In the dynamic realm of blockchain and decentralized technologies, the Covalent Network is reshaping on-chain protocols with its innovative protocol revenue sharing model. Departing from traditional financial systems, this feature brings unparalleled accessibility, eliminates intermediaries, and empowers the community with direct access to granular blockchain data.
CQT Market Buy-backs & Token Drivers
At its core, the Covalent Network serves a dual purpose as both a decentralized physical infrastructure and middleware project, facilitating the connection between the supply and demand sides of on-chain data. Drawing parallels with well-known platforms like Uber, Covalent links query operators (supply) with applications (demand), employing a take rate to accrue protocol revenue and distinguish itself from traditional financial structures.
In the foreseeable future, the Covalent Network will fully reside on Ethereum and exclusively utilize ETH for network fees. Through its
How does it work?
The CQT Network uses $CQT as a governance and staking token. Operators stake tokens to participate in network operations, with the share of work distributed proportionally based on their stake. Demand-side revenue collected by the protocol is distributed to operators through a revenue-sharing mechanism.
The primary value accrual mechanism unfolds as follows:
- Applications directly query the blockchain data API by interacting with on-chain smart contracts and pay via stablecoins.
- Pricing of the API is determined by the network of operators.
- Stablecoins are converted to $CQT through a market-buy mechanism.
- $CQT is staked by Network Operators, serving as a security guarantee for their honest behavior.
- Earned $CQT is distributed to operators based on the work performed.
- Operators sell a portion of the earned $CQT for operating expenses, circulating back to the economy.
Transforming Demand into Token Value Drivers
Notably, the demand side of the Covalent Network’s protocol is priced in US dollars or fiat, ensuring predictable and forecastable consumption bills. The protocol collects revenue in US dollars, periodically converting it to CQT (Covalent's native token) through market buys. The CQT is then distributed to validators as a network utility token, circulating back into the ecosystem and sustaining the network.
The Covalent Network guarantees equitable compensation for participants actively engaged in network operations, representing a notable departure from conventional models where value accumulation often favors passive stakeholders with limited or no direct engagement.
Questions and Answers:
Q: How does Covalent’s decentralized model differ from centralized models?
A: Unlike centralized models where passive token holders benefit without active involvement, Covalent's decentralized structure ensures that token holders earn rewards based on their active contributions, such as staking or running validators. This emphasis on active participation establishes a fair and rewarding distribution model within the decentralized ecosystem.
Explore Covalent’s
Q: What sets Covalent apart in terms of instantly accruing protocol revenue?
A: The more API calls that interact with the network, the more revenue is generated. By leveraging token incentives this will drive costs down for users and turn long term data availability into a public good.
Q: Can you explain the current method of revenue accrual for Covalent and any changes anticipated?
A: Currently, revenue accrual involves a two-step process: demand-side API consumers pay the protocol in USD, converted to CQT and distributed to validators. As more validators join, the goal is to evolve towards a more direct flow, reducing reliance on centralized collection and promoting increased decentralization over time.
About Covalent:
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