Today, we deployed the beta smart contract of the Kadena Chain Relay into testnet. The chain relay provides economic security through bonded KDA for our Ethereum, Celo and Terra decentralized bridges. In this post, we describe how participants can bond KDA to operate and validate the Chain Relay.
The Kadena bridge accepts and validates block headers from other blockchain platforms like Ethereum, Celo or Terra. To do so, it needs a way to accumulate assurance around the headers in the form of endorsements from actors that have something to lose if the data is faulty.
Consider a DAI token on Ethereum. To wrap it onto the Kadena platform, DAI is deposited in a smart wallet on Ethereum. This deposit is captured in a cryptographic proof and presented to a smart contract on Kadena, which must verify that the deposit occurred in order to issue the matching amount of wrapped DAI onto Kadena. To do this, the smart contract relies on the Chain Relay to validate that the block header referenced in the supplied proof exists on Ethereum. Thus, the Chain Relay provides a critical service as an attesting authority for block headers from the bridged chain.
To validate headers, participants lock up KDA to become bonders. Bonders propose headers from the bridged chain, after which a random selection of bonders can endorse the proposed header. With enough endorsements, a header is valid and can be used to validate proofs.
By supplying the bond, bonders assume risk, because if a particular header is inaccurate or fraudulent, it can be denounced or “slashed”. Denouncing follows a similar process as a proposal but demands more endorsements to proceed. Once denounced, the proposer and all endorsers of the inaccurate header will forfeit 1/2 of their bond.
At launch, relay bonds are purchased for a fixed amount of KDA. To become a bonder, a participant must put up 50,000 KDA to be locked up for 30 days. During this time, the bonder participates in the chain relay, proposing and endorsing headers using the relay software. In return, they accrue fees both for endorsing headers (activity fees) as well as a fee for locking up the bond (risk fees).
Once the lockup expires, an unlock period of 20 days commences. During this time, the bonder can renew their bond in order to continue participating in the relay for another 30 days, and receive all accrued fees. Otherwise, after the unlock period, the bonder can unbond, collecting the bond amount with all accrued fees.
As an incentive for early participants, active participants who bond in the 30 days after launch will be entitled to a risk fee of 30% per annum of the bond amount (that is, 2.46% for each bond period). For these participants, they can renew to maintain these fee rates for up to one year (360 days). For endorsing headers, bonders will receive 5 KDA each as the activity fee. Note that a minimum average amount of activity of 10 endorsements/day over the bonding period will be required to receive the risk fee, to incentivize robust participation in the relay.
Fees are paid from a reserve pool of up to 5 million KDA at launch, sourced from Kadena platform share tokens. The size of the reserve limits the bonding by twice the risk fee rate, which means that in the initial launch, up to 8.3MM KDA in total can be bonded over the course of 1 year. With full participation, the total value locked up (reserve + bonds) can exceed 13MM KDA. This provides a robust amount of security for the relay.
In the future, the relay will be able to use other non-KDA tokens for bonding, including the possibility of a governance token as well. Kadena reserves the right to increase or decrease the KDA reserve at any time while maintaining guarantees for active bonders. Fee rates and amounts, lockup and unlock periods, and activity requirements can be changed at any time. Any details in this article are subject to change without notice before full production launch of the Chain Relay.
We’re excited to be working with our partners Zelcore and CoinMetro to make the Chain Relay program a success: CoinMetro will be offering bonding and delegation services, and ZelCore will provide services to help operators run the relay software through Flux. Bonding will open for participation in early April 2021, and the bridge will launch alongside Kadenaswap in early Q2 2021. Get involved with the relay, and help build the future of value on Kadena!