TRON Network Incentive Mechanism

Introduction

A blockchain system is fully decentralized, meaning it should run all by itself with no intervention whatsoever from the outside. But it takes more than that to make a good blockchain system: the ability to vitalize itself is harder to come by. To this end, various solutions have been proposed, most of which are devised around sophisticated incentive mechanisms. As one of the greatest public chain projects in the industry, TRON has also created a comprehensive incentive mechanism that is being constantly improved through real-life practice.

To give readers a clear idea of what TRON’s incentive mechanism is, this article will first touch upon the basics of the blockchain, then explain in detail TRON’s current incentive mechanism, and at last its optimization proposed by TIP53.

Background

Blockchain is essentially a distributed storage system where Blocks, a data structure for storing data, are linked together in a particular sequence to form a chain structure. If we compare blockchain to a book, each block is one page and each page contains data with a page number attached, or what we call Block Height in the block. On top of that, each block is labeled with a unique Block Hash.

Where does data on the blockchain come from?

Since blockchain is by its nature a database, where does the data on it come from? How is the data stored? To answer the first question: quite simple. Data is “entered” by users to the blockchain, or to put it more technically, by “entering” what users actually do is to create a transaction in the client and broadcast it to the network. The second question is a bit complex. Since transactions are broadcasted among nodes in the network, most nodes will receive transactions in just an instant while some selected nodes will pack these transactions into a block. When a block is verified by most nodes and saved to their copy of data, the transactions get stored.

At this point, we already know where blockchain data come from. The beauty of it is that the data on blockchains is immutable, which makes blockchain technology shines bright among the others. Simply put, the immutability of blockchain data is built upon the integrity of the majority of the nodes. Each node will keep a copy of the data. Since there are a large number of nodes in a blockchain network, and the administrative access to these nodes belong to various organizations and individuals, making changes to all the copies simultaneously is almost impossible. Of course, this is just a simple explanation of the mechanism, and the reality is more complex than theories.

Why is there an incentive mechanism?

If blockchain is a book, it is certainly one that never ends. New pages will be constantly be added to the book, just like new blocks will be added to the current blockchain at any time, which leads us to two questions:

Who is eligible to produce blocks?

This is a question of defining block production rights. TRON uses DPOS consensus mechanism to decide who would become a block producer (known as “Witness”). More about DPOS will be covered in other articles.

What stimulates block production?

The question is actually asking: What kind of profit does the Witness receive after he produces a block? This is a topic that is essential and worth discussing. A Witness has to operate nodes in order to produce blocks, and that requires devices, bandwidth, and manual labor. Blockchain itself is a decentralized system and is not controlled by any one of the organizations or individuals. Namely, there’s no one to pay for the cost for Witnesses to produce blocks, and this is something the blockchain system needs to address with the assistance of a sound incentive mechanism.

What is incentive mechanism?

The incentive mechanism is in the form of a set of cryptocurrency issued and circulating in the blockchain system. The currency is to the blockchain as the fuel is to vehicles. Blockchain users buy tokens to pay for services, and nodes sustaining the operation of the chain receive tokens as rewards for block generation. In this way, digital currency as a medium completes the value verification and transfer process, and we got ourselves a crypto-based incentive mechanism issued in the blockchain system: tokens are what Witness nodes receive as rewards for generating blocks, and what blockchain users spend to use features.

TRON Incentive Mechanism

I. Current situation

First we will introduce the TRON incentive mechanism based on Odyssey v3.6.2.

Background

The digital currency issued in the TRON network is called Tronix (TRX) with an initial issuance of 100 billion tokens. TRON uses DPOS as its consensus mechanism. All users holding TRX can vote for Witness nodes in the TRON network, with one TRX equaling one vote. There will be a vote counting for each maintenance period, where the top 27 nodes become formal Witness nodes (or Super Representative/SR), and the remaining become alternative Witness nodes (or Super Representative Candidate/SRC).

A block in the TRON network takes 3 seconds to generate, and the system is set to enter into a maintenance period every 6 hours, meaning each maintenance period will cover two block generation period with none actually produced. In this way, the total blocks generated within 24 hours on a day are supposedly 24 * 60 * 60 / 3 = 28800, with 2 * 4 = 8 block generation periods replaced by maintenance periods, bringing the actual number of total blocks generated daily to 28800–8 = 28792.

Basic Information

Each SR takes turns to generate blocks and will be rewarded 32 TRX for each block generated successfully. This block reward is marked as r(block). Meanwhile, all SRs and SRCs will share a total number of 16 TRX as voting reward based on the votes they get. This voting reward is marked as r(vote) .

The amount of total block rewards each day is marked as R(block):

R(block) = r(block) * 28792 = 921344 TRX

The amount of total voting rewards each day is marked as R(vote):

R(vote) = 28800 * 16 = 460800 TRX (Note: when issuing voting rewards, the eight block generation periods replaced by maintenance periods will be counted in)

Theoretically, the amount of TRX increased on TRON should be equal to the sum of block rewards and the voting rewards, marked as G(day):

G(day) = R(block) + R(vote) = 921344 + 460800 = 1382144 TRX

Distribution of rewards

Currently, rewards are distributed to the SRs and SRCs on the TRON network and are open for withdrawal every 24 hours.

II. Changes initiated by TIP53

Launched with Odyssey v3.6.5, TIP53 is designed for the modification and optimization of the existing incentive mechanism on the TRON network. It features two major proposals:

1. Changes on how rewards are distributed.

Rewards, previously given only to SRs and SRCs, are now distributed directly to voters. SRs and SRCs set their own rewards distribution ratios, a commission rate they see fit based on their costs and expected return. By the previous mechanism, rewards to voters are subject to the decision of SR and SRCs , which can’t guarantee voters’ rights to the rewards. In contrast, the updated mechanism gives rewards to voters according to the percentages of votes. Setting a higher commission rate will thus make it less likely for SRs and SRCs to gain votes. Moreover, information about rewards and commission rates are stored on the blockchain and open to the public.

2. Changes on the amount of block rewards and voting rewards.

Rewards for each block generated was lowered from 32TRX to 16TRX, while the amount of voting rewards increased tenfold to 160TRX. Going forward, this could be modified through proposals if required.

III. Analysis and comparison

The previous mechanism saw distribution of rewards to SRs and SRCs happen on the blockchain. SR and SRC can then decide offline if they want to release the rewards to voters. The former process is decentralized and supervised by the blockchain, whereas the latter, by contrast, is centralized. Such a mechanism could not guarantee voters’ rights to their voting rewards or the amount they receive.

Supported by the updated mechanism, distribution of the voting rewards happen completely on chain and is absolutely decentralized. SRs and SRCs initiate transactions to set commission ratios, which can be reviewed on the blockchain and comprises a key assessment criteria of the SRS, by which voters cast their votes.

Combined with the current number of TRXs used for rewards D(day) and the current total number of votes for the entire network of 8.8 billion, we can calculate the average profit per day for each vote:

P(day) = D(day) / 8.8 billion = 0.0000157 TRX

After the TIP53 proposal being implemented in the Odyssey v3.6.5, the number of TRXs used for rewards per day new D(day):

new D(day) = new R(block) + new R(vote) = 5067392 TRX

Then calculate the average profit per day for each vote:

new P(day) = new D(day) / 8.8 billion = 0.0000576 TRX

The comparison shows that voters can get higher profits, which will attract more users to participate in the pledge voting of the Tron network.

Note

DPOS: Delegated Proof of Stake, a type of consensus mechanism.

Reference

https://github.com/tronprotocol/tips/blob/master/tip-53.md

For more information：

Github: https://github.com/tronprotocol

Telegram: https://t.me/troncoredevscommunity