Junaeth Series #1 – Economic System

July 15, 2021

The Stealth cryptocurrency has a consensus protocol called Junaeth that is based purely on economic principles to (1) establish the set of validators who group transactions into blocks and certify those blocks, (2) reward those validators for good performance, and (3) resolve consensus issues.


In Stealth, validators take the form of tokenized assets called “StealthNodes”. StealthNodes are purchased from the blockchain using Stealth’s native currency, XST. The purchase funds are irreversibly eliminated from the XST money supply.

StealthNode purchasing has economic foundations and is based on a type of reverse auction designed to determine the fair market price equilibrium. Let’s imagine how to price an asset in the case where bids are transparent (known to everyone) and binding (in that each valid bid irreversibly purchases a StealthNode). We assume that if an asset is underpriced or priced at the market’s willingness to pay, it will get purchased. Similarly, we assume that if it is overpriced, then it will not get bought.

Because the purchasing XST is destroyed, we have another consideration in that the money supply is affected by the purchasing, such that each purchase reduces the money supply by the amount of the purchase. Additionally, we have another consideration in that each new StealthNode reduces the value of existing StealthNodes, because all StealthNodes share a fixed reward pool. Rewards do not grow with the number of validators.

In light of these considerations, we have to re envision the nature of the bid. In other words, what is being bought and what is being sold? To put the question in terms one may use for an auction, what is being bidded on and what are bidders bidding with? For StealthNode auctions, a fraction of the future reward pool is being bidded on (bought), and bids are made with a fraction of the XST money supply (sold).

In this type of auction, the market’s willingness to pay may be found by offering instances of the asset (StealthNodes) one at a time, wherein each instance will be more expensive than the previous. Buying will stop when the price gets too high, and if the steps are gradual enough, we can estimate the market price as the most recent successful purchase price.

In this model, the price equilibrium stabilizes the validator set. One feature of most blockchain validator sets is that they are fully dynamic, where validators can freely enter and exit. While the Stealth validator set is dynamic in the sense that it can grow by one validator periodically, we expect an equilibrium based on economic considerations. Thus the validator set will soon become fixed because it becomes economically nonsensical to keep adding validators. In short, new StealthNodes simply become too expensive.
The first problem with dynamic validator sets is that there needs to be some way to regulate the validator set. In other words, potential validators must themselves be validated. The delegated proof-of-stake (dPoS) consensus system uses a fixed number of slots and stake-weighted voting, but still votes can change dramatically. New validators can be voted in, and voting itself has problems related to political corruption and centralization.

The second problem is that a dynamic validator set is yet another powerful source of consensus issues. For example, two validator sets may exist on two different chains (a fork), and the only way to resolve which is the authoritative chain is to quantify the total vote weight for contributing validators on both chains.

Third, voting is problematic too, because a validator set can collectively censor vote changes. It is possible, in a type of blockchain coup, that votes by a controlling stakeholder can be censored by an existing validator set.

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As mentioned above, a fixed reward pool is split among the full set of StealthNodes, proportional to their individual weights. Weight is calculated simply as

In this calculation, “produced” is the number of blocks produced by a StealthNode, and “missed” is the number of assigned blocks that a StealthNode failed to produce.

This weight calculation incentivizes not only producing blocks, but good performance.

In other systems, like dPoS, rewards are fixed and equivalent for all validators no matter how many votes they have. In these systems, there is no incentive to perform well unless stakeholders (voters) truly value performance. Unfortunately, because dPoS voting tends to be highly centralized, performance has had little influence on any witness list in dPoS, with other considerations, like political standing, taking precedence. Many examples exist wherein top witnesses (those with more votes than most other witnesses) have much poorer performance than lower witnesses.

The Stealth incentive system has features that make it highly economic in nature. First, the weight calculation is dynamic, and even a temporary drop in performance will affect all future rewards because weight is constantly growing for all well-performing witnesses. Second, even disabled StealthNodes are incentivized to become enabled and start building weight. Not only do disabled StealthNodes lose block rewards, each block missed means that all future blocks have a lower reward.
In summary, the Junaeth reward system is based on the economic incentivization of performance. Absolutely no politics comes into play. Every assigned block counts towards a StealthNode’s future earnings.

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When a StealthNode produces a block, the StealthNode essentially casts a weighted vote for a particular chain. Because the chain with the highest cumulative vote weight is the winning (authoritative) chain, StealthNodes with more weight will have proportionally more influence on resolving consensus issues. Since performance is based on economic incentives, and performance directly affects weight, then consensus is based on economics.

Economic principles also keep StealthNodes “honest” in that they have a strong incentive to remain in consensus with other StealthNodes. Voting on a particular chain is based on focal point game theory, where each StealthNode votes for the chain most likely to be voted on by other nodes. The reason is that there is economic incentive (both immediate and long term) to vote on the chain that is most likely to be voted on by other StealthNodes. For example, if a StealthNode orphans itself by voting on a chain that has no chance to become the winning chain, then it will lose weight (future earnings) on the winning chain while it also misses blocks and the associated block rewards.

Economic System

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