Main points
- ICP holders can actively participate in the governance of the Internet computer network by staking ICP tokens and voting on proposals.
- Node operators are rewarded with ICP for their contributions to the computer protocols that run the Internet.
- The IC ecosystem provides developers with a platform to create decentralized autonomous organizations (DAOs)
ICP is the native token of Internet Computer (IC), an innovative blockchain network designed to expand the capabilities of the Internet. Its goal is to provide a decentralized platform where smart contracts and decentralized applications (dApps) can run on the Internet at network speeds. IC achieves its goals by leveraging a unique framework of autonomous data centers located around the world that work together to create the Internet of Computers. These data centers run specific hardware nodes containing “containers,” which are smart contracts capable of storing code and data.
The protocol uses sophisticated encryption and protocol mechanisms to ensure these containers run securely, are immutable and effective. Let’s delve deeper into ICP (Internet Computer Tokenomics).
What is ICP?
ICP is the native token or digital currency of the Internet Computer (IC). The token is used in the protocol as follows: Initially, any ICP holder has the opportunity to participate in the governance of the IC by staking ICP, voting or proposing governance measures, and receiving voting rewards. Additionally, ICP has the ability to convert to cycles to compensate for Internet computer resources.
Third, ICP tokens are used to compensate node providers who manage the node machines running the Internet Computer Protocol. Finally, ICP can also be used for token exchange within decentralized autonomous organizations (DAOs) on the IC platform. These four protocol use cases are explained further in the next section. Nonetheless, ICP can also be used as a payment method for items such as NFTs, memberships, and other services.
How does ICP work?
Now that we have defined what ICP is, let’s take a deeper look at how Tokens work.
1. Governance and Voting Rewards
Anyone can participate in the governance of the IC by investing ICP tokens in Neurons. Neuron owners can vote on proposed modifications to the IC. The voting influence of neurons in decisions depends on other characteristics such as the amount of ICP staked and the duration of the stake.
For example, Neuron can double its voting power by extending the staking period to a maximum of 8 years. Provide more voting rights to neurons that hold ICP for the long term, encouraging them to participate in voting to support future proposals that increase the value of their tokens.
The maturity of voting neurons increases with participation in governance. The maturity period allows for the minting of ICP tokens. Each day, the IC determines the voting reward pool according to the schedule, and then distributes the reward pool to all eligible neurons based on the voting power ratio. The voting reward program is designed to encourage early adoption by allocating an annualized 10% of the total ICP supply as a reward from the outset.
Over the course of eight years, that number dropped to 5%. Daily rewards are not based on the total amount of ICP staked in the system, but are given to neurons based on their voting power and the proposals they vote on. The system encourages people to stake ICP and participate in governance by providing higher rewards for lower participation.
As of November 2022, a total of 266 million ICP tokens have been pledged, accounting for 54% of the total supply. A large portion of the staked ICP, specifically 123 million ICP (equivalent to 46%), is staked over the entire 8 years to prove this commitment.
2. Node provider rewards
ICP tokens reward node providers, who are the owners and operators of the computing nodes responsible for running the Internet Computer Protocol. Node provider rewards are distributed in the form of newly created ICP tokens. The compensation they receive is set per node and closely tied to their actual fees. Hosting prices vary based on node location, which is determined by two parameters. Next is the node’s category, such as its hardware and connection specifications.
Node provider rewards are specified in XDR to cover the node’s investment and running costs, which are then converted from fiat currency to ICP using the average exchange rate over the past 30 days.
Invest in the IC Ecosystem
IC provides developers with a simple solution to hand over control of their dapps to decentralized autonomous organizations (DAOs) and raise funds.
Users can choose to allocate a portion of their ICP to a new DAO on a decentralized exchange. Once the decentralized exchange is completed, these users will receive token rewards from the DAO at the same cost. Developers can set a term for the ICP to be raised as well as minimum and maximum financing targets, which determine the closing of the sale.
The proceeds from ICP fundraising on decentralized exchanges are kept in the reserves of a completely independent DAO, rather than being given to the creator of the dapp or service. These funds can be used to meet the dapp’s upcoming computing needs and compensate for code rewards for future dapp improvements.
Investment through the DAO decentralized exchange is a powerful driver of the IC ecosystem. It provides a simple and clear entry point to participate in Web 3 projects and put funds toward productive use of the platform.
total supply development
The International Monetary Fund has both inflationary and deflationary processes. Governance participants can exchange voting rewards for newly created ICPs. In addition, node operators can also receive newly generated ICP tokens as rewards. Instead, ICPs are converted to recycling (i.e., destruction) as a means of covering computation and storage costs. As shown below.
in conclusion
Understanding the Internet Computer (IC) and its native token ICP provides insight into the decentralized governance and economic mechanisms that drive the Internet computer network. From voting rewards to node provider incentives and IC ecosystem investments, ICP plays a vital role in shaping the future of decentralized computing.