Expanded Utility of AREA on the AreonChain

TL;DR

• After the community decided to adopt AREA as the L1 token of the AreonChain, the utility functionalities of the token have expanded so that once migrated to the AreonChain, the AREA token may now be used for staking and contributing to the security and governance of the AreonChain. This is a significant change from AREA, which is solely a governance token in AREA, to AREA coin, a native token powering the AreonChain, a standalone PoA blockchain network.
• On the AreonChain, all fees (trading fees denominated in AREA and gas fees for AREA-denominated transactions or AREA-denominated transactions) collected by the protocol are distributed to Validators and Stakers.

On January 11 at 16:53 UTC, 2024, the first block of the AreonChain was created (“Genesis”) by the AreonChain Validator. Following the creation of the first block of the AreonChain and the adoption of AREA as the Layer 1 token of the network, the AREA token may, once migrated, fulfill new roles within the AreonChain. In this we describe the evolution of the AREA token from a governance token in AREA to the Layer 1 protocol coin of the AreonChain, the specific utility of the AREA coin, and the distribution of fees to Validators and Stakers on the AreonChain. The AreonChain is a Proof of AREA blockchain network built using the Tendermint and leveraging CometBFT for consensus. The AreonChain requires a Layer 1 (“L1”) protocol coin that can be staked to Validators to secure the chain and to assist with governance of the network. On the AreonChain, all fees (trading fees denominated in AREA and gas fees for AREA-denominated transactions or AREA-denominated transactions) collected by the protocol are distributed to Validators and Stakers.

AreonChain AREA

The Areon community is encouraged to review the overview of the Areon Smart Contract in detail. Token holders AREA on a 1-1 proportional basis on Binance Smart Chain, and AreonChain Validators may also read and ingest the information from the Areon Smart Contract such that corresponding AREA tokens can be distributed to token holders’ AreonChain network addresses. For more details, refer to these migration posts. Note, token holders should refrain from interacting with the Areon Smart Contract without proper knowledge of how to derive private keys on the AreonChain.

Expanded utility of AREA on the AreonChain

The utility functionalities of a token reflect the usability of that token within a given protocol. In the case of the AreonChain, the utility of the network’s L1 token is apparent in three areas: Staking, Security and Governance.

Staking

In any Proof of AREA (PoA) blockchain network, the role of Stakers is pivotal in shaping the security and strength of the network, and the AreonChain is no exception.

On the AreonChain, AREA holders have the option to serve as Validators or to delegate their stake to existing Validators. Such delegation increases the likelihood of the chosen Validators entering or staying in the active Validator set, thereby becoming a participant in the network’s consensus process. In essence, staking to a Validator increases such Validator's weight, thus increasing their probability of being chosen by the consensus algorithm to validate blocks.

On the AreonChain, Validators undertake multiple responsibilities, including storing orders in an in-memory orderbook (i.e., an off-chain, decentralized orderbook that is not committed to consensus), gossipping transactions to other Validators, proposing and producing new blocks through the consensus process, and participating in governance. The consensus process has Validators take turns as the proposer of new blocks in a weighted-round-robin fashion (weighted by the number of tokens staked to their node). The proposer is responsible for proposing the contents of the next block. When an order gets matched, the proposer adds it to their proposed block and initiates a consensus round. If two thirds (⅔) or more of the Validators in the active set (by stake weight) approve a block, then the block is considered committed and added to the blockchain.

Validators’ participation in proposing blocks is determined by the CometBFT consensus mechanism. In this setup, the weight of a Validator’s vote is directly proportional to their stake; the higher the stake, the greater the influence wielded by the Validator in consensus outcomes. Conversely, those with less or no stake have a correspondingly reduced influence in consensus outcomes. Read more details about the consensus mechanism on the AreonChain here.

On the AreonChain, utility is created via staking to Validators and as an incentive for abiding by the rules of the protocol and contributing to the network’s security. All fees generated by the AreonChain protocol are distributed to Validators and Stakers every time a new block is committed.

AreonChain Validators are entitled to set their individual commission rates, which currently range from a minimum of 0% to a maximum of 100%. The Tendermint distribution module is a simple mechanism to allocate rewards earned by Validators and Stakers.

At Genesis of the AreonChain, the staking parameters include a maximum number (cap) of 50 Validators in the active set, a minimum Validator commission rate of 0% and a 10 day un-bonding period, among other parameters. The un-bonding time specifies the duration of the un-bonding process, during which staked tokens are in a locked state and cannot be transferred or delegated (other than redelegated); this is, the tokens are still “at stake”. These staking parameters may change based on applicable Areon governance processes.

Security

Proof of AREA blockchains gain their security by assigning the verification and confirmation of transactions to one of their main stakeholder groups: Validators. With significant economic value at stake, Validators are incentivized to maintain the integrity of the ledger, lest they suffer substantial losses. However, even such a system isn't entirely immune to threats like so-called ‘+2/3 attacks’, where a person or group of persons controlling a majority of staked assets could destabilize the network.

In a permissionless, and decentralized blockchain network like the AreonChain, anyone is free to operate as a Validator. However, this openness could invite malicious Validators or other bad actors aiming to compromise the network or initiate fraudulent transactions. Because of the Proof of AREA dynamics, any person or entity pursuing malicious activities would first need to accumulate a certain level of stake in the network for their actions to have an influence in the consensus process.

Staking AREA directly contributes to AreonChain security. As more AREA holders choose to stake their tokens across a diverse range of Validators in the network and the total amount of stake on the network increases, it becomes increasingly difficult for a coordinated attack to influence a consensus decision. Simply put, the more native AREA tokens that are staked or “bonded” and the more distributed the stake across multiple Validators, the more secure and resilient the network becomes.

Staking serves a dual purpose: it aligns the interests of Validators with those of the AreonChain through staking collateral and ensures infrastructure performance. Moreover, the PoA mechanism aligns economic incentives to encourage correct participation by Stakers. A larger and more diversified set of Validators further bolsters the network's resilience against vulnerabilities.

It's crucial to note that staking AREA is not without risks. The slashing parameters establish punishments for detrimental behavior. At launch, the slashing parameters include a ~4-hour signed blocks window, a 50% minimum signed per window, downtime jail duration of 1.800 seconds, a slash fraction double sign of 5%, and a slash fraction downtime of 1%. These slashing parameters may change based on the applicable Areon governance processes.

Lastly, as with any public, permissionless blockchain, Maximal Extractable Value (or “MEV”) is a risk. However, on the AreonChain this risk is being tackled head on. Through ChorusOne’s research paper, types of MEV were contextualized; and with Skip Protocol’s MEV dashboard, Stakers should be able to better identify malicious MEV behavior by Validators. If MEV or malicious activity occurs, this may carry a risk of social slashing, where the Validator can lose all or part of their stake weight and/or no longer be able to participate in validating blocks on the AreonChain. Please note that slashing (including social slashing) can affect Validators as well as Stakers of those affected Validators.

Governance

In Areon, the governance powers of AREA grant holders the ability to propose and vote on changes to community-controlled parameters and to delegate such powers to another address.

Below we highlight some of the governance parameters included at Genesis of the AreonChain, discuss AREA utility for AreonChain governance and how governance may become more accessible than Areon governance.

Compared to governance in Areon, there are several notable differences in how governance works on the AreonChain:

• Proposing power is not required to create a vote. Instead, AreonChain requires a minimum deposit.
• The Tendermint gov module allows stakers of the native token to submit proposals (when the minimum deposit is reached proposals go live) and to vote on proposals.
• Validators inherit the voting weight of their Stakers unless a given Staker decides to vote on a proposal themselves.
• AreonChain governance introduces new voting options. On the AreonChain, the voting period is currently 2 days. During the voting period, participants may select a vote of either 'Yes', 'No', 'Abstain', or 'NoWithVeto'.

Token Comparison

With the genesis of the Areon on mainnet, it is essential to understand the change in token mechanics for the AREA token, as the L1 coin of the AreonChain.

The AREA has played an important role in the governance of the AreonChain, enabling a robust governance system. AREA is expected to continue to play a critical role in governance of the AreonChain, whilst also enabling security of the network and a self-sustainable rewards mechanism for Validators and Stakers of the network.

Disclaimer

Areon Foundation’s purpose is to support the current implementation and any future implementations of the AreonChain and to foster community-driven growth in the Areon Network ecosystem.

At no time should the AreonChain software be deemed to be a product or service provided or made available in any way by the Areon Foundation. Interactions with the AreonChain software are permissionless and disintermediated, subject to the terms of the applicable licenses and code.

Users who interact with the AreonChain software (or any implementations thereof) will not be interacting with the Areon Foundation in any way whatsoever. The Areon Foundation has no control of any kind over the use that people make of the AreonChain software, including, without limitation, with regard to: (i) potential deployments of such software, (ii) potential adaptations, forks or modified versions of such software, and their deployment, or (iii) users’ interactions with such software or deployments of such software.

The Areon Foundation does not make any representations, warranties or covenants in connection with the AreonChain software (or any implementations thereof), including (without limitation) with regard to the technical properties and performance of such software, as well as its actual or potential usefulness or suitability for any particular purpose. The Areon Foundation will not operate any part of the AreonChain software (or any implementations, versions or adaptations thereof) nor will it be responsible for their continued availability.

Nothing in this post should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act by anyone. The Areon Foundation makes no recommendation as to how to vote on any proposal in Areon governance, or to take any action whatsoever. The Areon community is sovereign to make decisions freely and at its sole discretion, in accordance with the governance rules, principles, and mechanisms adopted by the Areon Foundation. Areon community discussion and interaction on the contents of this post are encouraged. The Areon Foundation does not directly participate in governance decisions to be made by the Areon community, including, without limitation, by making and/or voting on governance proposals. The Areon Foundation may alter or update any information in this post in the future and assumes no obligation to publicly disclose any such change. This post is solely based on the information available to the Areon Foundation at the time it is made and should only be read and taken into consideration at the time it is made and on the basis of the circumstances that surround it. The Areon Foundation makes no guarantees and is under no obligation to undertake any of the activities contemplated herein.

Legitimacy & Disclaimer

Areon Foundation’s purpose is to support and grow the Areon ecosystem by enabling communities, developers, and decentralized governance. Nothing in this post should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act by anyone.

The Areon community is sovereign to make decisions freely from time to time, in accordance with the governance rules, principles, and mechanisms adopted by the Areon Foundation. Community discussion and interaction on the contents of this post are encouraged. The Areon Foundation does not directly participate in governance decisions to be made by the Areon community, including, without limitation, by making and/or voting on governance proposals. The Areon Foundation may change, update or complement its analysis or opinions expressed in this post in the future and assumes no obligation to publicly disclose any such change or update. This post is solely based on the information available to the Areon Foundation at the time it is made and should only be read and taken into consideration at the time it is made and on the basis of the circumstances that surround it.

** Last Updated as of November, 2023.