I love writing about the projects that inspire me. It helps me to learn myself and then educate others at the same time. I always look forward to breaking down the complicated pieces of the puzzle into simpler, more understandable form. Theta is one such project which has highly impressed me and as such I can't help but write about it. But before we discuss that, It might be prudent to carry forward from where we left last and understand how Theta Network is powered.
Theta blockchain Network is built on a multi-level BFT consensus mechanism. It allows for the participation of hundreds of thousands of nodes in the consensus process and achieves high transaction speed. (BFT consensus will be the subject of another article)
The core idea of maintaining high transaction speed is through the smallest set of nodes, which form the Validator committee. These produce the chain of blocks at high speed while retaining a high degree of difficulty to prevent any activity that would compromise the blockchain integrity. The chain generated by Validators is finalized by consensus participants called guardians.
Enterprise Validator Nodes- These include companies who stake THETA for the right to process transactions on the network. Their main function is block production. Names include CAA, Theta Labs, Binance, Samsung, and Google. Guardian Nodes- Seal the blocks that the Validator Nodes create. These include users who perform work to ensure the blocks produced by Validator Nodes are accurate. These provide security and safety to the Theta ecosystem. Checks are required to protect against malicious attackers and Guardian Nodes provide the required defence. In order to run a Guardian Node, you need to fulfil a staking requirement of 1000 THETA tokens. Edge Node- These include users who either share their excess bandwidth or those who relay video streams over the Theta network to earn TFUEL. Anyone with a computer could potentially run this and be rewarded in TFUEL.
Now that the Consensus mechanism is taken care of, let's get back to Mainnet 3.0.
The Mainnet 3.0 Whitepaper is available online, but I am going to provide an easy understanding of it. It is strongly recommended to have a thorough understanding of the product you’re interested in. https://s3.us-east-2.amazonaws.com/assets.thetatoken.org/Theta-white-paper-3-0-latest.pdf
This is my humble attempt at making things relatively easy and comprehensible to my readers.
Since 2020, Theta was running on Mainnet 2.0 however, the launch of Mainnet 3.0 saw a major update in the Edge network. The Edge nodes were rewarded only for relaying videos resulting in low incentives. Theta Mainnet 3.0 gave Edge nodes the ability to stake TFUEL and become Elite Edge Nodes to earn more tokens based on uptime mining and staking.
What is an edge node?
Edges node allows you to relay video streams over Theta Network and earn TFUEL for providing support to THETA.tv (also for any other upcoming video platforms using the Theta Network). You can also broadcast your own video streams and have them distributed over the Theta Edge Network thus achieving P2P streaming without the involvement of any centralized distribution network.
The two core changes are listed below:
- Upgrade of the Elite edge node - This includes two aspects TFUEL inflation and TFuel staking
- TFUEL Burn (Balancing the inflation- deflationary aspect)- Smart Contract Locking and Service Quality Feedback Loop
Upgrade Of Elite Edge Nodes
The inflation can range from 2- 4% however, it commenced at 4% and will be adjusted as and when required. It has been designed to trigger economic balance and to provide liquidity in the system.
TFuel Staking The Mainnet 3.0 enabled individuals to change their Edge node to Elite Edge node (which is the same as Edge Node with TFUEL staked on it). The newly inflated TFUEL is the base salary for an elite node (the earnings based on the amount of TFUEL that is staked and uptime score). Moreover, the Elite Edge node can also earn more through what is referred to as the Proof of Relay mechanism (this is when edge node is given an opportunity to transfer data to another user). That TFUEL will come from platform partners directly and not from the TFUEL inflation pool. The two together make up the Dual Rewards to Elite Edge Nodes.
The reason behind this is to increase the adoption of the edge nodes by guaranteeing income (Base Salary) and for it to act as a temporary sink. As the amount of TFUEL in the system increases (owing to the yearly 4% inflation), there will be an increased supply of TFUEL and this could push people towards liquidation driving the price down. However, when you provide users the opportunity of staking the token, you’re essentially disabling liquidation and restricting the supply in the moment thereby acting as a price control mechanism.
Uptime mining Elite Edge Nodes are connected to Validator &/ Guardian nodes. This network ensures constant communication between the Validator and the Guardian as well as the Edge Node.
In order to maximize the uptime of the elite nodes which in turn will improve the availability of the network, Theta will provide incentives randomly.
Elite nodes will need to broadcast their BLS signature of the latest checkpoint block hash for the guardian nodes to aggregate. The sharing of this proves that the node was up and running when the corresponding block was produced and thus increasing uptime. If any edge node doesn’t end up sending a proper signature, it is left out of the reward.
(If you're wondering what BLS signature is, don't fret. It is simply a cryptographic signature which allows user verification)
A subset of elite nodes is chosen randomly to receive the inflated TFUEL so in order to avoid missing the rewards, an elite node would need to stay online all the time, and ensure the correct signature is sent out if it is selected (at random). This provides the incentive for elite node operators to maximize the uptime of their nodes, which is beneficial to the Theta network users.
The next change is TFUEL Burn
The Service Quality Feedback Loop Theta’s business model is similar to that of CDNs with the exception of service payments being completely decentralized and transparent in nature. These payments are in TFUEL and recorded on-chain. Theta guarantees all platforms (the ones that utilize its infrastructure) reliable and smooth service in exchange for payments. Higher payers get higher priority. With the network constantly evolving, users paying a larger amount of TFUEL receive priority from the edge nodes which essentially provides them with a guarantee that their content will reach individuals faster. This also works in balancing the network’s availability with the network’s demands.
A portion of the TFUEL payments to the network will be burned permanently, and the remainder will be split among the elite nodes that submitted a Proof-of-Relay. Initially, the protocol requires that at least 25% of each payment will be burned. As the availability on the network will increase we can expect additional burns in order to reduce the amount of payout and vice versa.
Smart Contract Locking Smart contract locking has been introduced to make a portion of TFUEL non-recoverable, basically to take it out of circulation.
Content providers/streamers are going to need to lock up their TFUEL in smart contracts to make their payment (so you pay all of the TFUEL upfront). By, locking up more of the TFUEL, Theta hopes to reduce the chances of liquidation (similar to what they’re doing with staking). All these efforts are being made to ensure TFUEL has a stable high equity value.
In addition to the mentioned changes, Theta's transaction fees was revised to 0.3 TFUEL for sending transactions, 20 TFUEL to deploy a smart contract, and 1 TFUEL to interact with a smart contract. Theta thus aims to burn more TFUEL with the deployment of more and more smart contracts (NFTs, DeFi, Dapps, micropayments).
So, all in all, Mainnet 3.0 offers TFUEL staking to act as a temporary TFUEL sink and increased transaction and network fees as the permanent sink to reach an eventual state where TFUEL utility value is maximized and stable.
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