Provenance Blockchain - Foundationally transforming financial services
Financial services is a multi-trillion dollar industry, built on intermediation. Blockchain can drive massive disruption in financial services by combining truth-vs-trust and riskless transactions, creating bilateral decentralized markets. Payments, exchanges, and lending can all benefit from this innovation, each representing trillions of dollars of fee opportunity. Provenance Blockchain is uniquely situated to drive this change. Provenance is the only public blockchain used by banks, with billions of dollars in payments, asset trading and lending having been transacted by a range of financial institutions across over 5,000+ wallet holders.
Provenance Blockchain uses HASH as a utility token to pay all fees on Provenance as well as enable governance. HASH is fixed in float - it can’t be created or destroyed. Fees on Provenance include gas fees, community fees and smart contract fees, enabling smart contract developers to assess fees commensurate with the value created by using blockchain versus traditional execution. Fees are quoted in fiat, but always paid in HASH. The Provenance Blockchain Foundation supports growing adoption by financial institutions as well the developer ecosystem. Gas + community fees target 1/3 of the economic value created by using the blockchain. Smart contract owners are guided to charge an equivalent amount for use of the smart contract.
Intermediated financial markets, such as stock exchanges, interchange payment networks and lending custodians/escrow agents underpin financial services. These marketplaces involve multiple parties that introduce transactional friction and extract significant economic rent. For example, US public equities rely on DTCC as a registrar and introducing and clearing brokers on each side of a trade, using third-party marketplace like NASDAQ or NYSE. Interchange relies on Visa or Mastercard as the network owner and issuing and acquiring banks and processors to support payments. The economic rent these intermediaries generate represents trillions of dollars of revenue and corresponding market capitalization.
Blockchain has two characteristics that allow it to disintermediate financial markets. First, blockchain displaces trust with truth. Native digital assets exist on-chain in immutable form, with certainty of ownership/perfection, composition, and history. Native digital assets could be a loan, equity in a private company, an investment interest in a fund, etc. and sit in the owner’s digital wallet. Second, blockchain allows for bilateral, riskless transactions between counterparties. If I want to sell you a loan, for example, I will have the loan in my digital wallet, and you will have stablecoin in yours. We notify the blockchain of our transaction, and the blockchain registers the loans to your wallet and the stable coin to my wallet. The transaction settles real time without counterparty or settlement risk - e.g., there is no risk one side doesn’t deliver.
When we intersect these two things - displacing trust with truth and transacting without counterparty risk - we can create bilateral decentralized markets where we are agnostic to our counterparty. Let’s apply this to public equity markets to illustrate the benefit.
If equities are native digital assets, there is no need for DTCC because the blockchain is the registrar, and the securities are controlled by owners by virtue of being in their wallet. There are no introducing brokers - no Schwab, Robinhood, etc. - as owners simply attach their wallets to a decentralized exchange operating a limit order book. Bids must be encumbered by stablecoin and offers encumbered by securities, eliminating trade fails and the need for clearing brokers and escrow. While each bid must be fully funded, real time settlement allows for real time netting. Lenders can provide credit by encumbering the digital asset, eliminating counterparty risk and radically expanding the function of prime brokerage to be asset specific, not customer specific. Billions of dollars in fees migrate from the incumbents to participants of the blockchain ecosystem including validators, stakers, developers, while also conferring significant business value to participants.
Provenance Blockchain is a public, open source, decentralized proof of stake blockchain. Figure launched Provenance Blockchain in 2018 and launched a completely rebuilt Provenance Blockchain as a public chain in 2021. Provenance Blockchain is built using the Cosmos SDK and Tendermint consensus module and is a sovereign level one chain with a native utility token, HASH. Provenance Blockchain has over 60 validators today, with a mix of traditional financial services firms and crypto firms. Billions of dollars of financial transactions have been executed on Provenance Blockchain, with significant growth the past year across lending, payments and marketplaces. Provenance was built specifically for financial services with data control, near instant settlement finality and high throughput given proof of stake consensus.
Unlike most blockchains, Provenance Blockchain does not function as a golden data set. The blockchain captures hashes of data for validation while tracking transactions and ownership. For example, when Figure puts a loan on Provenance Blockchain, the ~5GB of data that make up that loan is mapped to a unique 256-bit hash. That hash is stored on chain. When Figure goes to trade that loan, the buyer can validate that the loan file is authentic and accurate, along with ownership and transaction history. This is a necessary condition for financial services activity, as a lender cannot send customer information to 60+ independent validators. We believe this feature is unique among blockchains in production today.
Provenance Blockchain has executed a series of blockchain “firsts” and “onlys” within financial services, establishing Provenance Blockchain as the leading platform for tradfi migrating to defi. These include:
Provenance Blockchain has significant advantages as the leading blockchain for institutional financial services given the significant progress and development of key components of the ecosystem, including:
- Pioneering a range of diverse types of transactions to pave the path for broader adoption
- Operating at significant scale already with a range of types of financial assets already on chain in size
- Quality validators operating the network
- 9 Billion in HASH staked to promote security of the chain
- $150MM in HASH to support developers through an active grant program
- USDF: bank-minted tokenized deposits for unlimited fiat on chain
- HASH holders who believe that financial services infrastructure will be completely transformed by digital assets, digital money and blockchain
- Regulatory focus and engagement to support regulated financial services
- Built using Cosmos SDK with focus on interoperability, a key challenge in traditional financial services
- Adoption opportunities developed by participants who understand existing challenges in traditional financial services today to sustainably and knowledgeably lead the transformation
- Focus on collaborating with a diverse and inclusive group of users and developers to build out the new decentralized version of financial services thoughtfully, with a wide stakeholder lens
- Focus on leveraging AI dapps on chain for intelligent compliance, privacy, identity credentialing, customer UI/UX, etc
HASH is the utility token for Provenance Blockchain. There are 100 billion HASH and HASH can not be created or destroyed (though it can be slashed to sit in limbo, subject to community direction). Transactions and activities on Provenance Blockchain incurs gas fees, community fees and smart contract fees, all paid in HASH (community and smart contract fees are quoted in fiat but paid in HASH). Participants can pay fees with HASH or pay in fiat and have a Provenance Blockchain Bot purchase HASH to distribute, but ultimately all distribution is in HASH. Gas fees go to validators and their delegates, community fees currently go to all delegated HASH holders, and smart contract fees go to smart contract owners.
Provenance Blockchain has a foundation, currently run by Morgan McKenney. Provenance Blockchain Foundation’s role is to help encourage and promote adoption of Provenance by financial institutions, fintechs and developers building quality value-added financial services dapps. The general economic objective is for gas + community fees to equal 1/3 of the benefit of using the blockchain, and for smart contract owners to set fees equal to roughly 1/3 of the benefit of using the blockchain. The ratios are intended to capture value while encouraging adoption. Community fees are currently distributed to all delegated HASH holders, incenting delegation and network participation.
All fees are paid in HASH, and all fees except for gas are quoted in fiat. As the cost of HASH changes, the amount of HASH paid is a function of the prevailing price. This provides certainty of cost to those using Provenance Blockchain. This also doesn’t erode the value proposition of the blockchain as the price of HASH rises, nor fail to capture at least 1/3 of the economic benefit for the community when the price of HASH falls. HASH currently is available on a decentralized exchange on Provenance Blockchain (www.dlob.io). The Foundation will work to add exchanges over time to increase the ability to access to HASH to participate on Provenance blockchain.
The number of minted Hash remains constant, and no new Hash is minted as reward for work. As a result, there is no inflation of the HASH value through the new influx of HASH.
**The numbers above are based on full dilution.
The Provenance Blockchain network is a public Proof-Of-Stake (PoS) blockchain, meaning that the weight of validators is determined by the amount of staking tokens (Hash) bonded to them as collateral. These Hash can be self-delegated directly by the validator or delegated to them by other Hash holders. Hash holders can select any number of validators to delegate some or all of their Hash to stake. Any Hash holder can declare their intention to become a validator by sending a create-validator transaction to the network. From there, they become validator candidates.
The weight (i.e. voting power) of a validator determines whether or not they are an active validator. Only the top
validators with the most voting power will be active validators - those in the Active Set. Only validators in the Active Set, and by association those who delegated to them, receive rewards and have the right to participate in governance.
When a validator or a delegator wants to remove part or all of their deposit from the staking pool (i.e. no longer stake that Hash), they send an unbonding transaction to the Provenance Blockchain. Their Hash undergoes a three week unbonding period during which the owner of the Hash still earns transaction fees, can participate in governance votes and is still liable to being slashed for potential misbehaviors committed by the validator before the unbonding process started.
If a delegator only wishes to move their stake between validators but not remove it from the staking pool they may issue a redelegation. A redelegation is an instant transfer in voting power from one validator to another that occurs at the submitted blockheight. Redelegations do not have any impact on the required 3 week unbonding period.
Validators are rewarded for their work. The validator that is selected to propose the next block on the chain is called the proposer. Each proposer is selected deterministically and the frequency of being chosen is proportional to the voting power (i.e. amount of bonded Hash) of the validator. For example, if the total bonded stake across all validators is 100 Hash and a validator's total stake is 10 Hash, then this validator will be proposer for around 10% of the blocks.
A validator earns transaction fees in Hash tokens. The total fee for each transaction is divided among validators' staking pools according to each validator's weight. Within each validator's staking pool, the revenue is further divided among delegators in proportion to each delegator's stake. A commission on delegators' revenue is applied by the validator before it is distributed.
Revenue received by a validator's pool is split between the validator and their delegators. The validator can apply a commission on the part of the revenue that goes to their delegators. This commission is set as a percentage. Each validator is free to set their initial commission, maximum daily commission change rate and maximum commission. The Provenance Blockchain network enforces the parameters that each validator sets. Only the commission rate can change after the validator is established.
The commission-rate value
- Must be between 0 and the validator's commission-max-rate
- Must not exceed the validator'swhich is maximum percent change rate per day. In other words, a validator can only change its commission once per day and within commission-max-change-rate bounds.
- Can be 100%, which implies that that validator is not welcoming outside delegators since it pockets all rewards based on its bonded stake.
Fees are similarly distributed with the exception that the block proposer can get a bonus on the fees of the block they propose if they include more than the strict minimum of required precommits.
When a validator is selected to propose the next block, they must include at least 2/3 precommits of the block. However, there is an incentive to include more than 2/3 precommits in the form of a bonus. The bonus is linear: it ranges from 1% if the proposer includes 2/3 precommits (minimum for the block to be valid) to 5% if the proposer includes 100% precommits. Of course the proposer should not wait too long or other validators may timeout and move on to the next proposer. As such, validators have to find a balance between wait-time to get the most signatures and risk of losing out on proposing the next block. This mechanism aims to incentivize non-empty block proposals, create better networking between validators and mitigate censorship.
To summarize earned fee rules:
- Proposer is deterministically chosen from validators in the Active Set with frequency proportional to its total stake
- The proposer gets a 1-5% bonus of its normal share based on included extra precommiters above 2/3 voting power
- All validators in the Active Set receive a share of the fee proportional to their total stake
- Validators takes commissions before distributing fees to their delegators
Staking Hash can be thought of as a security deposit on validation activities. If a validator misbehaves, their delegated stake will be partially slashed. This means that every delegator that bonded Hash to this validator gets penalized in proportion to their bonded stake. Delegators are therefore incentivized to delegate to validators that they anticipate will function safely.
There are currently two faults that can result in slashing of funds for a validator and their delegators:
- Double signing: If someone reports on chain A that a validator signed two blocks at the same height on chain A and chain B, and if chain A and chain B share a common ancestor, then this validator will get slashed by 5% on chain A.
- Downtime: If a validator misses more than 99% of the last 10.000 blocks, they will get slashed by 1%.
When a validator node is slashed for one of the above penalties it is immediately removed from the active validator set and placed in a "jailed" state. A node may remove itself from the "jailed" status after a minimum cooling off period elapses by submitting an unjail transaction. During the jailed status period any delegator may choose to redelegate their stake to another validator on the network with the exception of the validator operator who must maintain at least their minimum stake threshold in their node.
To better illustrate how validator rewards work, let us assume there are 10 validators in the Active Set and all have an equal stake. Each of the validators applies a 10% commission rate and has 20% of self-delegated Hash. Assume there is a successful block added to the chain and a total of 1080.6 Hash was collected in fees.
For example, if 7% of the fee goes to the Provenance Blockchain Foundation's community pool (used to fund the foundation's day-to-day operations as well as the grant program) you can calculate the fees this way:
7% * 1080.6 = 75.6Hash goes to the community pool.
1005 Hash now remain. Assume that the proposer included 100% of the precommitters’ signatures in its block. The proposer thus obtains the full bonus of 5%. The reward R for each validator in the Active Set is determined by this simple equation:
9*R + R + R*5% = 1005 ⇔ R = 1005/10.05 = 100
For the proposer validator:
- The pool for that proposer obtains R + R * 5%: 105 Hash
- Commission: 105 80% 10% = 8.4 Hash
- Validator's reward: 105 * 20% + Commission = 29.4 Hash
- Delegators' rewards: 105 * 80% - Commission = 75.6 Hash (each delegator will be able to claim its portion of these rewards in proportion to their stake)
For each of the other 9 non-proposer validators:
- The pool for the validator obtains R: 100 Hash
- Commission: 100 80% 10% = 8 Hash
- Validator's reward: 100 * 20% + Commission = 28 Hash
- Delegators' rewards: 100 * 80% - Commission = 72 Hash (each delegator will be able to claim their portion of these rewards in proportion to their stake)
The network will provide an additional incentive for validators for the first six months after mainnet launch. This incentive will be 5% of the transaction fee - generally increasing validator returns by 50% assuming an average commission rate of 10%.
The way this will be administered is the community pool charge in the first six months will be 7% rather than the normal 2%. This 5% will then be distributed to all validators in the Active Set.
The amount of gas needed depends on the transaction as different types of transactions (e.g. making a payment or loading a loan) require different amounts of resources to process. The gas amount for a transaction is calculated as it is being processed, but there is a way to estimate it beforehand by using the auto value for the gas flag. Users can adjust this estimate with the flag --gas-adjustment (default 1.0) if they want to be sure to provide enough gas for the transaction.
The gasPrice is the price of each unit of gas. Transaction fees are the product of gas and gasPrice. Users must include the fee being paid and the rate the gas will be converted with each transaction they send to the network. Too low a gasPrice or gas could result in the transaction not being included at all.
Each validator sets a min-gas-price value, and will only include transactions that have a gasPrice greater than their min-gas-price. These full-nodes keep unconfirmed transactions in their mempools. In order to protect nodes from spam, it is best for validators to set a min-gas-price that the transaction must meet in order to be accepted in their node's mempool. This parameter can be set as a flag in the file
%USER_OS_CONFIG_DIR%/Provenance/config/app.tomlor as a parameter in the
At mainnet launch the recommended gasPrice is 1904 nHash where 1Hash = 1,000,000,000nHash
More details about gas:
- Validators set their own respective minimum gas prices. This value can range from infinitesimally small (inexpensive) to relatively large (expensive).
- When a transaction is broadcast to a node, it is run through the given validator's CheckTx function. If this passes, the transaction is added to the node’s mempool and broadcast to other nodes and validators.
- This transaction will sit in the node’s mempool until it is accepted by a proposer.
- The transaction will be accepted by a proposer if it meets the given proposer's minimum gas price.
- If the transaction’s gas price is below the amount required by the current proposer, the transaction stays in the mempool until another proposer accepts it (in the worst case this would be the validator that initially accepted the transaction when that validator is selected as the proposer).