Further Information on The Spark Token Distribution

Further Information on The Spark Token Distribution

This post is intended to provide further precision around the Spark token distribution mechanism.

Token Supply

Flare is creating 100 Billion (Bn) Spark tokens at the outset of the network. How these are distributed and when they become available is discussed below.

Claim formula:

The claim formula below sets out the amount of Spark that an individual XRP holder can expect to receive in total.

$$\text{Spark  claimable} = \frac{\text{XRP owned}} {\text{XRP total - XRP Ripple - XRP NPE }} *\text{45 Bn},$$

where the variables are:

Spark claimable: The amount of Spark claimable by an XRP address.


XRP owned: The amount of XRP in the XRP address at the time of the snapshot.


XRP total: The total amount of XRP in existence at the snapshot date.


XRP Ripple: The XRP held in Ripple related accounts at the time of the snapshot including escrowed balances.


XRP NPE: The XRP held by non-participating exchanges at the snapshot date.


Claim eligibility:


Provided that you are not in a modified group (details below), how many Spark you are eligible to claim therefore depends only on the participation of exchanges. This is because the subtraction of the non participating exchange balances makes the denominator smaller and thus increases the share of the 45Bn Spark that claimants can claim.

Modified Groups:

Excluded

Other than Ripple inc and the non-participating exchanges, there are a few groups that are completely excluded from the distribution. These are Jed McCaleb and accounts that are known to have received XRP as a result of fraud, theft and scams.

Unlike Ripple Inc and the non participating exchanges, the Spark balances that would have gone to these excluded participants are instead to be placed in a reward pool to incentivise the minting of F-Assets starting with FXRP (see below).


Individual Whale Cap:

A 1Bn XRP cap is set on any group of XRP accounts known to belong to the same individual. This means that such an individual may claim Spark using 1 Bn XRP tokens but no more.

This amount is termed the Whale cap. The Spark that these Whales could have claimed with their XRP, above the capped amount, is also put into the incentive pool for minting FXRP.

For the purposes of the distribution, any accounts that receive XRP from these capped accounts from the publication of this post until 12/12/20 will have this amount of XRP deducted from the amount of XRP that they may claim Spark with.

What you will receive and when:

At network launch, each account that has claimed Spark will receive 15% of the total Spark for which they are eligible. This is 15% of the Spark claimable term in the equation above. The remaining Spark claimable will be distributed over a minimum of 25 months and a maximum of 34 months.

Each month,* a pseudorandom number in the interval $\text{[2,4]}$ will be generated by the Flare Time Series Oracle (FTSO). This number corresponds to a percentage of the initial remaining Spark claimable.

For example, if person X has 1000 Spark claimable and 4% is picked every month by the FTSO, they receive 1000*15% = 150 Spark at day 1, and then (1000-150)*4% = 34 additional Spark per month for 25 months, coming to a total of 1000 Spark.

The average of the pseudorandom number draws should equate to 3% per month, the midpoint between 2 and 4. At this rate, the distribution will be complete within 34 months. The process runs until either all Spark have been distributed (minimum 25 months) or 34 months have passed. At 34 months, any remaining undistributed Spark is burned or distributed based on a governance vote. (If there is a burning event this reduces the amount of tokens that an individual receives overall, but their percentage ownership of the token remains unchanged.)

No one is treated differently in this process: it applies equally to the amounts that Flare Networks Limited and the Flare Foundation will receive.

With regards to how you receive these tokens:

If you self custody, the system will deliver them to the Flare address with which you claimed. (This is the Ethereum-style address that you set in the XRP message key field to make the Spark claim in the first place.)

If you are claiming through a participating exchange, they will distribute the token to your account over time.

*Note: If a claim is made after network launch (within the 6 month window) then the amount received to that account will be the 15% from the initial distribution + any additional amounts that have unlocked.

Why is the distribution structured this way?

The distribution structure has been designed to help achieve a successful network launch and to provide strong incentives for network participation that builds utility.

Free Riders & Early Liquidity Management

It has always been our stated position that the best people to provide capital to underpin the trustless issuance of FXRP on Flare are the people who own XRP. The only way to achieve this fairly is, in our opinion, the distribution of Spark that is taking place. Rather than embracing Flare and Spark for the utility it creates, a certain percentage of people will wish to claim Spark only because they believe that it is “Free money”. To reduce the negative effects from this dynamic, the amount of liquidity that can be put into the market at any one time is therefore limited by the extended unlock process.

Network participation incentives and weak hands

In addition to limiting excess liquidity, the structure of the distribution provides much larger rewards for participants that bring value and utility to the network. These can be participants that either already have Spark (through the claim) or participants that buy Spark from the people that decided to sell it. The token distribution structure means that the percentage rewards for participating early are the highest they will ever be. The rewards as a percentage then reduce in size over time as the network matures and the token distribution unfolds. This boosted reward percentage is achieved without changing the planned token supply at all.

How? The reader might remember from the Flare white paper that the “beating heart” of the Flare network is the Flare Time Series Oracle (FTSO). This is the system that generates, in a decentralized fashion, certain price feeds that are important to the network. The FTSO pays out a number of newly minted Spark. This rate is set at inception to 10% per year, without compounding, of total Spark tokens. This rate then becomes a governance parameter after launch. For example, if the network starts out with 100Bn tokens on day 1, then the amount minted and distributed in the first year will be 100Bn * 10% = 10Bn Spark.


The FTSO is set to behave from initiation of the network “as if” the full 100 Bn tokens were fully distributed and unlocked. (This number will be adjusted once the claim period ends and unclaimed tokens are burned.) This means that the number of tokens being minted is the same as if the distribution were to happen all at once. Hence total supply at the end of the distribution is unchanged. Importantly, because Spark only unlocks as time progresses, an early network participant can potentially earn a much larger percentage return from the FTSO and become a more significant participant on the network by doing so.

The staggered distribution model should act as an additional way to incentivize individuals and groups who want to be agents and data providers to Flare, and further incentivize them to participate sooner rather than later. These parties bring value and utility to the network, and the distribution model aids development and decentralization of the ecosystem. Beyond being an incentive to generate utility on Flare the staggered distribution should also provide a strong incentive for interested participants to absorb excess liquidity from sellers.

Note: It is understood that many who hold Spark may not be able to directly participate in the FTSO by providing data. The system allows for the delegation of your spark votes to data providers, in return for a share in the profits. Delegation to data providers involves no risk to your Spark tokens. In the same way that staking for Proof of Stake chains is offered at exchanges, it is likely that delegation to Flare data providers will become an available feature. (Ask your exchange for it.) There are already several entities preparing to become data providers on the network. It is likely that many more will join towards launch.

F-Asset & FXRP Incentive Pool:

Another element of substantial utility to the Flare Network is the bridging of value to Flare in the form of F-Assets. For instance FXRP is an F-Asset. Accumulation of value in F-Assets on Flare will further incentivise developers to engage with the network and the development of the ecosystem. An algorithmically managed incentive pool of at least 10Bn Spark is to be set up to reward users that mint F-Assets, starting with FXRP. This incentive pool is created from the excluded groups; the Whale cap and potentially some of Flare Foundation’s holdings. The incentive pool will be structured to encourage the long term existence of FXRP and other F-Assets on Flare. The exact structure and payout profile of the incentive pool will be covered in a later post. The entire incentive pool will be unlocked from day 1 but only earned incrementally as F-Assets are minted and held on the network. As with the FTSO, there are likely to be third parties that allow these rewards to be earned by the less technical token holder.