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\documentclass[11pt,a4paper,dvipsnames,twosided]{article}
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\documentclass[11pt,a4paper,dvipsnames,twosided,final]{article}

                      
\usepackage[deliverable]{IOHKCoverPage}

                      
\EditorName{Kevin Hammond, \IOHK}
\Authors{Kevin Hammond \quad \texttt{<[email protected]>}
}
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\DueDate{10$^{\textrm{th}}$ October 2019}
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\SubmissionDate{10$^{\textrm{th}}$ October 2019}{2019/10/09}
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\DueDate{14$^{\textrm{th}}$ October 2019}
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\SubmissionDate{14$^{\textrm{th}}$ October 2019}{2019/10/14}
\LeaderName{Philipp Kant, \IOHK}
\InstitutionAddress{\IOHK}
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\Version{0.1}
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\Version{0.2}
\Project{Shelley Ledger}
\DisseminationDR

                      
  \clearpage%

                      
  \begin{changelog}
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        \change{2019/10/10}{Kevin Hammond}{FM (\IOHK)}{Initial Version.}
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        \change{2019/10/09}{Kevin Hammond}{FM (\IOHK)}{Initial Version.}
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        \change{2019/10/14}{Kevin Hammond}{FM (\IOHK)}{Polished slightly.}
      \end{changelog}
      \clearpage%
\begin{landscape}
  protocol, including maintaining built-in defences against ``Sybil-in-Sybil'' security attacks
  that could lead to corruption of the blockchain.
  A simplified version of the incentives scheme is used for the Incentivised Testnet, using fixed rewards,
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  omitting fee calculations and ...
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  The document is based on SL-D1 (Delegation/Incentives Design)~\cite{delegation_design} and feeds in to SL-D5
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  (Formal Ledger Specification. Version 1)~\cite{shelley_ledger_spec} as well as the online rewards calculator and the Shelley Incentivised Testnet and Mainnet  implementations and quality assurance programmes.
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  omitting fee calculations, influence and apparent performance etc. (some of these features may be
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  added in later versions of the Incentivised Testnet).
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  This document is based on SL-D1 (Delegation/Incentives Design)~\cite{delegation_design} and feeds in to SL-D5
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  (Formal Ledger Specification. Version 1)~\cite{shelley_spec} as well as the online rewards calculator and the Shelley Incentivised Testnet and Mainnet  implementations and quality assurance programmes.
\end{abstract}

                      
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\clearpage
\section{Introduction}
\label{sec:introduction}

                      
Figure~\ref{fig:terminology} gives some basic terminology.
The Shelley implementation rewards those \ada{} holders who either own active stake pools
(\emph{Owners}) or who delegate stake to active stake pools (\emph{Delegators}).
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In line with the Ouroborous Protocol~\cite{ouroborous}, the Stakepool receives
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In line with the design of the Ouroborous protocol~\cite{ouroboros_classic}, the Stakepool receives
rewards in proportion to the stake that it \emph{controls} (``proof of
stake'') rather than in proportion to the work that it does (``proof of work'').
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This has cost and efficiency advantages.
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The level of rewards that the implemenation provides is designed to help ensure that no single entity can
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This has cost, efficiency and safety advantages.
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The level of rewards that the implementation provides is designed to help ensure that no single entity can
dominate the system by \emph{controlling} excessive amounts of \ada{}.  This is achieved by creating intrinsic
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balancing mechanisms that will naturally spread stake among a large number of stakepools.
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In particular, rewards to any one \emph{Stakepool} may be capped to a pre-determined limit,
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meaning that both delegators and owners will receive less reward if too much stake is controlled.
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balancing mechanisms that will naturally spread all the active stake among a large number of stakepools.
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In particular, the rewards to any one \emph{Stakepool} may be capped to a pre-determined limit,
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meaning that both delegators and owners will receive less reward if too much stake is controlled by a single stakepool,
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so encouraging the creation of additional, smaller stakepools.
% This includes limiting the amount of \ada{} that is delegated to any one \emph{stakepool}.
The overall theory that ensures this is described in the Ouroborous Praos research
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paper~\cite{OP}. The design of the incentives and delegation scheme is described
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in~\cite{shelley_}.
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paper~\cite{ouroboros_praos}. The design of the incentives and delegation scheme is described
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in~\cite{delegation_design}.
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\textbf{\emph{Note: this document is subject to change.  In particular, it may be necessary to include a simplified fees calculation
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  in the incentivised testnet, where the fees are given to the treasury\khcomment{Check fees.}.}}

                      
\begin{figure}[t]
  \begin{center}
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\begin{tabular}{||l|l||}
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\begin{tabular}{||l|p{12cm}||}
  \hline \hline
\textbf{Term} & \textbf{Definition} \\\hline
  Stakepool & A system that is actively participating in the creation of blocks on the \cardano{} blockchain  \\\hline
  \hline
\end{tabular}
\end{center}
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\caption{Key Terminology}
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\caption{General Terminology}
\label{fig:terminology}
\end{figure}

                      
\newpage
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\subsection{Key General Parameters}
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\subsection{General Parameters}

                      
\begin{figure}[h!]
\begin{center}
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\begin{tabular}{||l|l|p{6cm}|l||}
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\begin{tabular}{||l|l|p{10cm}|l||}
  \hline \hline
\textbf{Parameter} & \textbf{Expected Value} & \textbf{Definition} \\\hline
\emph{k} & 50-1000 & The Target Number of Stakepools \\\hline
$T$ & 10\% & The Treasury Top Slice Percentage \\\hline
$MER$ & 10\% &  The ``Monetary Expansion Rate'' per Year \\\hline
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$E$ & 1-5 &  Elapsed days per \cardano Epoch \\\hline
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$E$ & 1-5 &  Elapsed days per \cardano{} Epoch \\\hline
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  \hline
\end{tabular}
\end{center}
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\caption{Key Parameters that will be set by the community (initially determined by \IOHK).}
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\caption{Key Operational Parameters.}
\end{figure}

                      
\noindent
%
The target number of Stakepools is used to cap the rewards that any individual stakepool can receive. The intention is to encourage the creation of more stakepools, and to avoid domination by any single stake holder.
The \emph{treasury top slice percentage} is the fraction of reward that is allocated to the treasury to cover fixed operating costs, and
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ensure the long-term viability of the \cardano{} system.  It is initially set to a small percentage (10\%) of the rewards.
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ensure the long-term viability both of the \cardano{} system and of \ada{} as a currency.  It is initially set to a small percentage (10\%) of the rewards.
The \emph{monetary expansion rate} is the rate at which rewards are allocated from the \emph{reserves} of \ada{}.

                      
\begin{figure}[h!]
\begin{center}
\begin{tabular}{||l|l|p{6cm}|l||}
  \hline \hline
\textbf{Parameter} & \textbf{Value} & \textbf{Description} & \textbf{Calculated as} \\\hline
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$A_T$ & \ADA{45bn} & The total \ada{} that could ever be created & \\\hline
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${Ada}_{Tot}$ & \ADA{45bn} & The total \ada{} that could ever be created & \\\hline
\emph{P} & 20\%-50\% & Participation Rate in the Shelley Incentivised Testnet & \\\hline
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$A_c$ & \ADA{31bn} & The total \ada{} in circulation at Shelley launch & \\\hline
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$A_r$ & \ADA{14bn} & The total \ada{} in the reserves at Shelley launch & $A_T - A_c$ \\\hline
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${Ada}_{circ}$ & \ADA{31bn} & The total \ada{} in circulation at Shelley launch & \\\hline
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${Ada}_{rsv}$ & \ADA{14bn} & The total \ada{} in the reserves at Shelley launch & ${Ada}_{Tot} - {Ada}_{circ}$ \\\hline
\hline
\end{tabular}
\end{center}
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\caption{Parameters that are set by external factors (e.g. \ada{} holders).}
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\caption{Parameters that are set by External Factors (e.g. \ada{} holders).}
\end{figure}

                      
\noindent
Several parameters are pre-determined by external factors. These include the
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total \ada{} that could ever be created $A_T$;
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total \ada{} that could ever be created, ${Ada}_{Tot}$;
the total \ada{} that is in \emph{circulation} when the Shelley system launches
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(i.e. all \ada{} that is held by any entity on the launch date), $A_c$;
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(i.e. all \ada{} that is held by any entity on the launch date), ${Ada}_{circ}$;
and the \ada{} that is held in reserve when the system starts.
These values are fixed and will not change.

                      

                      
\begin{figure}[h!]
\begin{center}
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\begin{tabular}{||l|p{6cm}|l||}
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\begin{tabular}{||l|l|p{9cm}||}
  \hline \hline
\textbf{Parameter} & \textbf{Range} & \textbf{Description} \\\hline
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$SP_c$ &  & Cost per day in \ada{} \\\hline
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$SP_m$ &  0\%-100\% & Percentage fee on rewards (``margin'') \\\hline
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{\color{red} $\textit{Pool}_{cost}$} &  & {\color{red} Cost per day in \ada{}} \\\hline
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{\color{red} ${Pool}_{margin}$} &  {\color{red} 0\%-100\%} & {\color{red} Percentage fee on rewards (the ``margin'')} \\\hline
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  \hline
\end{tabular}
\end{center}
\caption{Key Parameters that are set by the StakePool Operator.}
\end{figure}

                      
\noindent
The two main parameters that need to be set by the \emph{operator} are the cost per day that will be charged to
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the pool (in \ada), $SP_c$; and the percentage of any rewards that will subsequently be taken as a fee, $SP_m$.
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the pool (in \ada), $\textit{Pool}_{cost}$; and the percentage of any rewards that will subsequently be taken as a fee, ${Pool}_{margin}$.
The cost is subtracted from the total rewards that are earned by the pool before any rewards are distributed.
These parameters are advertised by the stakepool and used as part of the public ranking scheme.

                      
\subsubsection*{The \ada{} that is controlled by the Stakepool}

                      
\begin{figure}[h!]
\begin{center}
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\begin{tabular}{||l|p{6cm}|l||}
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\begin{tabular}{||l|p{9cm}|l||}
  \hline \hline
\textbf{Parameter} & \textbf{Description} & \textbf{Calculated as} \\\hline
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$SP_p$ & \ada{} that is pledged to the Stakepool by the Owner(s) & \\\hline
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$SP_d$ & \ada{} that is delegated to the Stakepool & \\\hline
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$SP_T$ & All \ada{} that is controlled by the Stakepool & $SP_p + SP_d$ \\\hline
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$SP_F$ & Fraction of the \ada{} in circulation that is controlled by the Stakepool & {\large $\frac{SP_T}{A_c}$} \\\hline
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{\color{red} ${Pool}_\textit{pledge}$} & {\color{red} \ada{} that is pledged to the Stakepool by the Owner(s)} & \\\hline
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{\color{blue} ${Pool}_\textit{deleg}$} & {\color{blue}  \ada{} that is delegated to the Stakepool} & \\\hline
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${Pool}_{Tot}$ & All \ada{} that is controlled by the Stakepool & ${Pool}_\textit{pledge} + {Pool}_\textit{deleg}$ \\\hline
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${Pool}_\%$ & Fraction of the \ada{} in circulation that is controlled by the Stakepool & {\large $\frac{{Pool}_{Tot}}{{Ada}_{circ}}$} \\\hline
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  \hline
\end{tabular}
\end{center}
\caption{The \ada{} that is controlled by a StakePool.}
higher rewards, \emph{pledging} incurs higher risk, requiring owners to \emph{trust} each other.