GENERAL INTRODUCTION
Chiliz’s native token, CHZ, captures value through several value capture mechanisms: Deflationary Native Token, Consensus Token, Stake Delegation, and Delegated Governance. These mechanisms are implemented through a series of smart contracts, including Tokenomics, Staking, StakingPool, SystemReward, SlashingIndicator, and Governance, which collectively manage token burning, validator incentives, slashing penalties, and protocol upgrades. The following sections detail the Deflationary Native Token, Consensus Token, Stake Delegation, and Delegated Governance VCMs which illustrate how they are technically implemented at the application layer.
1. THE DEFLATIONARY NATIVE TOKEN IMPLEMENTATION
The Deflationary Native Token VCM is implemented primarily at the protocol level, however, a few processes are captured at the application level with the Tokenomics contract. When a User initiates a transaction on the Chiliz Chain, they pay CHZ tokens for gas to the Network, which processes the transaction using its Proof-of-Stake Authority consensus mechanism. As part of the EIP-1559 mechanism, a portion of the gas fee is burned at the protocol level which reduces the circulating supply of CHZ tokens. This burning is not directly executed by a smart contract but is managed by the network’s consensus rules. The Network then calls the deposit function on the Tokenomics contract, passing a newTotalSupply parameter that reflects the updated total supply after the fee burning. The Tokenomics contract updates its totalSupply state variable to this new value which effectively records the reduction in CHZ supply due to the burn. This process ensures that the token burning is transparently tracked on-chain, aligning with the economic design of Chiliz Chain to control inflation.
transaction_fee = (base_fee + priority_fee)
- Here, the priority fee is burnt, acc. to EIP-1559.
Key Contracts:
- Tokenomics: Core logic for the CHZ token.
2. THE CONSENSUS TOKEN IMPLEMENTATION
The Consensus Token VCM, operating under Proof of Staked Authority (PoSA), secures the Chiliz network by implementing staking, reward distribution, and slashing to incentivize a validator’s behavior. The validator stakes CHZ tokens by invoking the registerValidator function of the Staking contract, ensuring their eligibility to produce blocks based on their stake. As the validator processes transactions and produces blocks, the Network distributes block rewards and transaction fees by calling the deposit function of the Tokenomics contract, which allocates funds by invoking the eponymous deposit function of the Staking contract to distribute rewards to the validator. In response to detected misbehavior, such as missing blocks or extended downtime, the SlashingIndicator contract, triggered by the coinbase address, calls the slash function of the Staking contract to penalize the validator. This penalty redirects the validator’s rewards to the SystemReward contract’s receive function, where they are accumulated as system fees. This constitutes a penalty of Level 1 (called the Missing Blocks penalty), imposed for missing a number of blocks in an epoch. Penalty of Level 2, called the Extended Downtime penalty, is a more severe version thereof, and entails additionally freezing ("jailing" in Chilliz parlance) the faulty validator for a number of epochs (at the time of writing, 4). The release is manual and is done by the validator's owner invoking the releaseValidatorFromJail function of the Staking contract.
y— inflation percentage (%)x— year of inflation (or time elapsed, denoted in years)9.24— the coefficient affecting the initial magnitude of the decay0.250— the decay rate1.60— the offset that adjusts the asymptote the function approaches over timecondition— when ( x > 13 ), ( y = 1.88% )
- Validator APR:
apr_val: The Annual Percentage Rate for validators, representing the expected return on their staked CHZ tokens (%).t: Total Annual Inflation dedicated to Validators, the total inflationary CHZ tokens issued annually to validators (measured in CHZ).s: Total Value of Staked Tokens, the total amount of CHZ tokens currently staked by validators and delegators (measured in CHZ).d: Delegated Tokens, the additional amount of CHZ tokens delegated to validators (measured in CHZ).c: Commission Rate of Validator, the percentage of rewards taken by validators as a fee from delegators (%).
Key Contracts:
- Staking: Core logic for staking.
- SystemReward: Core logic for system rewards and fees.
- SlashingIndicator: Core logic for slashing penalties.
3. The Stake Delegation Implementation
The Stake Delegation VCM builds on the same Staking contract infrastructure, enabling a delegator to contribute to network security by staking and delegating CHZ tokens to a chosen validator. The delegator stakes CHZ tokens via the StakingPool contract by calling the stake function, which delegates their tokens to the validator through the Staking contract’s delegate function, adding to the validator’s total stake for block production eligibility. The rewards for delegated stakes are distributed alongside the validator’s rewards through the same deposit function of the Staking contract, as triggered by the Tokenomics contract, ensuring the delegator receives a proportional share of block rewards and transaction fees, less the validator’s commission. If the validator is penalized for misbehavior via the slash function of the Staking contract, the delegator’s staked tokens are also subject to proportional slashing, with penalties redirected to the SystemReward contract, maintaining alignment with the consensus mechanism’s incentive structure.
The delgated stake is counted towards the validator's stake for the purposes of epochal elections (an election happens every 28 800 blocks and refreshes the Main Validator set with the new thirteen highest stakes).
delegator_emission = total_emission - network_allocation - validator_allocation
apr_del: The Annual Percentage Rate for delegators, representing the expected return on their staked CHZ tokens (%)t: Total Annual Inflation dedicated to Validators, the total inflationary CHZ tokens issued annually to validators (measured in CHZ)s: Total Value of Staked Tokens, the total amount of CHZ tokens currently staked by validators and delegators (measured in CHZ)c: Commission Rate of Validator, the percentage of rewards taken by validators as a fee from delegators (%)
Key Contracts:
- StakingPool: Proxy contract for staking.
- Staking: Core logic for staking.
- SystemReward: Core logic for system rewards and fees.
- SlashingIndicator: Core logic for slashing penalties.
4. The Governance Implementation
The Governance VCM is implemented primarily through the Governance and Staking contracts, enabling validators, on behalf of their delegators, to influence the Chiliz Chain’s operations. A validator, via their owner address, initiates a proposal by calling propose or proposeWithCustomVotingPeriod, specifying changes such as adding a new validator, updating system parameters, or modifying governance settings like voting periods. Validators then cast votes on the proposal, with voting power derived from their self-stakes and the delegated stakes in the Staking contract, queried via getValidatorStatusAtEpoch to ensure accurate epoch-based stake calculations. Once approved, the proposal is executed through the execute function, restricted to authorized proposers. The Governance contract further supports a proposer registry, activated via activateProposerRegistry, which allows only designated validator owners or active validators to propose and execute changes. Additionally, functions like getVotingPower and quorum ensure transparent vote weighting and a two-thirds quorum requirement.
Key Contracts:
- StakingPool: Proxy contract for staking.
- Staking: Core logic for staking.
- Governance: Core logic for governance.