Create HIP 51: Helium DAO

0051-helium-dao.md

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+# HIP51: Helium DAO
+
+- Author: [@tjain-mcc](https://github.com/tjain-mcc), Shayon,
+  [@jmfayal](https://github.com/jmfayal)
+- Start Date: 2022-01-26
+- Category: Economic / Technical
+- Original HIP PR: [#334](https://github.com/helium/HIP/pull/334)
+- Tracking Issue: [#336](https://github.com/helium/HIP/issues/336)
+- Status: Draft
+
+# Summary
+[summary]: #summary
+
+This proposal outlines economic and technical constructions with the aim of
+scaling the Helium Network to support new users, devices, and types of wireless
+network protocols.
+
+We propose that each wireless network supported by Helium (LoRaWAN, Wifi, 5G —
+referred to as wireless network protocols or WNPs) has its own subDAO with its
+own token (referred to as wireless network tokens or WNTs). The key
+specifications of the WNT such as proof-of-coverage rules, data credits rewards,
+and consensus mechanisms are governed by each WNT DAO.
+
+The aim is to create an economy such that the underlying HNT-Data Credit
+burn-and-mint equilibrium remains undisturbed, and Proof-of-Coverage rules and
+miner emission amounts are dictated by the corresponding wireless network’s
+sub-token.
+
+The technical model requires that the entire Helium Network lives at some
+proposed base layer (L1). All accounts and transaction activity happens at this
+L1. All subDAOs operate as economic and governance layers (L2) with their
+respective WNTs acting as native tokens for this purpose. Each L2 also runs
+software to calculate WNP specific items (eg: all the proof of coverage code
+that exists on the current LoRaWAN network to determine hotspot rewards) and the
+L2 validators who have staked WNTs come to consensus on these calculations.
+
+# Background
+[background]: #background
+
+For the Helium Network to grow to global scale in number of active devices and
+users it is necessary to develop economic and technical primitives that will
+support that scale across various wireless networking technologies.
+
+[HIP 27: CBRS 5G Support][hip27] provides a broad discussion of 5G WNP specific
+data credits mechanisms, and [HIP 37: Omni-Protocol PoC][hip37] outlines an
+incentive model as well as proof-of-coverage rules for the 5G Network. This is a
+three-part proposal that builds on such existing work with two primary aims:
+
+1. Provide a general structure for onboarding new WNPs to the broader Helium
+   Network, with mechanisms in place to ensure that protocol-specific attributes
+   such as proof-of-coverage rules, data credits pricing, and block validation
+   are within control of the emergent WNT DAO.
+2. Specify the implementation of the structure proposed through detailed
+   onboarding proposals for the LoRaWAN and 5G networks, described in [HIP 52:
+   LoRaWAN DAO][hip52] and [HIP 53: 5G DAO][hip53].
+
+The technical and economic design decisions of the Helium Network today have
+been made around the flagship LoRaWAN Wireless Network Protocol. In order to
+support new networks and devices, there are two core problems to be addressed:
+**blockchain scalability** and **WNP specific incentive alignment.**
+
+This proposal outlines two constructions to address the aforementioned core
+problems:
+
+1. *Blockchain Scalability* We propose that each WNP has validators who operate
+   software to calculate WNP specific items (eg: all the proof of coverage code
+   that exists on the current LoRaWAN network to determine hotspot rewards).
+   Validators stake WNTs and are rewarded by WNT inflation.
+
+All non WNP specific transactions (simple transfers, burning HNT to DC, etc)
+occur at some high throughput, low latency base layer chain on which the overall
+Helium Network lives.
+
+1. *WNP Specific Incentive Alignment We propose that each WNP operate as its own
+   sub-DAO within the broader umbrella of the Helium DAO. WNP Sub-DAOs are able
+   to issue WNTs to their stakeholders and WNT denominated governance controls
+   WNP specific attributes.*
+
+# Motivation
+[motivation]: #motivation
+
+There are three key drivers for proposing that consensus and execution for each
+WNP occur at some base layer chain, while the economic and governance layer for
+that WNP is separated from the native token of the overall Helium Network
+
+1. *Scalability:* Each WNP has the ability to run its own code for WNP specific
+   items
+2. *Native Tokens:* Provide Separation of Governance Each WNP effectively governs
+   its Proof-of-Coverage rules, data pricing, and rewards distribution
+   mechanisms. This structure provides significantly more self-sovereignty over
+   the structure and direction of the WNP.*
+3. *Composability Implies Utility:*  If the overall Helium DAO base-chain is
+   able to support smart contracts, it is possible to imagine a variety of novel
+   use cases for HNT as well as each of the WNT tokens. Some examples here are
+   signaling strategies (yield aggregator DAOs that take HNT from passive
+   holders and stake to specific WNPs based on market conditions) or money
+   markets (liquid borrow-lend markets for greater delegation to validators or
+   leveraged staking).
+
+There are two key drivers for WNPs to operate as sub-DAOs beneath the overall
+Helium Network through their corresponding WNTs
+
+1. *Curation and risk expression:* WNTs allow network participants and
+   speculators to indicate support for a given network, which can inform
+   distribution of emissions and developer resources. For example, if HNT
+   holders bond a large number of HNT to a particular WNP, the HNT denominated
+   rewards for that WNP increase and help accelerate the flywheel for that WNP.
+2. *Onboarding new protocols:* WNP DAOs provide an easy framework for addition of
+   new wireless protocols where the broader Helium DAO delegates some portion of
+   HNT emissions to each WNP DAO.
+
+# Stakeholders
+[stakeholders]: #stakeholders
+
+This proposal impacts all current and future stakeholders in the Helium
+Community.
+
+# Construction
+[construction]: #construction
+
+We propose that each WNP operates as its own subDAO within the broader Helium
+DAO, while both DAOs exist on a single base L1 chain. Each WNP has its own
+economic and governance layer through its subDAO, which comprises all WNT
+holders.
+
+![subdaos][subdaos]
+
+All subDAO specific addresses across all WNPs on the network will live on this
+L1 chain. All tokens exist on the L1 chain. The L2 is for calculation and
+computation purposes only.
+
+Before we can define the WNP specific economic structures, we need to outline
+how the rewards are split between WNPs and how to fund the earliest stages of
+development for new WNPs.
+
+## PoC Model Background
+
+HIP 27 originally introduced a concept to allocate a portion of unrewarded Data
+Transfer rewards (up to 30% of the DC Bonus Pool) towards Proof-of-Coverage
+rewards for new wireless networks, such as 5G and Wi-Fi. The approach was
+presented and discussed at the DeWi Community Call and Discord. While the
+concept was generally well received, we fell short of coming up with a technical
+implementation that would be sufficiently difficult to arbitrage. As a result,
+we chose to truncate HIP 27 to focus on implementation of a chain variable for
+DC / cellular data conversion ratio and revisit economics and implementation of
+PoC for non-LoRaWan wireless network types to a future HIP.
+
+## PoC Incentive Model for HIP 50
+
+Currently, under HIP-27, non-LoRaWAN gateways are only rewarded based on data
+transfer and those rewards are based on the 1 DC burn = 1 DC equivalent earning
+principle laid out in HIP-10. That reward bucket is currently, as of January
+2022, limited to 35% of total HNT issuance per epoch. Any HNT from that bucket
+that is not allocated to Data Transfer rewards is reallocated to LoRaWAN PoC
+rewards.
+
+**We propose three significant changes to the reward bucket structure**
+
+### 1. Remove division between PoC and DC reward buckets
+
+After HIP-10, the vast majority of DC rewards are reallocated to the LoRaWAN
+PoC, which has made the distinction between the buckets nominal. Given this
+reality, we propose a merging of the two rewards buckets.
+
+The value of the bucket will equal the combined value of the existing DC and PoC
+buckets and will be adjusted along with all other rewards buckets on the
+existing rewards schedule.
+
+Existing reward curve by reward type:
+
+![existing reward curve][existing-reward-curve]
+
+The new reward bucket would be a combination of the “Network Data Transfer” and
+“Proof of Coverage” rewards above.
+
+### 2. Split PoC rewards between wireless protocols based on a quadratic equation that accounts for DCs burned and active devices per WNP
+
+The success of the Helium network is contingent on its ability to find real
+world applications that burn data credits via data transfer activity. Therefore,
+the incentive model should be designed in a way that promotes wireless network
+protocols (WNPs) that accomplish that goal. Additionally, the scale of each WNPs
+participation network should also be taken into account, so as not to overly
+disadvantage early protocols with lower DC burn rates. To accomplish this
+propose the quadratic equation below:
+
+Each protocol would be assigned a ‘score’ per epoch:
+
+![\textup{Protocol Score} = \textup{WNP DCs Burner} * {\sqrt{\textup{WNP Active Device Count}}}](https://latex.codecogs.com/svg.image?\textup{Protocol&space;Score}&space;=&space;\textup{WNP&space;DCs&space;Burner}&space;*&space;{\sqrt{\textup{WNP&space;Active&space;Device&space;Count}}})
+
+Once each protocol has a score, the % of total Epoch PoC rewards assigned to
+each WNP will be assessed by comparing the individual score to the sum of all
+scores:
+
+![\textup{Percentage of POC Rewards per WNP} = \textup{WNP Specific Score} \div \sum (\textup{All WNP Scores})](https://latex.codecogs.com/svg.image\textup{Percentage&space;of&space;POC&space;Rewards&space;per&space;WNP}&space;=&space;\textup{WNP&space;Specific&space;Score}&space;\div&space;\sum&space;(\textup{All&space;WNP&space;Scores}))
+
+To put this into context, if you have two networks with 50,000 and 500,000
+devices each, the smaller network would need approximately 3 times the DC burn
+to have a comparable protocol score to the larger network.
+
+Most importantly, this model gives us a framework to add new WNPs in the future
+without having to design reward splits on an ad-hoc basis.
+
+### 3. Implementing a ‘cold start’ bucket to help fund early stage networks that don’t yet have meaningful DC burn
+
+The Lorawan protocol on Helium benefitted from having a built in ‘cold start’
+reward system via PoC rewards to help fund the growth of the network. Under the
+new model, a network that doesn’t have any DC burn would not have any way of
+rewarding it’s early users, so we are proposing a 10% ‘cold start’ reward bucket
+that is carved out from the combined PoC/data rewards bucket. Under this system,
+any WNP that has been live for sub 1 million epochs (approximately 2 years)
+would evenly split 10% of all HNT rewards. Additionally, if a specific WNP had
+enough devices or was burning enough DCs to receive 10% of the larger PoC/data
+rewards bucket, it would be excluded from the ‘cold start’ rewards bucket.
+
+If no WNP ‘qualifies’ for the cold start bucket, those rewards would be
+reallocated to the regular PoC/data reward bucket.
+
+## Definitions and calculations for Omni-Protocol PoC incentive model
+
+- **DC burn used in PoC split calculation**: DC burn is not limited to data
+  transfers per WNP. The calculation also includes fees associated with other
+  actions, including, but not limited to, gateway assertions, token transfers,
+  and gateway relocation fees.
+
+- **Wireless Network Protocol (WNP)**: Wireless network type is a computer
+  network that uses wireless data connections between network nodes and utilizes
+  a uniform, standard set of rules that determine how data is transmitted
+  between different devices in the same network. (i.e. LoRaWan, 5G, Wi-Fi,
+  NB-IoT etc. all different wireless network protocols).
+
+- **Frequency of PoC reward split recalculation**: Manually adjusted on a
+  frequency at the discretion of DeWi unless and until an auto recalculation
+  feature is built into the protocol
+
+- **Active Device**: Active devices are the subDAO's definition of devices
+  creating valid coverage during the epoch
+
+## Bonding Curve Specification
+
+WNT are issued against a bonding curve with issuance, redemption, and
+transaction fee parameters set by WNT governance. Each WNT can set the shape of
+its curve.
+
+We suggest that all WNT bonding curves take the shape P = S^k where k > 1, and P
+represents Price and S represents Supply. The quote currency is the WNT and the
+base currency is HNT.
+
+For a given amount of HNT deposited to or withdrawn from a given WNP bonding
+curve, the increase or decrease in supply and price is given by resulting change
+in the area under the curve. The integral is given by
+
+![\int_{S_a}^{S_b} S^k = \frac{1}{k+1} (S_b^{k+1} - S_a^{k+1})](https://latex.codecogs.com/svg.image?\int_{S_a}^{S_b}&space;S^k&space;=&space;\frac{1}{k+1}&space;(S_b^{k+1}&space;-&space;S_a^{k+1}))
+
+The shape of the curve for k only slightly larger than 1 is as follows
+
+![bonding curve][bonding-curve]
+
+The main consideration  in designing this bonding curve is that it’s difficult
+to balance the positives of reflexivity with potential sharp price movements in
+either direction — this shape is close enough to linear to mitigate some of
+those issues.
+
+## Rewards Distribution Mechanism
+
+We provide an end-to-end description of data transfer, proof-of-coverage, and
+consensus rewards for a given WNP under the Helium Network.
+
+*Data Transfer Process*
+
+For each WNP, we propose that a device looking to receive coverage across the
+network purchase Data Credits by **purchasing and burning HNT**.
+
+The device **subsequently burns those Data Credits** in the name of the hotspot
+or set of hotspots once data has been transferred.
+
+The device then **relays the receipt of this transaction** to the set of
+validators for the WNP.
+
+The WNP validator set then **relays this information to the HNT emissions
+contract** in order to determine the HNT amount to be distributed to the WNP
+subDAO for all rewards distribution.
+
+At the end of each epoch, the **WNP validator set prepares the distribution for
+mining rewards** denominated in the WNT to each hotspot based on coverage
+provided.
+
+*Proof-of-Coverage Process*
+
+The WNP subDAO defines the rules for proof-of-coverage challenges. In a given
+epoch, Challengers, Challenges, and Witnesses **relay the results of challenges
+to the WNP validator set** in order to distribute proof-of-coverage rewards
+denominated in WNT to relevant devices.
+
+*Consensus Process*
+
+The WNP subDAO defines the rules for consensus, and **distributes a portion of
+WNT emissions in a given epoch for WNP validators.**
+
+![subDAO governance][subdao-governance]
+
+*Emissions Calculation*
+
+At the end of a given epoch, the HNT emissions contract **performs a tally of
+the data credits transferred across WNPs**. The emissions contract subsequently
+distributes the determined amount of HNT to a **WNP subDAO multi-signature
+wallet**, the addresses of which comprise the set of validators of that WNP.
+
+*WNT Issuance*
+
+Each WNP DAO then **submits the entire amount of HNT into its bonding curve** in
+order to mint new WNT for hotspots and validators participating in data transfer
+and proof-of-coverage.
+
+In a given epoch, if the WNP Hotspots were to receive some amount of HNT from
+the Helium DAO, the WNP subDAO multi-signature wallet distributes a
+**corresponding amount of newly minted WNT of equal market value** as per the
+bonding curve to the hotspots in its network based on its mining rules.
+
+*Note that all new issuance in the WNP bonding curve through HNT emissions are
+distributed to hotspots and validators. External capital entering or exiting the
+bonding curve does not post any liquidity risk to WNP devices.*
+
+*WNT Issuance*
+
+If a given address wishes to redeem their WNT, they can **“sell” against the
+bonding curve** to receive the market rate of underlying HNT.
+
+The transaction involves sending the required amount of WNT tokens to a **burn
+address**, and receiving the determined amount of HNT tokens from the **WNP
+subDAO multi-signature wallet**.
+
+The address **relays the message of the sale to the set of WNP validators**,
+which then adjust the position of the bonding curve in the following epoch after
+adjusting for all other sales and any new issuance.
+
+*Transaction Fee*
+
+A WNP **subDAO governed transaction fee** is placed on issuance and redemption
+of WNT tokens on the bonding curve. This fee is charged in HNT and we suggest
+starting it at 0.3% of all transactions. This HNT fee is immediately submitted
+to the WNT bonding curve.
+
+For example in a given epoch, if the 5G bonding curve had trading volume of
+100,000 HNT and brought in 300 HNT worth of transaction fees, that 300 HNT is
+resubmitted to the curve increasing the price of WNT according to the equation.
+
+## *Fair-Launch Mechanism*
+
+The bonding curve mechanism is susceptible to bot frontrunning. We borrow from
+[Strata protocol’s fair launch mechanism][strata] to ensure that early
+participants in any WNP DAO are protected from this attack vector.
+
+The fair launch mechanism described involves a gradually steepening bonding
+curve such that the area underneath remains fixed with each unit increment in
+time.
+
+![fair-launch-graph][fair-launch-graph]
+
+This ensures that bots are unable to atomically frontrun network participants. .
+
+# Clarifications
+
+We set the following economic constraints in order to ensure an equilibrium
+within each subDAO and the overall network
+
+1. HNT remains the unit of buy-and-burn in order to maintain the HNT flywheel.
+   Data Credits are universal, in that they can be created by burning HNT and
+   are usable across any WNP.
+2. Mining rewards for hotspots in a given WNP are distributed in the
+   corresponding WNT
+3. WNTs can be traded on secondary markets but are redeemable for HNT as per the
+   primary market defined by its bonding curve. New WNTs can be minted by
+   depositing HNT into the bonding curves as well.
+4. Each WNP can set their own WNT emission schedule and distribution.
+
+# Open Questions
+
+1. Should the subDAO multisig be composed of WNP validators or some delegation
+   chosen by WNT holders through governance?
+2. What does a migration process look like for the existing implementation onto
+   the new structure outlined?
+3. What governance procedure should be used to whitelist specific WNP DAOs?
+
+[hip27]: https://github.com/helium/HIP/blob/master/0027-cbrs-5g-support.md
+[hip37]: https://github.com/helium/HIP/blob/master/0037-omni-protocol-poc.md
+[hip52]: https://docs.google.com/document/d/1fqy3JLdoP8YgOULx-sE_24xOL1UL9esHu_Ctju4iGcg/edit
+[hip53]: https://docs.google.com/document/d/1rg9VK28S8bWOeKNiKXUipsLsBxLjuHH7AnVe6TjKw4I/edit
+[subdaos]: https://lh4.googleusercontent.com/KYORnsFb3X0X42t64FscUArcDZBjXyopik_AaZTN7tLvxYRL5-s1nvd1WY3X4vJA5mWe1_XN_miwDoRXhU70YV_txsO5Y_mWFbVrx6byNinT--khit2AEAYl4GMO0Vm_lL49BB05
+[existing-reward-curve]: https://lh4.googleusercontent.com/aCKlXePHuivkp8IFK5-VLifO-xw8WKOpArn9OCiobOW0WjpHcPBtogNqvDBLofH8q4lcMFtnP0XZZlGq3v247AA3Syqq6RKK0Pr6-_xKjv4DTPmmbSAJ5XIrSNaLHt9Y3py8My_v
+[bonding-curve]: https://lh3.googleusercontent.com/9BO0qb90HKiWDHreSWemmZhEmjSiPKJKsiEi1lMENNzV2StUtx1qiwYFPg5NDR4JZux5YgmL_ia99yjgY0O1-QUbnjvDo0qgq8G0TJTWq53AAF8XNI4xaYKKBjqpW2Y5eq7NbvuS
+[subdao-governance]: https://lh3.googleusercontent.com/VIycvHCtq1nZtXyAC8haZw6xF1sBHcs8GVRPFX3-lAFtsR-HflGQyGUc7tAjs8R4VPS7HP_5A0rJRsAr_G0kiOZJSxM80t3_ukgdutd15XdQerDkrx0IZH27BJjQRbLP2oVQjZ8_
+[strata]: https://www.strataprotocol.com/docs/learn/fair_launch
+[fair-launch-graph]: https://lh4.googleusercontent.com/CDZiML8YFE5BOwSbjT5GUjejATCIqUpLF85XDfIjjm_semkSZOklnj9cMMG1Kd4yoGjoLbw-Gelvj4M-XI7bM77gOe6yVXRS22jxv-UZlHHIV1hF-Il15AZOPSd_1Si9ouAGb0Yp