of-work and uses the Nervos DAO for securing the network.)
🔗 $CKB Tokenomics Overview:
Nervos Network designed $CKB and it's blockchain network with optimizing the 'blockchain trilemma' (security, decentralization, and scalability) in mind. Part of that is making sure that the tokenomics are sustainable for long-term growth using features such as:
Predictable, long-term rewards to miners (secondary issuance) while maintaining a deflationary currency.
Incentivized state size reduction (with the Nervos DAO) and a fully implemented state rent system.
These core features of the $CKB tokenomics will help scale $CKB as new projects are developed on and added value to the network!
How to use Nervos DAO
The Nervos DAO can be accessed through two methods:
1️.) Neuron Wallet: Nervos Network's native $CKB wallet for desktop.
2️.) Portal Wallet: a web-based wallet developed by Lay2Dev.
Depositing & Withdrawing:
For step-by-step directions on how to deposit and withdraw from the NervosDAO using Neuron Wallet or Portal Wallet, check out these guides:
Neuron Wallet: (desktop)
Portal Wallet: (web)
Nervos DAO Compensation Cycle:
When depositing $CKB into the Nervos DAO, that deposit begin a compensation cycle. The compensation cycle is part of the state rent mechanism and makes the $CKB tokenomics possible.
When withdrawing from the Nervos DAO, it is ideal to wait until your compensation cycle is in the green region of the indicator bar. If you initiate a withdraw before the compensation cycle ends, your funds will stop earning rewards but will remain locked until the full ~30 days are up.
Withdrawing from the Nervos DAO takes two steps:
Initial Withdrawal Transaction — the first step in the withdrawal process. You can send this transaction at any time to the Nervos DAO to indicate your request to withdraw, however, the block in which this transaction is included is the end of the “reward” period.
Final Withdrawal Transaction — the final step is the transaction which withdraws your initial $CKB deposit plus rewards from the Nervos DAO. It must be done in a deposit period after the Initial Withdrawal Transaction.
Holders can deposit into the Nervos DAO at any time, though the timing of withdrawals is based on deposit periods. Each deposit period is 180 epochs (~30 days) starting from the time of your deposit.
You can keep your $CKB in the Nervos DAO for as many deposit periods as you wish but you must request your withdrawal (the Initial Withdrawal Transaction) before the end of the deposit period you wish to withdraw in.
Additional Resources:
How do I deposit and withdraw funds from NervosDAO on Neuron?
How to deposit and withdraw from NervosDAO in Portal Wallet (ckb.pw)?
What is the purpose of the CKByte Token Issuance (Base vs. Secondary)?
What is Nervos Network and $CKB?
Nervos Network is a cutting-edge multilayer public blockchain network built to solve the blockchain trilemma (decentralization, scalability, and security). Layer 1 of Nervos Network maintains digital assets using the $CKB token and provides arbitration for higher-level layers using a sophisticated UTXO architecture. Layer 2 solutions, such as Godwoken, an EVM-compatible platform built on top of Layer 1, inherit the security from Layer 1 while extending the capabilities of the blockchain. Through this multi-layer design, blockchain developers can deploy an endless number of future-proof, scalable, and secure decentralized apps with the tools they love, the speed they need, and affordable fees.
The Common Knowledge Byte token, also known as $CKB, is the native token for Nervos Network. It is a cryptocurrency that can be used as a secure store of value, like Bitcoin. $CKB can also be used to execute smart contracts similar to Ethereum. The unique crypto-economic design of $CKB makes it ideal for digital asset storage on Layer 1 of Nervos Network, known as Common Knowledge Base, and captures the total value of the network to increase security and align the interests of users, miners, developers, and node operators alike.
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