Illia Polosukhin on NEAR Protocol's Economics Design | Consensus 2019

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1. 0:03

   hi everybody my name is Ilya I'm gonna talk about NIR and economics design a little bit about me so I'm a co-founder denier protocol before that for about ten years I was working on machine learning my last kind of evil Corp gig was at Google research where I was pretty much translating answering questions and doing all kinds of natural language understanding stuff so if you're using anything at Google and may have contributed a little bit to it and I also was a major contributor to tends

2. 0:34

   to flow and that's a big part of how pretty much all of the machine learning at Google have been done so near protocol what is it I mean first of all it's a base layer blockchain and kind of our main premises that one computer cannot do everything in the world right as pretty much we demand more things from blockchains we need to grow how much we can do an obvious solution from you know coming from regular word is to split the work and do it in parallel so the solution is

3. 1:06

   pretty much charting so we have pretty much new design released about a months ago called nightshade the general idea is that you have block producers that really quickly pretty much pause blocks and you have a group of hidden validators validating some subset of this shards some subset of this block and kind of signing on it if you're really interested in this there's a boast youtube video and the

4. 1:32

   description a research to read about it but that will kind of be moving on so one of our kind of core desires is to actually make blockchain generally available and get as many people as possible to use it and we're kind of coming in from three sides right sharding is one you need to scale to actually build more applications the second one is actually ease of development right like I'm sure many of

5. 1:58

   you are assumed developers that have tried to build in aetherium like in reality if you kind of like unplug yourself from your solidity knowledge and like think about you know regular JavaScript developer it's actually very hard to start developing so what we've done is pretty much built like a kind of flow for JavaScript developer to jump in and start building applications right so this is an example

6. 2:21

   of our IDE it's live near dev you can pretty much build your first near application right now on your phone if you want you go there we write in typescript so all the smart contracts in typescript I camp out into web assembly you have your front-end and your unit tests all here together you can download it build it locally or pretty much click run and spin up your first application on a test net so the other side of this

7. 2:47

   is easy to use right yes we are you know crypto savvy we know how to do with keys we know let's eat prizes all the stuff all the stuff probably some of you are still storing seed phrases somewhere an email but in reality what you want is actually something where normal person you know like my mom can go and start using this right so we're actually building a lot of stuff including wallet to actually facilitate this and what this powered is behind is a very

8. 3:16

   extensible account model so what this means is instead of how probably almost every single blockchain says hey you have a public key we hash it this is your ID and then when you have a count instead we actually say hey you have an account it's your username there's some domain name service kind of idea behind it and then you have a lots of keys on it for example you have a signing key if

9. 3:40

   you're in a validate you can have a spending key which only has five dollars a day you can have application-specific key right so I just launched an application I click the button log in with near my wallet pretty much signed that the new keys that application just generated for me will be used for this specific application maybe application and prepaid it so I don't need to pay fees I go back to application now I can use it without needing to sign every single transaction

10. 4:05

    like imagine playing chess where each chess move is a transaction right that's gonna suck you can of course pretty much create this way I count to somebody's behalf right I can create a count for my mom I will plug in my key and then she can swap it and start using it when she's ready to actually figure out what what all the skis are about so jumping into the economics right so in general the way we kind of define economics is two things one is fees and

11. 4:35

    another one is how validators are incentivized so fees high level is you want to pay for resources that you use on the blockchain right it's a shared resource there's a lot of people using it and kind of starting the first thing that is controversial and there's a lot of discussions Internet's taking rent right there's a few different sway few different ways to take rain it's actually storage room so there's a few ways of charging for storage right if you dream right now you pay pretty much gas when you're

12. 5:09

    right and then when you delete you kind of release a little bit gas is like new gas talkin it loves like pre mind some gas and release it later for cheaper like all kinds of things but the reality it's actually highly under priced for what it is right you've actually storing something on the blockchain forever and people who are storing it there validators right now they're - right now there will not be - forever right so they rewarded right now for something that everybody in the future

13. 5:34

    will need to do and especially it's true about Bitcoin like at some point Bitcoin will become too big and you validators for example don't want to deal with all the state and they're not getting paid for it either so there's like few other ways to do it right one is like you can pretty much lock some capital to pretty much be allowed to store some amount of money like us doing and I actually have

14. 5:56

    this graph here I don't have this table here so pretty much on the OS you need to pay about $800 per month per gigabyte which is calculated based on if you try to loan money from a reasonable Bank like four point five percent APR stake them and then in a day release it and give back the loan so if serum actually is well right now it doesn't charge per month but like there is a proposed take

15. 6:28

    state rent which is about thirteen hundred a month per gigabyte just for comparison you know two cents per gigabyte a month in AWS computation wise go back so yeah so what we suggest is you know stay current where you paper per block or per some period of time per byte kind of in the same vein as some of the suggestions in the serum so that's a pressure as a part is how do you charge for transactions introductions is like compute and bandwidth we're kind of

16. 6:59

    bound together and high-level idea is that if you have a shared resource that is of limited capacity you do need a market place to actually price it because it's limited capacities may be a lot more demand you want to decide whose gets it on the other hand if you have pretty much somewhat liquid capacity right if you can add more capacity to the network which what's sharding allow us to do you actually

17. 7:24

    can't price it and should price it at some somewhat stable price because as a developer and as a user I don't really want to become a hedge fund to actually deal with exposure into the token that I need to pay the gas fees right like in the theory right now if you want to be developer you need to buy in some amount of tokens you need to plug contracts you need to do all the things which means

18. 7:46

    you actually need to take somewhere another position to short this idiom because otherwise you're actually exposing yourself into the risk of your feeling volatility all the stuff right that's is kind of insane so instead you really want just to stable use the price in for transactions and obviously there's some sometimes there will be a spike in usage and even though you know like we know we don't have fully liquid capacity we cannot recharge immediately

19. 8:10

    it may take a day which means for like for that period of time people can add additional tip for blog producers to kind of prioritize their transactions let's say you ran in Oracle and you really want that transaction to go through to update the price on if you're running you know cryptic ad mating you don't really care so it's fine if it's like ads in a few minutes so again to

20. 8:35

    give a comparison so I'm not showing our prices because they're still in flux kind of to decide on this but this is just general comparison because we refer to it is you know ec2 and lambda so lambda is like compute on demand it's about like I'm not gonna do the math here but it you a thousand times more expensive than ec2 and it's cerium is 2,000 times more expensive than us just you know some numbers for people to take home all right

21. 9:06

    so validators so here I have some a little bit controversial opinions so inflation is pretty much attacks on speculators it's taxed on people improve of state system it's attacked on people who don't want to validate the one alone or the like don't want to somehow deploys our capital so because everybody else let's say I have some capital I'm longing it anyway right and I'm planning to keep it so I should deploy it into some other operation like that's kind of just a normal capital allocation here so

22. 9:38

    the only people who have it on hand is speculators and traders so if you think of it from this perspective then the inflation should be arbitrary big right like you really what you really want to target is some as life beer was saying some specific percentage of staking and like cosmos been targeting that as well and you can employ all kinds of methods for to doing it right you really want people to just deploy their capital into security of the system as much as

23. 10:08

    possible of course this has like some visibility issues and you know optics etc so but that's a part of it is like as a validator because you deployed this capital you actually receive it like you long exist so a lot of your reward is coming from growth of this asset itself right like that's what in reality more interesting like I don't know I'm sure for cosmos the people who are validating

24. 10:36

    right now are the people who bought atom atoms at very low price so in reality all of their appreciation is coming from that versus like receiving some inflation right now and kind of more covering of the current costs of running operation so in reality real Security's coming from like let's imagine 100 percent of the talking is actually staked right and all the security is coming from the transactions so you want

25. 11:03

    to have as many transaction as possible and if you have if you don't want a price of gas to grow exponentially right it's happening in the cerium you really need to actually expand the supply right you need to grow your amount of computation you can do which means sharding is only as far as we know way to do it so yeah that's kind of high level I mean I can get in some argument about this so just to describe the way like validators gets elected

26. 11:35

    it's pretty much through what we call trash mobs the proof of stake so the idea is that you have n seats in each shard and it's just kind of numbers that a provides some security B is fast enough to actually communicate with all the nodes and propagate the blocks etc and then you have some number of shards X charts so pretty much number of seats W have as M by X so let's say we have hundred seats per shard 100 shards 10,000 validators 10,000 seats then for every

27. 12:05

    epoch pretty much people who want to value want to validate they stake their money send a transaction while sending transactions actually saying that they forfeit the first-day reward to the person who will include it because in reality in proof stake systems there is no reason for currents validators to include new validators like in the u.s.

28. 12:27

    they should right now go and modify their code and stop in including new validator so new likes taking transactions because that kind of by definition is less like removing some of the validation from them so you need to actually watch specific validators that included that transaction and like somewhat reasonably to pretty much offset that they're going to be receiving less reward going forward so

29. 12:58

    on the other side very much given all of the stakes you find what we call seed seed price which is some like what is the amount of tokens above which all of the stakes sound divided by this number give you more than enough seats in your in like that's required there's a blog post about the prove of steak on your vertical blog to kind of fit some details all right so I also want to mention about delegation so the weight delegation kind of can be

30. 13:32

    defined is a conditional under collateralized loan pretty much you giving somebody money to run the validator and you just conditions it the only way they can lose them is by being flashed and you know if you don't have slashing then it's kind of a little bit different in our system we only have slashing for double signing so if well there it goes offline they just lose their reward to going forward

31. 13:57

    and they like to get bags actually need to forfeit like one more one more award which means like it's a little bit painful but you know it's doable you don't lose any money at that point but if you like you're doing like if you do double sign that is a slash show behavior so if this is a loan what you can do you can actually create a smart contract as a validator let's say I'm validate I want people to contribute to

32. 14:27

    my validation to kind of receive a bigger portion of rework I can create a smart contract where I have an staking key so I can stake based on the balance of this account and then everybody else can pretty much contribute to this account their money with pretty much ability to withdraw it under some conditions and receive reward from it and you can pretty much customize this anywhere you want right you want optimize for taxes you can pretty much customize it that way even optimize for liquidity of this thing

33. 14:59

    etcetera right you can make maybe you want to have this like some percentage of that contract is liquid some percentage is staked all of this is kind of now how was in the logic of this contract all right some future ideas this is not very thought-out yet but like if you want a prices in like kind of stable USD prices yes you like to start with you just need you can pay it an ear and you just have some way of pretty much providing a price of near to USD or you have like validators pretty

34. 15:31

    much accepting or not what people are betting on kind of the price but way better is for people to actually hold like what the working capital that they need to operate in this network in stable talking right and here you can actually implement this table talking now on a protocol level so validators can be your price heat Oracle because they actually already are longing the near talking it can actually requires them to also long D talking and

35. 16:03

    now you have enough collateral to pretty much like if they miss miss report the price like they pretty much created like every time they reported price it they create an option for people to buy out their stake at that price which allows to pretty much motivate them to always report the correct price within and you do it like within some boundary which means you know you can use them like

36. 16:27

    very motivated price Oracle's and then the other thing is like you have the stake which is in a contract for delegation for example you can actually use this as a collateral to create new types of derivatives on top of it which can be for example used as a collateral for a stable talk so there's like a few ideas you can kind of expand on this and then validators now have an interesting working capital out of their stake that

37. 16:52

    they can use for pretty much make an extra extra money on this so this is near we have this really cool whiteboard series on YouTube it's near AI slash whiteboard series some of the protocols present here have participated in it psyche we have polka dot we had the cerium with Justin Drake Solana cetera think we have like 16 now we had for this week if you want to be on this let us know it's like an hour video where we interview creators of the protocols thanks very much

38. 17:30

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