As the Züs (formerly 0Chain) network nears its launch, many people have been wondering how economic protocols and inflation will impact DeFi to Earn and the value of ZCN. Züs has implemented a brand-new token reward protocol that uses a locking and staking approach.
How does the network function?
When using the Züs network, both clients and service providers (miners, sharders, and blobbers) are required to use their ZCN. Clients will lock their tokens while service providers must stake their tokens, which includes a risk. By requiring staking, service providers are not only encouraged to engage in the proper activity. They also risk losing part of their staked tokens if they misbehave and intentionally disrupt the network. For clients, this interest can be used to pay service providers to store data. Using DeFi to earn allows clients to pay for storage with interest received.
Here’s a look into how the rewards are distributed to miners, blobbers, and sharders based on the information provided in the service provider brochure:
In the graph below, you can see the payouts for the each type of service provider. There are miner rigs (M rig), miner and sharder rigs (MS rig), and miner, sharder, and blobber rigs (MSB rig). The graphs compare payouts when ZCN is valued at $0.10 and $1.00 in that respective order.
How does interest correlate to time?
Upon locking/staking tokens, the tokens will be unmovable for an agreed-upon period of time. For instance, a one-year locking term will result in a 10% interest rate while a 3-month term (likely the minimum length) may result in a 2–2.5% interest rate. While locking/staking reduces the number of available tokens from the current supply for a period of time, the total supply increases.
How is the interest paid out and what is its impact on the supply of ZCN?
Locked and staked tokens automatically yield interest. This is DeFi to earn. If a client locks 1,000 ZCN for one year, they would be rewarded with 100 ZCN, a 10% interest. Since these interest-generated tokens are provided upfront, the clients can then do whatever they want with the new tokens, including selling them, locking them, or using them for network activity.
For another example, a service provider wants to stake 10,000 ZCN. By agreeing to stake their tokens, 10,000 ZCN is removed from the available token supply for one year and replaced by the interest. While these staked tokens still exist, they are no longer able to be unlocked or moved for the whole year. These service providers are then able to re-stake the interest-generated tokens, sell them, or use them for services on the network, like storage.
Locking and staking on Züs requires users to invest in the network. Through this new protocol, Züs is able to maintain the integrity of the network, encourage reputable service providers, and promote healthy token economics. The community is anxiously awaiting the release of this project that has the opportunity to redefine the blockchain space.
Züs Operations Director, Derick Fiebiger on DeFi to earn:
Hi, I’m with the Züs team. DeFi to earn is a complex economic model so I will try to explain as clearly as possible. It may be longwinded but I think I can simplify it.
At first glance it might seem like Züs is just recklessly printing money, but the economics are a lot more creative than that. Firstly, inflation is fixed. It’s not “creating money out of thin air” any more than bitcoin, Ethereum, or any other popular blockchain with a fixed new issuance. For Züs, it will start out with 10% max annual inflation (new issuance). Granted, BTC and Ethereum certainly have lower inflation rates than Züs, but there is no “locking” requirement on BTC or Ethereum in order to achieve this 10% interest like there is with Züs.
For instance:
- I lock 1000 ZCN for 1 year
- 100 new ZCN are printed and introduced into circulation
- But 1000 ZCN are locked out of circulation for 1 year.
- So my overall “circulating” ZCN is reduced by 90%: 100 new ZCN added into circulation, 1000 ZCN locked and removed from circulation for 1 year.
Let’s do a comparison to Ethereum for more clarity:
- I hold 100 Eth.
- Ethereum currently has an inflation rate of 4.76%
- Only miners are rewarded this 4.76% new issuance, the users of the network see none of it.
- There is no locking or staking requirements to mine on the Ethereum network or to use the Ethereum network
- To send a transaction on Ethereum, I must spend a small amount of ETH ($.01-.1 worth)
- After 1 year of sending around transactions on the Ethereum network, I no longer have 100 eth. I have 100 eth minus however much I spent on gas. Maybe that is 99.99 eth if I didn’t send too many transactions.
- After 1 year there are 4.76% more circulating Eth. Making my 99.99 eth 4.76% less valuable when evaluating tokens in circulation. (due to the increase in circulating supply, assuming demand is constant)
Now, let’s apply the same assumptions to Züs
- I hold 100 ZCN
- Züs will have an inflation rate of 10%
- If I lock my 100 ZCN for 1 year, I immediately receive 10 ZCN. Anyone who locks their tokens for a year, receives the 10% interest upfront.
- Miners must put up a stake in the Züs network to be selected as a miner (miners also receive the 10% interest. Users must lock tokens to receive their free interest tokens.
- To send a transaction on Züs, I must spend a small amount of ZCN ($.001-.05 worth), which is then allocated to miners. Smart Züs users will lock a small amount of ZCN to receive 10% interest, and use that interest to pay off the small transaction fees.
- After 1 year of sending around transactions on the Züs network, I still have my 100 ZCN. I have 100 ZCN, plus my 10 ZCN interest tokens, minus however much I spent on gas. Maybe that is 109 ZCN if I didn’t send too many transactions.
Defi to earn in-depth on Züs
- After 1 year there is likely 4–7% more total ZCN (it’s 10% max inflation if 100% of ZCN is locked for free interest, but it is unreasonable to assume 100% of ZCN will be locked since there are lazy people, people speculating/trading, lost coins, etc.), BUT in order to get to 4–7% this assumes 40–70% of total ZCN is locked for 1 year, meaning it is not circulating during it’s locked time frame. Let’s take the lower figure and assume 40% ZCN is still locked at the end of the year.
So, under the above assumptions, at the end of the year, my 109 ZCN has increased in value due to the amount of locked ZCN being taken out of circulation in relation to the amount of newly issued tokens. It’s impossible to say precisely how much it’s increased. That depends on how many were locked at the beginning of the 1yr relative to the end of the 1yr. But the one thing you can say for certain is that if there are a lot of newly minted tokens, say as high as 8%. That means that 80% of the ZCN supply has been locked for a year. - Züs’ inflation mechanism is not only a non-issue with regards to “printing too much money”, but it actually facilitates far more locked ZCN than it creates. The more ZCN that is printed, the rarer that liquid ZCN will be. (since far more ZCN must be locked in order to print new ZCN).
About Züs
Züs is a high-performance storage platform that powers limitless applications. It’s a new way to earn passive income from storage.
