Unlocking the Value of the SHDW Token


Welcome to this walk-through guide of the underlying economics that will drive the growth and scale of the ShdwDrive network, powered by D.A.G.G.E.R.

SHDW is a unique cryptocurrency that is designed for the sustainability and security of decentralized data storage infrastructure. 

We begin with an overview of the ShdwDrive network architecture and the processes that happen when a ShdwDrive customer uploads their data to be stored via ShdwDrive. If you are not familiar at all with the network architecture, please visit https://ShdwDrive.com/blog and familiarize yourself by reading the various articles located there.

This article will take you through the framework of SHDW’s role in powering the ShdwDrive platform and how value is ultimately derived for the token, the network, and the end-user. While the specifics may change as we progress through the stages of D.A.G.G.E.R.’s Testnet, the broader concepts will not. The D.A.G.G.E.R. Testnet will provide us with the data needed to finalize the exact numbers around things like emissions schedules. Please note that the specifics of ShdwDrive v2 architecture might vary over time, and certain technical details may be simplified for conceptual understanding in this explanation.

As we progress through the Testnet phases and further refine network architectures, we will revisit our economics foundations, making slight changes as necessary to ensure an effective and sustainable model that ensures appropriate value is being derived for both network participants and SHDW token holders alike.

Shared Staking Explained: How It Benefits You and SHDW

Staking is a mechanism in which holders earn rewards for holding their tokens. Holders who stake their SHDW tokens instead of spending or trading them are rewarded for participating in and helping to secure the network. This process of rewarding holders for participating in the network is central to our ecosystem and is a core component of our overall design process. We believe that staking mechanics simultaneously drive value for both the network and for holders.

shdwNode Operators: Keeping Our Network Strong

shdwNode Operators are the foundation of the SHDW network, ensuring its smooth operation. To connect a server to the ShdwDrive network and earn rewards, a potential shdwNode must stake SHDW to secure its place in the network. This requirement is like a commitment fee, ensuring that only serious and dedicated participants manage the network. While the exact amount is still to be determined, we believe the amount should be significant enough to make becoming a shdwNode Operator a decision not to be taken lightly. 

Operators signify their commitment to the network's health and efficiency by effectively putting down a security deposit in the form of staking. This ensures a robust and reliable system, which is crucial for the network's overall performance, maintaining the trust of our users and, ultimately, the value of SHDW.

For more details on "How to become a shdwNode Operator", please refer to the shdwNode Operator Docs https://docs.shdwdrive.com/operate.

Community Participation through Shared Staking

All of that said, not everyone desires to become a shdwNode Operator and even those who aspire to may face challenges in meeting the staking requirement individually. Additionally, feedback has made it clear to us that members of the SHDW community of all levels of technical expertise are very eager to contribute to the network in meaningful ways. This is where shared staking comes into play. 

SHDW Holders delegate their SHDW tokens to shdwNode Operators via smart contract and then share in the emissions the node receives. The rewards from the emissions smart contract to a shdwNode are then split between the shdwNode Operator and the SHDW holders who staked with that shdwNode Operator. This shared success model fosters a strong community bond and incentivizes both parties to contribute positively to the network's growth. 

Storage Customer Fees, Revenue Sharing with shdwNode Operators, and SHDW Buybacks

Referring to the graphic above, you will notice that the storage fees are split and that two things are happening.

  • The majority of fees paid by end users of ShdwDrive (60-75%) are being passed directly through to ShdwOperators who are running shdwNodes. These fees are sent in their entirety to shdwNode Operators; this revenue is not shared programmatically with SHDW holders who delegate their tokens to a shdwNode Operator. This makes sense as the individual, group of individuals, or entity that owns the actual server has additional costs and responsibilities for which they should be compensated.
  • The remaining percentage of the fee an end user pays for storage is to be used to purchase SHDW in the open market, and that purchased SHDW is sent to the emissions pool. This will happen programmatically via a locked open-source smart contract.

We are committed to making the ShdwDrive network tokenomics as sustainable as possible in the long term while simultaneously ensuring that value is being accrued to the token as the ShdwDrive user base grows and revenues scale.

This buyback mechanic serves a three-fold purpose:

  • As the ShdwDrive network grows its customer base, the need for shdwNode Operators to contribute storage will also increase. 
  • Creates a consistent source of buying, which will help contribute to keeping the SHDW token markets liquid. As ShdwDrive generated revenue grows, so does the amount of SHDW being purchased.
  • Slows down token velocity by locking tokens up temporarily into the emissions pool.

These mechanics all come together to create a unique and important dynamic, which ensures there is a definitive, verifiable link between ShdwDrive revenue growth and value accrual in the SHDW token. This also incentivizes anyone with a vested interest in the ShdwDrive platform to help market the platform and grow the user base.

Ultimately, our goal with everything we do is to ensure that as the platform scales in success, so does the amount of value the SHDW token accrues. Not only does this dynamic achieve this goal, but it also gives SHDW holders a way to take action that will directly impact the token they hold in a way that requires zero technical knowledge. 

Understanding and Utilizing Slashing to Protect the Network

Slashing is a critical mechanism for maintaining fairness and security within the SHDW network. It's a penalty system for shdwNode Operators that protects the network against nodes that are failing to perform their role in the network and bad actors looking to damage the network. 

When a shdwNode is slashed for either, the wallet associated with that node is penalized by losing 5% of their staked SHDW. This system ensures that operators have a vested interest in making sure their node is operating to the best of its ability and in the network’s best interest.

The slashed SHDW must then be replaced lest that shdwNode Operator be removed from the network via a consensus vote. This system is critical for protecting the reputation of the network as a trusted and secure place for users to store their data.

Transforming SHDW Holders into Auditors

For SHDW token holders seeking a passive role in the network but still wanting to participate, turning your mobile device into an Auditor Node offers a more passive way to participate in securing the network while earning rewards. By downloading an app and staking their SHDW tokens, holders can transform their smartphones into Auditor Nodes.

Mobile devices acting as Auditor Nodes participate in the vital task of auditing the integrity of the data stored on the ShdwDrive network via a system of mathematical proofs similar in concept to Proof of Work mining. Rewards are earned by solving the mathematical proofs submitted by shdwNode Operators in order to prove their truthfulness and trustworthiness. 

Auditor Node operators are rewarded in the form of passive emissions for the act of contributing their mobile device’s resources towards auditing the network. The rewards for effective network auditing vary dynamically with the staked amount. For instance, staking 1,000 SHDW might bring a 3% annual reward, while a larger stake of 5,000 SHDW could yield 4% (future content will be more specific to these economics as we bring theory to reality through testnet phases).

However, Auditor Nodes also bear responsibility; they are subject to slashing penalties in the event that network consensus decides a specific Auditor Node is, in fact, acting in bad faith. The specific rates and conditions for slashing will be determined during the D.A.G.G.E.R. Testnet phase, ensuring a balanced and fair approach to maintaining network integrity. This system not only motivates users to participate actively but also upholds the security and efficiency of the ShdwDrive ecosystem.

This emissions and slashing system enables successful auditing to be rewarded while also being cognizant of the number of tokens a holder has staked. Ultimately, SHDW holders are able to contribute to the network by performing an absolutely crucial network function without needing to possess any technical skills beyond being able to download an app.

Recycling Slashed Tokens: A Sustainable Approach

Instead of burning the SHDW tokens captured through slashing or sending them to a team-controlled wallet, ShdwDrive recycles these tokens back into the SHDW ecosystem. This approach has several benefits which contribute to the health of the SHDW token as a whole.

By returning these tokens to the emissions pool, we ensure a longer period of reward distribution, extending the life cycle of the emissions wallet. 

Additionally, this recycling process reduces the token velocity of SHDW. Token velocity is the rate at which a token changes hands. Lower token velocity implies tokens are held for longer duration, which can help in increasing the token's demand and, ultimately, its value.

This method also showcases our commitment to sustainability and efficient resource utilization within the SHDW ecosystem.

Halving Schedule: Ensuring Long-term Value

The concept of halving is a method to control supply and, by extension, enhance value. For SHDW, we are proposing the following.

There are currently 7,000,000 SHDW tokens being sent back to the team that were previously being used for market making. These 7,000,000 tokens will be locked into an emissions smart contract, which will pay out the emissions over time. 

Current models suggest an annual payout amount of 1,400,000 - 2,000,000 SHDW to ShdwOperators (shdwNode and Audit Node Operators) per year. This amount is to be halved every two years, decreasing the number of new tokens entering the market.  

This scarcity mechanism potentially increases SHDW's value over time as it encourages network participants to be early adopters of ShdwDrive and D.A.G.G.E.R. 's technology by rewarding early supporters with higher rewards. This works towards creating a sense of urgency in attracting new network participants, which benefits the entire network by scaling resources and user growth.

Again, please note that these numbers are subject to change as we progress through the D.A.G.G.E.R. Testnet phases and receive feedback from the community. Feedback can be provided here: https://github.com/GenesysGo/shdw-improvement-proposals/

The Big Picture: Enhancing SHDW's Utility

All these mechanisms - staking, halving, slashing, and recycling - are carefully designed to work together to make SHDW an effective tool for securing the network and driving value. These mechanics are designed to convert token holders into active participants who are helping to secure the network. 

This creates a community of long-term holders with a vested interest in seeing the network succeed and scale. We believe this approach will ultimately derive value for users of the network and long-term SHDW holders alike.

Conclusion: The Future of SHDW

Our tokenomics model is more than just a network framework; it's a vision for creating a stable, valuable, and engaging community of active network participants. By implementing these mechanics, we're not only fostering a healthy network but also ensuring that the demand for  SHDW grows as the network does by encouraging behaviors that drive value.

By reducing token velocity, incorporating a halving schedule, and rewarding SHDW holders who are taking an active role in securing and scaling the ShdwDrive network, we’re creating an environment in which participation drives value. The shared staking and slashing mechanisms are not just tools for network stability; they're also avenues for community engagement and collective responsibility.

This innovative approach to managing the economics of the ShdwDrive platform is designed to benefit all stakeholders of the network. We believe that creating a system that provides benefits to the network stakeholders will ultimately lead to a user experience for the end-users of ShdwDrive that is second to none. 

All of these mechanics come together to form a system that incentivizes an amazing experience for the end-users of ShdwDrive, which will result in increased user growth, faster network scaling, and value being added to the SHDW token.

Our model is indicative of our commitment to sustainable growth, network health, and value creation. By joining us as a SHDW holder and participating in securing the ShdwDrive network, you're not just passively holding a token… you're becoming a part of a movement that values innovation, stability, and long-term growth which proves that web3 is the only logical next step in the evolution of the technology that underpins human society. Together, we’re not just building a network; we’re creating a legacy with real impact.