The fate of %chain and $TOKEN are inextricably linked to Urbit ID, address space, and the market for stars. Before %chain, address space was the principal asset of Urbit. After %chain, address space will be the principal asset of Urbit. Philosophically, there is no running away form the fact that ownership of address space represents ownership of Urbit itself. We aim to embrace this fact of reality in order to provide a blockchain network that truly represents Urbit and its stakeholders.

Whichever incentive model %chain uses to award its $TOKENs to participants, it should not aim to disrupt the balance of wealth in Urbit assets, but rather to conform to it.

Due to the dynamics of the cryptocurrency market, it might be expected that at various points in time, the market cap of $TOKEN exceeds the market cap of address space. But the market would do well to understand that %chain, and thereby $TOKEN, are fundamentally backed by address space -- the scarcity of stars is the cornerstone of %chain's consensus model, and users of Urbit IDs are the target audience of %chain's features. %chain is in every way dependent on, and inferior to, the Urbit PKI, which unlike $TOKEN is necessary in order for the Urbit network to function.

A thought experiment to evoke the idea -- would you rather have unrestricted ownership of 10% of the world's money, or 10% of the world's land? Both would be nice, but one is clearly better.

%TOKEN is therefore not an attempt to supersede the address space market, but instead to provide a necessary counterpart, working in harmony with address space both in technical and market functions. I will briefly explain the incentive design here, although this text should be considered non-binding and subject to revision. While details might change, the overall spirit and dynamics of the incentives described will not.

Proof-of-Work and Proof-of-Stake, two popular consensus mechanisms in blockchain networks, can be thought of as fundamentally trying to achieve sybil resistance. In particular, these mechanisms aim to set the bar very high for participation in the construction of new blocks, and to give participants something to lose if they attempt to defraud the network. An assumption is that anyone should be able to join and leave the network, and that the network must provide a way for any user to attest to incentive alignment.

%chain addresses this same concern with an off-the-shelf affordance of the Urbit ID system. We choose stars, the children of galaxies and the parents of planets, as the correct level of scarcity for such a role. There are 65,536 stars on the network, which represents an appropriate level of scarcity and privilege for entry into the validator set. A star must be purchased on the open market for a substantial sum, and our incentives aim to make it more profitable to run honestly than dishonestly.

Of course, we cannot simply destroy a node who has used its ID to do evil, the way that Proof-of-Stake networks can slash a deposited sum of tokens to punish double-signing. The protocol can only act internally. If we see proof of a duplicitous action taken by a star, we can disallow them from earning future rewards, or from participating in the network at all. If the consensus protocol is airtight enough that validators never accidentally double-sign, we may blacklist double-signers for an arbitrarily long period of time. We can also censure nodes in the chain history and damage their reputation, for whatever good that does us.

This may not, in the end, be enough to guarantee long-term security. After all, stars are non-fungible assets, and the chain can't possibly know their value. What if the $TOKEN overtook address space in market value, to such an extent that one would be incentivized to exchange $TOKEN for a cartel of stars and perform an attack? A Proof-of-Stake network has the advantage of all of its assets being internal, making security analysis a simple mathematical matter. In our case, the network is backed by an external asset, which complicates things. It may be prudent to use Proof of Identity as an added layer of security on top of a Proof of Stake model that requires a deposit of $TOKEN to participate -- we have not ruled out this possibility.

A general assumption, not to be left unchecked, is that by deeply interlocking $TOKEN and address space, exposure to one asset constitutes vicarious exposure to the other, and that stakeholders in either would be reluctant to put their own assets at risk by compromising the other.

We aim to provide an upside for stars who contribute to %chain. Our mechanism for returning value to star owners is in block rewards. There are two general types of block rewards that we can use to return this value: minting rewards and transaction fees. Minting rewards are produced by the protocol as a result of producing a block, and is also the chain's mechanism for introducing new units of $TOKEN into the market for the first time. Transaction fees are paid for by clients of the protocol as a bid to have their transaction included in the chain.

While minting rewards can help bootstrap the validator set by providing high-leverage rewards, unless %chain is designed to produce an infinitely growing supply of $TOKEN, the network must eventually pay for its own security with fees. In the early stage, minting rewards bootstrap the economy by distributing $TOKEN to a large number of nodes and provide a leveraged upside to validators for contributing during the network's infancy. In the long-term future of the network, clients must fund the network by paying fees to the validators, as bids in a competitive market for limited block space.

All block rewards are the exclusive right of stars. However, some rewards are more exclusive than others. Of the maximum circulating supply of $TOKEN, one-half is the unrestricted minting right of some star, while the other half is dynamically allocated to nodes actively participating in validating blocks. Transaction fees are settled by the simple mechanics of supply and demand, and have no restrictions except that the only valid recipients are stars.

The maximum circulating supply of $TOKEN is an arbitrary quantity that does not fundamentally affect the design of the protocol or incentives. However, specifying these quantities can make the incentive design easier to understand, and so we will do so here. On Urbit, we often prefer to use powers of two.

• %chain supports a maximum supply of 2^32 or 4,294,967,296 $TOKEN.
• Each $TOKEN is comprised of 2^32 or 4,294,967,296 $YARVIN.
• Each $TOKEN must be minted by a star. Each star has equal privileges to mint $TOKEN. Ergo, each star has the unique privilege of minting 2^16 or 65,536 $TOKEN.
• When a star begins minting blocks on %chain, it mints a $TOKEN reward of one $TOKEN per block.
• Half of this reward is allocated to the minting star. The other half is distributed evenly among the signers that helped verify the block.
• Every 2^15 or 32,768 blocks that a star mints, its minting reward is reduced by half. Note that this reduction is applied on a per-star basis, and not network-wide.
• After 34 reductions or 1,114,112 minted blocks, a star no longer produces new minting rewards, and its minted blocks pay out only collected fees.
• This gives each star the unrestricted right to 2^15 or 32,768 $TOKEN, distributed evenly amongst the set of all stars. A star that does not mint blocks never loses the right to eventually mint its allocated $TOKEN.
• The remaining 32,768 $TOKEN are distributed unevenly among active validators. Stars that take early part in contributing to the network will earn an asymmetric amount of $TOKEN, as they will be contributing to blocks minted by young stars that are producing greater minting rewards.

This dynamic promises, at minimum, a substantial upside in the $TOKEN economy to address space holders, while reserving the greatest of rewards for address space holders who contribute to the security of the network, especially during the early stages.

The design of our $TOKEN-omics serves to take commodity-grade stars off the market by incentivizing star owners to boot and use their stars to vote on blocks as early as possible, while also increasing the demand for commodity-grade stars by associating their commodity-grade status with a guarantee that the star has not minted any blocks, due to having never been booted.

We do not provide a protocol-level assurance that stars will distribute some of their $TOKEN amongst the other nodes. It will be the responsibility of $TOKEN owners whether to hold their $TOKENs or to attempt to bootstrap the $TOKEN economy.

The design of our incentives serves to better the value of stars, both in terms of market price and real utility. Investors in address space should rest assured that their assets are not being swept away in favor of a newer, shinier toy. %chain enthusiasts should consider increasing their exposure to stars, as stars are the only way to gain exposure to $TOKEN prior to the launch of %chain on mainnet.