Nervos DAO (Decentralized Autonomous Organization) is a highlight in the CKB (Common Knowledge Base) economic model, designed to combat the dilution problem caused by secondary issuance. By depositing CKB into Nervos DAO, holders can enjoy a hard-cap feature similar to Bitcoin, allowing their assets to continue deflation during long-term holdings. This article will introduce the functions, background and usage techniques of Nervos DAO in detail to help users better understand and utilize this mechanism.
Functions and motivations of Nervos DAO
Nervos DAO is a smart contract that users can interact with. One of its core functions is to provide anti-dilution protection to CKByte holders. By depositing CKByte into the Nervos DAO, holders not only participate in secondary issuance, but also ensure that during deposits and withdrawals, their holding ratio is only affected by the genesis block and base issuance. This design allows holders of CKByte to enjoy a degree of scarcity similar to that of Bitcoin.
Users can deposit CKByte into Nervos DAO at any time. However, it should be noted that Nervos DAO has a minimum deposit period, and holders can only withdraw money after a complete deposit cycle. If no withdrawal is made at the end of the deposit period, these CKBytes will automatically enter a new deposit cycle, aiming to reduce the frequency of operations for currency holders.
CKB’s issuance curve
CKB’s issuance curve consists of two parts: Base issuance: This is a hard-capped token issuance rewarded to miners, using the same halving mechanism as Bitcoin, which is halved approximately every 4 years.
Secondary issuance: This is a constant issuance mechanism, and the same number of CKBytes will be issued every difficulty adjustment cycle (Epoch). Over time, the rate of secondary issuance will gradually approach zero.
In order to protect long-term holders from being diluted by secondary issuance, CKByte deposited in Nervos DAO will receive a partial proportion of secondary issuance, the specific ratio is the percentage of CKByte locked in Nervos DAO to the entire CKByte circulating supply.
Nervos DAO revenue calculation
Users can view the current rate of return (estimated annualized rate of return) through the Nervos DAO page in the Nervos block explorer. For example, if you plan to deposit 100,000 CKB into the Nervos DAO, and plan to deposit for 1 cycle (30 days), you can expect to earn approximately 295.8 CKB based on the current projected annualized rate of return of 3.55%.
It should be noted that due to handling fees and other factors, the actual rate of return may be slightly lower than expected.
Tips for accessing Nervos DAO: Tip 1: Never deposit too low a single amount
In order to understand why the single deposit amount cannot be too low, we can use CKB’s Cell model to explain. You can think of a Cell as a box, which is required to store CKB, contracts, future custom tokens or data.
A box that deposits CKByte requires at least 61 CKB, and the number of CKB used to create a Nervos DAO box is at least 102. So if you only deposit 102 CKB, you won't actually earn anything because 61 CKB out of the 102 CKB will be used to create the box, leaving only 898 CKB that will earn interest in the end.
Therefore, it is recommended that when users deposit into Nervos DAO, the single deposit amount should be as high as possible to ensure that they can obtain corresponding benefits.
Tip 2: Initiate the first step of withdrawal request as close as possible to the regular time limit
In Nervos DAO, withdrawal requires two steps: the first step is to convert the deposit slip into a withdrawal slip, and the second step is to officially withdraw the token. The first step of withdrawal transaction will end the interest calculation, therefore, the timing of initiating the first step of withdrawal is crucial.
For example, if you deposit CKB when Epoch = 100 and make the first withdrawal when Epoch = 105, you will only receive 5 Epochs of interest. And if you initiate the first step of withdrawal when Epoch = 278, you will receive 178 Epochs of interest. In order to maximize profits, it is recommended that users initiate the first step of withdrawal when approaching the regular time limit.
Summarize
Nervos DAO provides CKB holders with an effective anti-dilution mechanism to help users protect their assets in the face of secondary issuance. By rationally utilizing the deposit and withdrawal skills of Nervos DAO, users can not only enhance the ability to preserve the value of assets, but also obtain stable returns in long-term investments. I hope this article can help you better understand Nervos DAO and go further in your CKB investment journey.