Dive into Namada’s economy and discover how its unique Proof of Stake (PoS) system, transaction fees, and inflation model work. Learn about $NAM tokenomics, governance, and how Namada ensures privacy and funds public goods. Understand the economic mechanisms driving this innovative Layer 1 blockchain

What is Namada?

Namada is a Layer 1 blockchain that utilizes the Proof of Stake (PoS) consensus mechanism and implements independent privacy rights for assets between chains, known as Interchain Asset-agnostic Privacy. It is compatible with Cosmos’ IBC, enabling swift asset transfers between IBC-enabled blockchains and Ethereum at low costs.

Namada shares a similar structure with Anoma, a protocol focused on protecting privacy and addressing decentralized P2P payment challenges across multiple blockchains. The development of Namada aims to safeguard user privacy when transferring assets between blockchains through a user-friendly interface.

Why Namada?

Privacy should be the default and inherent in the systems we use for transactions. However, a safe and user-friendly multi-asset privacy solution does not yet exist in the blockchain ecosystem. Until now, users have had to choose between a sovereign chain that reissues assets (e.g., Zcash) and a privacy-preserving solution built on an existing smart contract chain.

Both options have significant trade-offs: in the former case, users don’t have assets they want to transact with, and in the latter case, existing platforms have restrictions that lead to the leakage of non-trivial metadata and expensive and clunky protocols.

NAMADA ADDRESSES THESE CHALLENGES.

Namada supports any fungible or non-fungible asset on an IBC-compatible blockchain, as well as fungible or non-fungible assets sent over a custom Ethereum bridge (such as ERC20 tokens and ERC721 tokens, respectively). Once assets are on Namada, shielded transfers are inexpensive, and all assets contribute to the same anonymity set.

Users of Namada can earn rewards, retain privacy of assets, and contribute to shared privacy.

Namada’s Economic mechanisms

Namada’s Overview

Namada’s economic dynamics are primarily influenced by its transaction fees and inflation model. Users are required to pay transaction fees in $NAM, and potentially other tokens, aligning the demand for $NAM with the demand for transaction space within the network. Refer to the fee system, following this paragraph, for a comprehensive breakdown.

On the supply front, Namada employs a deterministic inflation model. The protocol is designed to mint $NAM tokens at a predetermined maximum rate annually. This rate is a fraction of the existing supply, as detailed in the inflation system. The minted NAM is then channeled into three primary protocol subsidies:

• Proof-of-Stake (PoS): The reward mechanism for validators who stake their $NAM to secure the network.
• Shielded Pool Incentives: These are incentives provided to promote certain activities within the network, ensuring privacy and security. More about this can be found in the shielded pool incentives section.
• Public-Goods Funding: A portion of the minted $NAM is allocated to fund projects and initiatives that are deemed beneficial for the entire Namada community.

Fee System

To ensure the efficient functioning of the Namada network, every transaction must pay a fee to be accepted into the ledger. These fees serve dual purposes:

• They help in the efficient allocation of block space and gas, both of which are limited resources. Given the open nature of transaction submissions and fluctuating demand, fees help manage these resources effectively.
• Fees provide an incentive for block producers to include transactions in the blocks they create.

Namada’s fee system is flexible, allowing transaction fees to be paid in any fungible token that’s part of a whitelist controlled by Namada governance. The governance also sets the minimum fee rates, which can be updated periodically. Transactions can opt to pay more than the minimum to get prioritized by the block proposer. Additionally, when using the shielded pool, transactions can unshield tokens to cover the required fees.

The whitelist consists of pairs, where one part is a token identifier and the other is the minimum price per unit gas for transactions using that token. This list can be updated through standard governance proposals. All collected fees are directly paid to the block proposer, ensuring that there’s no more profitable alternative like side payments.

Namada’s Tokenomics

Namada’s native token, NAM, plays a crucial role in securing the network, enabling shielded transactions, and funding public goods. Here is a brief overview of Namada’s tokenomics:

Security

Namada uses a proof-of-stake (PoS) consensus mechanism, where validators and delegators stake NAM to participate in validating blocks and earning rewards. The more NAM is staked, the more secure the network becomes. Namada also uses a novel consensus algorithm called CometBFT, which is designed to be fast, scalable, and Byzantine fault tolerant.

Privacy

Namada leverages zero-knowledge cryptography to create a unified shielded set for all assets, regardless of their origin or type. Users can transfer assets from Ethereum, Cosmos, or other chains to Namada and shield them from prying eyes. To perform shielded transactions, users need to pay fees in NAM, which creates a demand for the token and incentivizes privacy adoption.

Public Goods

Namada has a built-in mechanism for funding public goods that benefit the ecosystem, such as development, research, education, and marketing. A portion of the block rewards and transaction fees are allocated to a public goods fund (PGF), which is distributed to the community through a transparent and democratic process. The PGF also serves as a way to redistribute NAM to new users and increase network effects.

Conclusion

Namada combines privacy, security, and the funding of public goods to create a robust and user-centric blockchain ecosystem. It aims to provide a seamless experience for users while prioritizing privacy and contributing to the development of the Namada community.

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