The success of the xDai Stable Chain cannot be denied. A blockchain based on a stable native coin is vital to the evolution of the blockchain payments ecosystem. We have talked about the history of xDai, the building blocks that led to its development, and touched on the upcoming move to POSDAO, a new type of delegated proof of stake consensus.
With this upgrade, an innovation called Multichain Staking will also become possible. In simple terms, multichain staking allows users to place stake with a single kind of staking token across different blockchains. Before we explain multichain staking in detail, however, we’ll start with a few caveats about xDai and POSDAO, and introduce the new staking token that will make its debut as part of this upgrade: DPOS (referred to as $DPOS for the remainder of this post to avoid confusion with the staking consensus, DPoS).
$DPOS and the two token model
The upgrade of xDai to POSDAO will not only create a more decentralized environment in the xDai Stable Chain, it will also introduce a two token model. In its current form, xDai Stable Chain is a POA based chain which uses xDai as its native coin. xDai is used for all transactions and to pay any required gas fees.
The POSDAO upgrade will introduce a second token into the system called $DPOS. $DPOS will be used by anyone who would like to become a validator or delegator to secure the blockchain. Stake will be placed in $DPOS tokens, and validators & delegators who place stake will be rewarded in $DPOS for providing chain consensus. Transactions and fees will still be conducted with xDai, and users will only need xDai to send payments or interact with smart contracts.
When it is released, the $DPOS token will first be available on the Ethereum mainnet as an ERC20 token, where it will be traded like any other ERC20 token (via exchanges, swaps. etc). To move the mainnet $DPOS token over to the xDai Stable Chain, a new bridge will be added using the ERC20 <-> ERC20 TokenBridge interoperability protocol. The bridging mechanism transforms $DPOS on the Ethereum mainnet into $DPOS on the xDai Stable Chain. Once $DPOS has been transferred to the xDai Stable chain, validators and delegators will use it to place stake on the chain and provide consensus in exchange for block rewards.
Dai will continue to be transformed into xDai through the Dai-xDai Bridge, as it is today. Once a user is finished transacting or staking, either token can be bridged back to the mainnet using the same bridge functionality.
With the two token model, the xDai Stable Chain reaches a higher level of decentralization with DPoS (validators and delegator sets can change every staking epoch, and anyone with $DPOS can place stake and participate) and adds an economic incentive for participation thanks to $DPOS token rewards.
Stable chains and multichain staking
xDai is the first stable blockchain, and it is pegged to the Dai stable coin. However, Dai is one of many stable coins available on Ethereum. Using the same technology, it is possible to create any number of stable-coin based blockchains, or stablechains.
With Multichain staking, users will be able to stake DPOS on any of these new stablechains; it will be the de facto staking token for all stablechains using this strategy. Each stablechain will have a different set of validators and delegators, and each will use different stable coins for transactions (for example xUSDC or xGUSD), but the staking token will always be $DPOS.
$DPOS has a fixed supply and will be released over time using a variable inflation model. The inflation rate starts at 32% once staking begins on the xDai chain, continues for 24 weeks, and is then halved to 16%. This halving occurs two more times (every 24 weeks) until an annual inflation rate of 4% is reached and maintained for the life of the token (approximately 32 staking years).
When a new stablechain is created, the $DPOS inflation formula will not be impacted. For example, if the xUSDC Stable chain was created 8 months after staking begins on the xDai Stable chain, the $DPOS inflation rate will be 16%. The $DPOS emission rate is set, and will not change regardless of how many new chains using the $DPOS staking token are created as outlined in the emission model overview.
Technicals: Staking, Delegating, Pools and emission
POSDAO has several advantages over other crypto DPoS implementations. It is written in Solidity and runs on the Ethereum Virtual Machine, making this the first time that staking is available in Ethereum. It also differs from DPoS in other projects, such as EOS, because the delegators share the token reward. Validators and their delegators form what we call a pool. The reward per block is split equally between each pool, then divided amongst the validators and delegators within the pool based on their staked amounts.
For example, if we have ten validators, and hundreds of delegators, 10% of the block reward is allocated to each pool. Within each pool however, the reward between validator and delegators is split differently different depending on how many DPOS coins each have staked.
One important thing to note: a validator is guaranteed to obtain at least 30% of the pool reward. In the above scenario, this means that each validator is guaranteed at least 30% of the 10% block awarded to their pool.
Every consensus model must account for malicious behavior, either accidental (like a node going down) or purposeful. What if a validator acts maliciously? And what happens to the delegators who delegated their coins to that malicious validator? POSDAO’s way of punishing bad actors is a 90 day ban. During that ban, all funds are frozen. The validator cannot stake, and any delegators who were members of the pool have their funds frozen. Once the ban is over, the funds are released and can be claimed.
This system is in place to make sure that the validators are acting in the best interests of the network. It also encourages delegators to do their due diligence when selecting a validator to place stake on.
Proof of Stake on Ethereum has been discussed and debated for the past five years, but it is still not here. xDai and Multichain DPOS will be the first time that a form of staking will be available for EVM chains. xDai has already proven itself to be a successful Peer-to-peer payment platform, and the introduction of POSDAO will propel it to the next level.
Stay tuned for a detailed FAQ post with the most common questions, a glossary index of all the terms and details regarding the upcoming xDai Stable Chain crowdsale.