SMARTLANDS
NETWORK

Blockchain Solution
For Financial Markets and
Tokenized Regulated Assets

INTRODUCTION

Why Smartlands Network

Over the past two years, the Smartlands team has been engaged in in-depth R&D and business development of products for companies and investors in the areas of regulated assets, investment banking, securities trading and related processes. Today, we much better understand the needs of professional participants in financial markets who are ready to implement blockchain solutions under certain conditions and requirements.

Had the solution to the problem meant only implementing just another protocol or making changes to an existing one, we would consider it a blessing. Unfortunately (or fortunately), both technological and business solutions for professional participants in the investment banking market are more complex and require, first and foremost, a deep understanding of their needs. The blockchain-based solution for them should create obvious value in comparison with existing technology.

Blockchain solutions for investment banking and management of regulated assets is a separate technology area that has something in common with a payment solution, but at the same time, it is unique to a large extent.

It is also important to note that investment banks, asset managers, exchanges, custodians of regulated assets are primarily focused on private solutions with options to implement on public networks that are adept in terms of regulation, parameters, and most importantly – prevalence among customers, vendors, etc.

Working with market participants and partners who accompany transactions, we concluded that it is of key importance to be able to provide a tailored solution that will provide maximum flexibility to potential customers (users) in the form of a private or consortium blockchain with the ability to access various public networks (blockchains).

Public fundraising is one of our key competences and we believe that public blockchain is very well suited for it, consequently, we develop our network the way it could be used both as a public blockchain and a private one.

The public network will be designed to provide a different level of oversight that is required for different types of assets under different regulations. Digital assets will range from tokens issued by using Smartlands Fundraising Plugin that may require no regulation whatsoever to regulated digital securities (financial instruments).

Private blockchain networks will be provided to classical financial firms and banks that embrace distributed ledger technology and set to benefit from cost savings it may provide. Afterwards, it will be possible to transfer assets issued in Smartlands-powered private blockchains to the public Smartlands Network.

We always bear in mind both liquidity and infrastructure as key factors of success for digital assets, therefore we will provide the solution to transfer assets to other blockchains that are popular for digital securities and digital assets in general, namely, we consider Ethereum, Stellar and Tezos as the most important networks. Transfer to other networks is planned to be introduced through anchoring. Should cross-network atomic swaps become possible, they are likely to be implemented.

Consensus Basics

Smartlands Network will use delegated Proof-Of-Stake consensus protocol. Proof-of-work protocol was a great idea as a technology demonstrator, but it limits the capacity of a network, uses too much electricity that both generates an enormous amount of costs and have a negative environmental impact. Federated byzantine algorithm is a great concept but does not provide sufficient motivation to run a node/validator that may result in low network resilience, as a limited number of nodes would be available in the network.

Delegated POS provides the highly efficient way to keep the network resilient and provide robust performance in terms of ledger close time, overall transaction performance, and amount of information recorded to the blockchain (as Smartlands Network will be used to save hashes of data that must be kept immutable).

We do understand the complexity of creating our own blockchain and that was the reason why we have started our platform on the available solution instead of creating a new one. Therefore, we have carefully considered available solutions to make this task manageable and predictable, requiring a limited amount of resources and time. Cosmos infrastructure in our opinion provides both required flexibility and reliability. We will not have to create a consensus mechanism, block creation and storage, while we will create transaction handling and world state mechanism that will suit developed business logic. Furthermore, Сosmos network provides for atomic swap of assets between blockchains built on their protocol.

Validators

Every user of the Network is allowed to become a Validator of the Network, participating in maintaining consensus (producing and validating blocks) and network governance. The users who don’t run validators are incentivised to delegate their tokens (voting power) to reputable network validators. Thus users of the network ultimately determine the set of validators who will ensure the security of the network.

Delegation effectively freezes tokens on the users’ accounts – the value of these tokens will be added to the validator’s voting power, will entitle to the share of network rewards and will be accordingly put at risk, but validator will not be able to transact with these tokens.

The main incentive for running validators and delegating tokens is a block reward paid in the SLT token. Block reward includes fees collected from the transactions, as well as the SLT inflation – according to a schedule. Inflation is intended to incentivise the participation of users in the network governance, namely delegation of their tokens to validators.

In contrast with the blockchains with legacy protocols where the block reward is granted to the validator who first prepared the block, in Smartlands Network the block rewards will be accumulated in a special pool and then will be evenly distributed to validators according to their voting power.

Users who don’t delegate their tokens will suffer from SLT inflation. Validators are required to distribute the received rewards to their delegators, however, every validator will charge a fee from the delegators’ rewards. There are strict rules regulating how the validators determine and update their fee policy.

Operating the Validator requires resources to maintain the full-node: computing power and high-bandwidth internet connection. And network only requires a relatively small set of highly-connected and efficient validators – as otherwise the process of achieving the consensus will be not reliable and the performance of the blockchain will be affected.

We invite everyone willing to become a validator to get familiar with the requirements. If you have any questions, please contact us at team@smartlands.network, and we will be happy to help you.

Consensus Algorithm

Cosmos SDK uses the Tendermint consensus engine, which is, in a nutshell, an advanced implementation of BFT (Byzantine Fault Tolerance) consensus.

Upon the commit of each block, the Network chooses a subset of validators – operating set, who will participate in the generation of the next block in the chain, and deterministically chooses the validator who will be responsible for proposing the block.

The size of the operating set is limited, and only first N (e.g. 100) validators with the biggest SLT stakes (own and delegated) will be included in the set and entitled to receive block rewards. Special network algorithm deterministically entitles validators to propose a particular block, and the probability of the validator to be entitled to produce the block is depending on the size of the stake.

Within a certain limited period of time, the proposing validator has to prepare the block and announce it to the validators set. And according to the BFT rules, the ⅔ of validators should reach a consensus about the block and included transactions.

The classical “double-spend” attack (as it’s known in the legacy blockchain protocols) is by design not possible in the scope of the BFT consensus,  the only possible class of attacks includes various chain splits/forks. In case the fork occurs, the validator which behaviour led to the fork will get slashed – a per cent of SLT it possesses (own and delegated) will be burnt.

Validators included into the Network’s current operating set will be also slashed (for a very small percentage of their stakes) for a certain downtime period (since for a validator to go offline means putting the network resilience at risk).

Since Delegators put their stakes at risk, normally they should do due diligence on validators and possibly delegate portions of their stakes to multiple validators in the ecosystem.

Identities

Initially, blockchain technology was praised for (pseudo) anonymity and ability to build trustless solutions. In theory, it works perfectly, but in practice, real-world inputs needed for basically any application require trust towards those who provide such inputs. Moreover, anonymity in case of financial applications does provide a lot of capabilities to commit financial crimes. Yet this doesn’t imply that blockchain technology does not meet the needs of the financial industry. Actually, it is vice versa and immutability of blocks of the blockchain provides a lot of opportunities for improvements of operations in the financial sector. Specifically, creation of confirmed identities may be one of the most important ones.

Obviously recording personal data in a blockchain is not a practical solution and would obviously violate the regulation on the protection of personal data. Our goal was to create a framework that provides

  • anonymity from a public perspective
  • reusability of KYC
  • transparency and accountability for regulatory purposes
  • limitation of data provided to other participants within the required limits.

Anonymity from a public perspective is an obvious concern due to the requirement for the protection of personal data. KYC data will be collected and controlled by KYC oracles. Hashes of the data will be stored on the blockchain to provide the proof of immutability of data stored by the KYC oracle. This will be discussed later on in more details.

KYC procedures are tedious and costly so the ability to reuse data that have already been provided/collected is a huge increase in user experience and cost-efficiency. Users will be able to provide instruction to KYC oracle that has collected the KYC data to any other recipient that requires it. Such instructions themselves may be performed as a technical transaction in the network.

As mentioned above, financial crimes are a persistent concern for any financial services, so competent authorities must be able to access the data about all the transactions and people that have performed them. Blockchain itself provides records of the transactions, while KYC oracles provide identities in case of an appropriate request from such authorities.

Unfortunately, data leaks do happen as even banks sometimes become victims of hacker attacks, therefore, any participant should have limited information about identities. It would be possible to generate an unlimited number of accounts and provide data to Compliance oracles (that monitor and approve all the transactions with a certain asset) only about the accounts that will hold that asset, while information about all the other accounts is not provided to such oracle. Consequently, a data leak of one of the Compliance oracles will disclose only a limited amount of information. This design is important given the global ambition of Smartlands Platform and a large number of Compliance oracles from different countries that are planned to be introduced.

Assets and Compliance

Use of distributed ledger technology does not undo requirements for compliance with regulation related to financial instruments even if it is a digital asset. Nevertheless, digital assets could be of totally different nature starting from a token that represents loyalty bonuses or a prepaid cup of coffee to fully regulated securities. Blockchain token is just a container that represents an asset, but compliance requirements depend on the represented asset and may vary from no regulation whatsoever, e.g. cup-of-сoffee token, to analysis of each transaction for security tokens.

Our solution for this issue is Compliance oracles that will perform all the required checks for assets that require them if any. Tokens that does not require any compliance check will be issued without any Compliance oracle. It will be the responsibility of an issuer to determine if an issued asset requires any compliance checks. Issuing an asset will require passing KYC procedure and will have some costs.

Compliance oracles are the optimal solution given the current development level of infrastructure for securities issued on the blockchain. They provide high flexibility, could be easily comprehended and approved by financial authorities, and make technical solution simple, clean and reliable.

Oracles

Smartlands Network architecture uses a different innovative approach to avoid multisig, introduce a flexible trust structure, and unlock unlimited potential for self-custody of the assets, while still maintaining a full compliance with securities regulations in all legislations.

The Oracles concept was selected as the main architecture approach for the implementation of the regulated assets on the Ledger.

Within this concept, all the regulations rules required to meet different legislations for digital securities are ensured by introducing the Compliance oracles entities. We expect that in most of the cases, Compliance oracles will be operated by licensed entities, such as TVTG service provider in Liechtenstein, Crowdfunding Platform in the UK or EU, broker-dealer, bank, fund, E-money operator, etc.

In order for a transaction to be considered valid and be finally settled in the ledger, the Network validators will require every compliance oracle associated with the assets involved in the transaction to explicitly approve the transaction with a digital signature. These digital signatures will be collected by the Wallet software and attached to the transaction prior to its submission to Network validators.

To meet strict AML/CTF requirements, the Network also introduces KYC & AML oracles entities. These oracles themselves won’t be licensed entities as in the general scope. They are responsible for verifying and keeping the personal data of investors, and sharing them securely with compliance oracles when they receive the request. KYC & AML oracles are also responsible for complying with appropriate data protection regulations (e.g. GDPR).

When the asset is created (and prior to the tokens to be issued), the issuer can specify a governance configuration for the newly created token. In general, the Network supports governance overseen by a particular compliance oracle, set of KYC & AML oracles, or neither Compliance nor KYC & AML oracle. Compliance oracles on their end specify which KYC & AML oracles they trust.

From the economic perspective, it is supposed that Compliance oracles will have data processing agreements signed with KYC & AML oracles and will pay them for identity verification (and to access the personal data). KYC & AML oracles will compete in the ecosystem to obtain and verify as many investors as possible, and at some point, we believe that every investor from every jurisdiction will be covered by at least one KYC & AML oracle.

It is also important to have not many different unrelated KYC & AML oracles in the ecosystem, as, otherwise, end-investors will have to pass identity checks in multiple business entities. The trust aspect is also mandatory since investors will likely not want to share the personal information with unknown/small KYC & AML oracles.

We also don’t expect that KYC & AML oracles will exchange the data between themselves – as it will put the bigger risk of data protection violations, and will be against the competition model.

Noteworthy, when every oracle is created on the blockchain, the substantial amount of SLT tokens is locked in the oracle’s account and can be released up again only when the oracle is not required in the network anymore (in case it has no investor or token in circulation depending on the oracle’s decisions).

If an Oracle is compromised or liquidated, or in case of the appropriate court decision, the locked amount of SLTs for oracles acts as an insurance deposit – upon a consensus of Network validators this amount can be seized and distributed to cover the loss of affected investors.

Smartlands will prepare a comprehensive developers documentation and SDK for oracles to facilitate the needs of the financial institutions to participate in the ecosystem. By design, oracles will be centralised off-chain applications controlling special accounts in the Network and communicating with Network clients via public API. In order to maintain consistency across the ecosystem, Smartlands will publish special guidelines for API protocols, maintaining interoperability of the oracles, wallets, and exchanges.

Supposed that Oracle’s operators will also run their own watcher nodes (they can also run PoS Validator nodes, but it’s not mandatory) and for their convenience Smartlands team will prepare a special set of modules allowing Oracles’ centralized system to get real-time notifications from their specially configured watcher nodes.

Assets Governance

If Compliance oracle is responsible for the governance of the asset, the token will behave as a regulated digital security token, meaning that every transaction involving the asset should have to be mandatory approved by the oracle prior to being settled on the Ledger. Compliance oracles can decline the transaction execution upon their sole decision and are also able to forcibly move the tokens between wallets to overrule consequences of scams or to execute courts and authorities’ decisions (although additional security measures are applied to the process to make it less prone to oracles’ vulnerabilities or hacks).

In order to facilitate the development of wallets and exchanges running on the Network, Smartlands will prepare a set of protocols, special API methods, and comprehensive SDK allowing participants to request and exchange Compliance oracles’ approvals in a reliable manner.

If no oracles are assigned to handle the asset’s governance, the token will act as an unregulated utility token (similar to Stellar tokens or ERC-20 Ethereum standard) and will freely circulate in the network. Finally, in case a set of KYC & AML oracles is associated, a restricted utility token, where Proof of Identity (the Issuer specifies which types of Identities are suitable), will be required to allow an investor to hold and transact with the token.

Proof of Identity will be written to the blockchain in a special transaction and will be permanently associated with a wallet. Every investor is able to hold multiple proofs of identities (e.g. “Accredited Investor” status issued by “Verify Investor”, “Verified USA citizen” status issued by Onfido, etc.). Investors are able to obtain Proof of Identity from KYC & AML oracles that verifies in an anonymous fashion the fact the investor’s identity (as well as the AML/sanctions status and country of residence) is confirmed. Every Proof of Identity has an expiration timestamp after which it should be reviewed.

Network itself will verify the validity and sufficiency of the Proof of Identity (match proof of Identity with a set of governance rules specified during the asset creation) when the investor submits the transaction with the restricted utility token.

Anchors

Anchors are special entities in the ecosystem that issue tokens on the network tied to the assets that they possess in custody.

The same rules and compliance logic will apply for anchored tokens, i.e. issuers (anchors) will be able to issue freely circulating tokens (e.g. for cryptocurrencies such as BTC or XLM), KYC-bound tokens (e.g. for fiat stablecoins) or bound to compliance oracles if required by the legislation (e.g. for anchoring shares of public companies, metals, ETFs, etc.).

The blockchain will allow anchor issuers to retain the ability to mint tokens, while the burn operations will be always allowed. Thus anchors will be able to add tokens into circulation for deposits and burn them for withdrawals.

It’s worth to explicitly point out that anchored tokens’ issuers are centralised entities, and it is up to the risk of end-user to trust that the anchor (issuing legal entity) is honest and secure, and possess the underlying money in custody in the amount enough to cover the whole issued supply of network tokens.

In most of the developed jurisdictions, it is usually required to have an appropriate license to perform activities such as custody of assets, and especially issuance of the means of payment, such as fiat tokens (stablecoins). Smartlands Network will allow the issuer to add metadata for the token where he can specify links to a license confirmation on the regulator’s website or cryptocurrency wallet addresses of the custody account. These measures are conducted to increase trust to the anchors, but no special governance will be taken and actual verifying of the provided data will be the responsibility of the end-user.

Smartlands will publish guidelines for issuers of anchored tokens, in order to maintain consistency of the API interfaces across the players in the ecosystem, mainly to support the interoperability of the wallets.

Inter-Blockchain Communication

The charm of the Cosmos Network is a Cosmos Hub and IBC (Inter-Blockchain Communication) protocol, aiming to unleash the unprecedented potential in blockchains interoperability.

In a nutshell, IBC protocol is a novel “relaying” protocol, basically allowing separate blockchains to communicate by exchanging peer-to-peer messages between each other. The protocol is cryptographically designed to maintain a robust, consistent, and secure transport of messages.

Blockchains may implement any kind of business logic on top of this communication layer, and cross-blockchain transfer of value between separate distributed ledgers – the most simple, and also the most prominent and long-awaited feature.

Cross-blockchain transfers will completely eliminate the need for the existence of 3rd party anchor issuers that are basically centralised business entities, with the whole package of associated risks of a single point of failure, like issuer dishonesty, hacks, or operator’s corruption.

The only requirement for establishing a route to transfer value between separate Cosmos ecosystem chains is to have interoperable tokens systems and to integrate Cosmos SDK’s module responsible for IBC protocol support.

Once the IBC implementation is live on the mainnet, Cosmos ecosystem players are also planning, to prepare special cross-blockchain bridges, allowing non-Cosmos-powered blockchains to be represented in the IBC network, therefore unlocking the possibility to bring existing major cryptocurrencies (like BTC, ETH, XLM, XRP, etc.) to transact on the interconnected family of Cosmos-based networks. However, not for every blockchain the integration will be seamless and frequently there will appear a centralised 3rd party responsible for the safekeeping of coins on the original ledger.

When a token issued on the blockchain A is transferred to the blockchain B, the original token is frozen on the first blockchain and immediately the corresponding amount of anchored token is issued on the second blockchain. All “frozen” and “mint” operations are happening straight on the consensus level, and no centralised entity is required to manage this operation, as well as no centralised entity can actually transact with the frozen tokens. IBC protocol gracefully handles the finality aspect, guaranteeing that upon the issuance of the anchored token on the blockchain B, the corresponding amount of the token on the blockchain A is, first of all, actually exists, reliably locked, and, most importantly, all transactions on both blockchains are confirmed and irreversible.

Withdrawals of the tokens anchored with IBC protocol have no difference, except that all operations are reversed. Anchored tokens are burnt on the blockchain B and the corresponding amount of original tokens on the blockchain A is immediately and robustly unlocked and sent to a designated account.

The major bottleneck of the IBC protocol architecture is the necessity for explicitly establishing a connection channel between blockchains, implying that in order for separate networks to be constantly in sync, headers and Merkle roots for every block in the chain should be committed as a special transaction to the other blockchain. This question, although, is covered by the routing capability of the protocol. If blockchain A is connected to blockchain B, and blockchain B is connected to blockchain C, tokens will find a route to be transferred from blockchain A to blockchain C.

Cosmos Hub is actually designated to solve exactly this question. Every Cosmos-powered blockchain network will maintain the IBC channel to the Cosmos Hub blockchain network, thus the whole Cosmos networks intersystem will have a star topology and all the blockchains will have an ability to transact with every other chain in at most 2 hops through a single channel to Cosmos Hub Network.

Existence of Cosmos Hub, as the largest network in the Cosmos ecosystem, as well as the star topology architecture, also serves the task of securing the whole IBC network, since small blockchains with low accumulated proof of stake could be vulnerable for forks-type attacks, thus may theoretically introduce a risk of double-spending the coins over the IBC protocol.

While Cosmos Hub is already live, the IBC protocol itself is coming soon and currently in the active development phase. Smartlands already took a final decision to support the IBC protocol, thus allowing tokens issued on Smartlands Network to be freely transferred (when regulations allow) across the wide Cosmos ecosystem, including decentralized exchanges and other applications.

The regulation requirement although involves an implication that not every token issued on the Smartlands Network will be capable of being transferred out of the Network to another blockchain. Only unregulated tokens will be freely transferable, and also every token coming from other blockchains will be treated in Smartlands Network as an unregulated token.

It is quite obvious that security tokens, that are requiring certain regulations, couldn’t be freely transferred in the same fashion as unregulated utility tokens, but in the case in the Cosmos ecosystem will exist other security-tokens capable blockchains, Smartlands will try to establish and support interoperable security token transfer protocol to allow regulated tokens to move across blockchains via IBC.

It is also worth to mention that IBC-powered anchoring is available only for already existing digital tokens, such as cryptocurrencies, and already issued utility tokens. Fiat stablecoins will always require an “offline” centralised entity legally responsible for issuance of tokens and custody of the original fiat money. However, once issued on one blockchain, stablecoins (if regulations allow), are capable of being freely transferred to another blockchain, and no additional anchors will be required.

Secondary Market

Liquidity of digital tokens is one of the key features that bring value to investors, thus, Smartlands Network will support the secondary market in two forms. The well understood secondary market in the form of an exchange will be powered by Smartlands DEX. MTF license is required to operate an exchange for digital securities, even if it is a DEX. The Compliance oracles will be regulated entities overseeing trading on DEX making it possible from a legal point of view.

Getting MTF license is a time consuming and costly process. Moreover, the listing of a security token on an MTF will impose a lot of restriction and have a price tag, so it will raise the bar for those who can get listed. To fix this issue, investors will be able to trade their digital securities on a bulletin board.

As mentioned above, it will be possible to transfer digital assets from Smartlands Network to other networks for security tokens like Stellar, Ethereum or Tezos, if they have required infrastructure from a legal perspective to operate such security tokens. This will be checked by the Compliance oracle responsible for the asset. If a transfer to another network would not be compliant with the regulation, the oracle would not allow such transfer.

Given no Compliance oracle for unregulated tokens, their transfer to other networks will not be limited.

Blockchain reputation and digital credit history

Smartlands Platform develops a framework for the immutable storage of data provided by asset owners, borrowers, companies seeking financing and other investees. Based on this, the blockchain reputation of entities will be created to help to alleviate information asymmetry and facilitate efficient financing.

For regulated offerings, all the actions of any investee/borrower related to obtaining the financing including submission of fillings, ongoing reporting, interest and principal amount repayment, dividends and share repurchases will be identifiable by their public keys.

Investors will be able to check the borrower’s profile, reputation, credit history that cannot be compromised or altered. In addition to the risk of criminal charges (that could be avoided in some cases due to corrupt judges, prosecutors, etc), misuse of funds by companies and all related individuals will be visible to all kinds of prospective investors and cannot be avoided in any way. This should strongly discourage fund recipients from misbehaving.

Performance tracking for e.g. agricultural companies may be performed by an initial and ongoing monitoring of a company with agtech solutions. It provides a much better understanding of the borrower’s condition and important input into an early discovery of fraudulent activities. Hashes of collected data with geotags and timestamps may be recorded on the blockchain, significantly limiting the ability to manipulate it.

Creation of investors reputation profiles will be available as well. Some investors (or even participants that impersonate ones) abuse their status to collect data about projects and their ideas. As a result, private companies limit the information provided to potential investors, further aggravating the information asymmetry problem. The fact of obtaining confidential data by an investor could be recorded as a technical transaction confirmed by both parties, therefore it will give an important input on how trustful a particular investor is.

Role of SLT in Smartlands Network

Obviously SLT will be the native token of Smartlands Network and all the transaction fees will be paid in SLT. Stellar-based SLT will be swapped into SLT on Smartlands Network.

Fees

Fees to be revised by voting of Smartlands Network validators to keep them optimal for the network development and adjust in case of major changes in SLT value.

The fee for a regular transaction will be set to 0.01 SLT. The target is to keep it below 1 cent/tx.

The fee for the first transaction with the account will be 100 times higher than for a regular transaction fee. It will be credited to Smartlands’ special account. It is meant to prevent network spamming and will be partially or fully reimbursed for good actors, e.g. compliant asset issuers, KYCed investors, oracles etc.

Compliance Oracles may charge additional % fees per transaction, as their responsibility to the regulator is proportional to the amount transacted, rather than the number of transactions.

SLT staking

Staking of SLT will be required for the key Smartlands Network participants. The minimal required amounts may be adjusted later on by voting, while initial amounts are proposed as follows

  • Asset issuer – 10 SLT (per asset)
  • Validators – 1000 SLT
  • KYC Oracle – 3000 SLT
  • Compliance Oracle – 10000 SLT

These numbers of required SLTs for each participant may be adjusted at a later stage of Smartlands Network development.

Note that Asset issuer staking requirement is not the fee of Smartlands Platform, but Smartlands Network requirement mostly to prevent spamming.

Thanks to delegated POS consensus protocol even small SLT holders will be able to benefit from participation in maintaining the network consensus and earning a reward for that. Reward will be composed of fees paid by network users and inflation.

Inflation

Inflation advantages those who participate in running consensus and those who actively use the network, as part of the validators reward is obtained from inflation and not the fees paid. On the other hand, it disadvantages holders who do not take any actions.

Stimulation of activity in the network may be beneficial on the initial stage of the network. Inflation will motivate large SLT holders to run validators and small holders to participate in consensus. Nevertheless, spam protection is important for any blockchain as the history of transactions stays there forever. Consequently, at the later stages, inflation may be harmful to the network and must be decreased to zero.

In the case of Smartlands Network we see 3 main goals of SLT inflation:

  • stimulate professional validators to run nodes of the Smartlands Network.
  • stimulate SLT holders to participate in reaching consensus through delegation of SLT to trustful validators or running a validator themselves.
  • stimulate interest of DeFi participants to Smartlands Network.

To achieve these goals we decided to set up the inflation schedule as follows

Year Inflation rate
   1         9%
   2         7%
   3         5%
   4         3%
   5         1%

Despite the fact we are not big fans of high inflation rates, we have decided to make the change predominantly to make Smartlands Network more attractive to DeFi market participants. Please read the discussion below to understand why. Note that all the active SLT holders will likely to benefit from the change.

Let’s take a closer look at each stakeholder.

Professional validators

Running a node requires software developers, DevOps, and servers that obviously come at a certain cost. At the launch of the network, activity is likely to be very low therefore transaction fees will not be sufficient to cover such costs. Thus, alike in PoW networks validators will get newly minted tokens proportional to tokens held (delegated) and work done, while sharing part of the tokens with SLT holders who delegated SLT to them.

SLT holders

Checking information about validators including their technical capabilities and truthfulness requires effort. Obviously, SLT holders are interested in the network run by good validators, but without benefit for making a risky decision, many are likely to stay passive. Inflation both benefits active and penalize passive SLT holders, that creates great motivation to choose a worthy validator to delegate his/her tokens.

DeFi market participants

DeFi is one of the first practical applications of blockchain technology beyond just making payments in digital currencies instead of fiat. Though DeFi is still at the very early stage without many meaningful applications, it has attracted a lot of attention recently and many projects involved are among top gainers in terms of their market cap. Inflation determines how much of the total project value increase is distributed to active token holders, therefore it directly influences the attractiveness of a token for potential buyers. Moreover, some holders may consider inflation as a proxy for return, therefore higher inflation will further increase the attractiveness of SLT for DeFi market participants. You may consider this Cosmos-related project for getting a better understanding of the market.

Looking a few steps further, we understand that tokens issued on Smartlands Network will be perfect assets for the DeFi market (as a collateral for DeFi loans). Attraction of DeFi market participants is likely to have not only a short term impact due to increase in the number of SLT holders but also lasting effect due to increase of a number of users of Smartlands Network.

Inflation may be revised or cancelled due to reasons that may arise while developing Smartlands Network and finalizing the general framework of the network.

Note that the SLT is a utility token originally issued by Smartlands Platform Foundation, a Cayman Islands incorporated entity which is independent from Smartlands Platform Ltd (UK).

Development timeline and transition period

Currently, we prepare to launch the first test version of the solution and we plan to release in-detail technical description and documentation for developers, asset issuers, validators and oracles. By the end of the third quarter, we also plan to release a test net version of Smartlands Network with first validators joining the network. If testing is successful, the main net launch is scheduled for the fourth quarter.

The users will be allowed to request testnet SLT to try Smartlands Network and get comfortable with the ecosystem prior to SLT swap. We plan to launch swap requests of Stellar-based SLT to SLT native for Smartlands Network one month prior to the launch of the main net. We plan to provide detailed instructions for swapping of SLT in the third quarter of 2020.

Note that Smartlands Network native SLT will also be available for purchase and exchange on third-party digital currency exchanges. We will provide the list closer to the launch.

“Smartlands Network” is a product of the Smartlands Platform Foundation, a Cayman Islands incorporated entity.  SLT is a utility token originally issued by Smartlands Platform Foundation which is independent from Smartlands Platform Ltd (UK).

DPoS AND STAKING

Delegated Proof of Stake

To start, it is worth mentioning that there was always an alternative for the proof-of-work, named BFT (Byzantine Fault Tolerance), and there are multiple blockchain networks utilizing it nowadays (either plain BFT or with tweaks such as “Federated Byzantine Agreement”). The BFT consensus architecture is fast, scalable, and not prone to double-spending attacks by design, however, there is a major disadvantage – low involvement of the community, and low overall cost of the attack. Within a BFT consensus, it is quite cheap for a potential attacker to “split” the blockchain, causing either a halt of the whole network or denial of service attacks – these all are not acceptable for the serious financial institutions.

The main idea of the DPoS consensus is actually to improve the BFT idea, by addressing the biggest weakness – involvement of the community. In contrast with the “plain BFT” where everybody can launch the validator and be eventually included in the “core validators set”, DPoS requires every validator to prove that it actually represents the interests of the community prior to being included into blockchain consensus.

Validators in the DPoS network are responsible for all the core tasks:

  • Validating every incoming transaction by checking against a set of rules encoded into the blockchain source code;
  • Ensuring immutability of valid transactions by including them into a chain of blocks;
  • Guaranteeing the insurance of oracles, and having the power to seize the oracle’s insurance deposit and compensate for the loss caused by oracle’s dishonesty;
  • Governing the network by making proposals and voting on them.

The last is probably the most important task, as the proposal can not only include changes in the network configuration parameters, such as network-based fee value, or size of insurance deposit for oracles, but validators actually have the right to change the source code of the blockchain, basically, the community has the right to change the core rules of how transactions are processed.

The Smartlands Network source code will be open-source, thus everybody will be able to make amendments, propose these amendments to the blockchain, and if validators vote on them,- the changes will be activated.

As in every BFT network, in DPoS there is always an “active validators set” – a subset of all network validators that are currently in charge of the network consensus, voting on the governance proposals and producing new blocks. According to the blockchain rules, the set is always capped with a certain number of validators, and in order to be included in the set, the candidate validator should prove that it represents the interests of the community. Naturally, in the decentralized networks, it is done by demonstrating a certain stake of utility tokens delegated to the validator.

In order to penalize validators for harming the network, the delegated utility tokens are also put at risk of loss. In case the validator caused the chain split or failed to achieve a decent uptime, a percent of delegated tokens will be seized from the validator and burnt.

The delegated amount of utility tokens affects several things:

  • Firstly, to determine the validators that will be included in the active validators set (the whole set of validators will be sorted according to the delegated amount, and only first N validators will become a part of the consensus group);
  • Secondly, in the validators set the rights to produce a new block, and consequently earn the block reward, are not equal (in other words, if the validator A has 2 times more delegated tokens than the validator B, the validator A will produce 2 times more blocks);
  • And lastly, the validator voting power on oracles governance operations and network governance proposals is determined by a delegated amount.

Staking Rewards

As it is obvious that validators are the cornerstones of the blockchain, literally the owners of the network, it is important to have the Smartlands Network properly secured from day one. We solve this task by introducing inflation in the early days after the launch of the mainnet. Especially when there is a low day-to-day usage providing fee-based block rewards, a certain amount of tokens will be added to supply together with the block reward, thus making an additional substantial income to the community members participating in the delegation.

As the Smartlands Network grows, and more and more tokens are circulating, and financial institutions actively use the blockchain, the collected fees will form a substantial reward by itself, thus the inflation will be gradually decreased, effectively capping the supply of the native utility token.

By design, validators themselves are capable of earning a bigger amount than delegators, i.e. validators can retain a small percentage of the reward from the delegated tokens, thus operating the validator will be a valid business case.

We encourage all the community members to delegate their tokens to trustworthy validators from the day one, guaranteeing the network security and earning the rewards. What is even more important, we encourage core community members and supporters to launch and operate their own, community-based, validators.

In terms of resources consumption, at the very beginning of the Smartlands Network launch, we expect it will be possible to operate a validator on a moderate virtual machine provided by the cloud providers, thus effectively the costs of running a validator will not exceed 50$ a month. As the Network adoption grows, the requirements to the computing power will definitely grow, but as well the validator’s business itself will provide significantly bigger profits, and thus operating even a powerful node will be profitable.

The only requirement for the validator business is to make sure that the validator will be included into the active set – i.e. to attract enough delegated tokens. It might be a challenging task, but we also expect that the community will support its core members whose honesty they are sure of.

About SLT

SLT is a native token of Smartlands Network and all the transaction fees will be paid in SLT. Stellar-based SLT will be swapped into SLT on Smartlands Network.

Fees to be revised by voting of Smartlands Network validators to keep them optimal for the network development and adjust in case of major changes in SLT value. The fee for a regular transaction will be set to 0.01 SLT. The target is to keep it below 1 cent/tx.

Staking of SLT will be required for the key Smartlands Network participants. The minimal required amounts may be adjusted later on by voting, while initial amounts are proposed as follows

  • Asset issuer – 10 SLT (per asset)
  • Validators – 1000 SLT
  • KYC Oracle – 3000 SLT
  • Compliance Oracle – 10000 SLT

These numbers of required SLTs for each participant may be adjusted at a later stage of Smartlands Network development.

Thanks to delegated POS consensus protocol even small SLT holders will be able to benefit from participation in maintaining the network consensus and earning a reward for that. Reward will be composed of fees paid by network users and inflation.

Inflation may be revised or cancelled due to reasons that may arise while developing Smartlands Network and finalizing the general framework of the network.

Note that the SLT is a utility token originally issued by Smartlands Platform Foundation, a Cayman Islands incorporated entity which is independent from Smartlands Platform Ltd (UK).

To buy SLT, follow the links below to visit respective platforms: