You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $20/month you can upgrade to our FULL library of 50+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 

Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

• Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
• Early access to future CORE ratings: Being early is sometimes just as important as being right!
• Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
• CORE report Audio playback: Don’t want to read? No problem! Listen on the go.

Overview

Flow is an independent blockchain and smart contract platform that caters to blockchain gaming projects and NFT collections. The Flow network uses a multi-role architecture design to scale, fast-tracking the work of a miner or validator into four distinct roles that are all accomplished through staking Flow’s native token FLOW.

Key Features

Flow is the industry-leading protocol for NFTs, taking a top ranking above Decentraland, Axie Infinity, and Enjin Coin. The native token FLOW powers the platform. FLOW has a market cap of $1.6 billion, making the platform the 12th-largest smart contract platform on the market. This puts Flow above Tezos, Fantom, and other well-known networks.

Flow’s best feature is its world-class NFT collections including:

• The NBA (NBA Top Shot)
• The NFL (NFL ALL DAY)
• UFC (UFC Strike)

Other leading collections include BALLERZ and Matrix World. In total, Flow has over $1 billion in NFT sales on secondary markets.

Weaknesses

The major downside of Flow is the lack of actual games on the network with playability, which includes:

• Chainmonsters
• Zeedz
• Enemy Metal
• Dark Country
• The Football Club
• Racing Time

The problem is many of these protocols are gamified NFT trading platforms. That said, there are very few protocols within the space with any playability at all and Flow’s only purpose is to provide the underlying infrastructure for developers to use and build on top of. This is very similar to the nature of The Sandbox or Decentraland providing platforms for builders to create virtual experiences.

Flow Staking

The prospect of staking Flow tokens acts as an incentive for investors, infrastructure operators, developers, community members, and others to contribute to the network's security. The stakeholders who lock-up Flow tokens have viable options to manage their stakes. We delve into certain corrective actions that the protocol can take in relation to staked amounts, particularly focusing on matters that concern Validators.

The Intricacies of Stake Slashing

In an instance where a node breaches certain guidelines, a phenomenon referred to as a slashing condition, it faces the consequence of having a part of its stake slashed. Notably, the majority of the slashed stake is incinerated, while a small fraction is granted to the challenger(s). The rationale for burning the larger portion of the stake is to thwart adversarial conditions where nodes could find it more profitable to incite slashings or generate slashing conditions, rather than to participate with integrity.

These slashing conditions materialize when a node fails to adhere to the requirements for its role, as specified in section 3.1, or when it falls short in participating in its value-generating activities. Certain misdemeanors can result in a node losing its entire stake:

1. A Collection Node proposing an ill-formed collection or failing to deliver the transaction text to the Execution Nodes.
2. A Consensus Node engaging in double voting on a block.
3. An Execution Node attempting to convince verifiers of an invalid state by generating an inaccurate execution receipt.
4. A Verification Node delivering an invalid computation in their result approval.

It is critical to highlight that more comprehensive details regarding slashable offenses and their ramifications on the network's functionality will be explored in future research.

The Unbinding of Stakes

The methodology for unbinding a validator’s stake on Flow varies based on the node type. For Collector and Verification Nodes, there exists a single epoch unbinding period in which a node places a request to unbond. Unless a pending slashing challenge is standing against them, they retrieve their stake back in the following epoch.

Consensus Nodes, responsible for maintaining the canonical list of blocks, pose a unique security threat to the network via a long-range attack. In such an attack, a node may stake and possess valid keys for staking at time 0. This node could later unbond and locate a buyer for its keys. Since the node has already reclaimed its stake, it has no loss in selling their keys to another agent. But, this new agent aims to subvert the network by buying up 51% of keys from the last valid epoch and deceive you, a newcomer to the chain, into believing that their seemingly official chain, comprising all the right keys signing valid transactions, is the authentic chain. This fraudulent chain could incorporate a double spend or other malicious transaction, and the new user would be none the wiser. To counteract this malicious behavior, Flow employs a more sophisticated unbonding period to guarantee a critical number of keys cannot be accumulated to mislead honest blockchain members.

To further elucidate, the maximum safe unbonding amount per epoch, referred to as the Unbonding Threshold (UT), can be derived from the formula:

UT = 1/W * Bz * Ss

In this equation:

• W is the maximum number of epochs for unbonding (initially set to 16). A Consensus Node only accepts an alternate version of a block in the past if that block is proposed in the last W epochs.
• Bz is the maximum ratio of Byzantine Collection Nodes (currently set to 1/3).
• Ss is the total stake by the Collection Nodes.

UT symbolizes the maximum amount of stake that can be unbound at the end of each epoch. If that threshold is exceeded and a larger amount of stake wishes to exit, an ordered unbonding period is entered, in which nodes exit in succession of their unbonding requests at a rate that ensures the unbonding threshold is not surpassed.

The unbonding period for Execution Nodes is distinct as they hold a massive amount of stake, and any changes in this node type are relatively costly for the network. Unbinding for this role necessitates a direct transfer of responsibility from one node to another to guarantee the state consistency of the chain. It's critical that Execution Nodes cannot monopolize the market, but it's equally vital that their position cannot be usurped without evidence that the newcomer possesses all the state necessary to effectively take over. Thus, each Execution node signifies a seat that can be bid on at any time. If the seat is bid on, the holder of the slot must either:

1. Accept the bid, granting the new slot holder the right to run the node in the next epoch and earn the associated rewards, or
2. Match the bid, meaning they equal the market price for the slot and pay the increased stake in the next epoch to preserve their position as an Execution node.

To qualify for the slot, a bidder must generate a proof for a data availability challenge. If an Execution Node wishes to leave voluntarily, they must locate a bidder who can meet the current slot price and the data availability challenge.

The structured approach to staking, slashing, and unbonding in Flow's network establishes a secure and robust platform. It offers assurance to the stakeholders and maintains the integrity of the network, which is paramount in the face of potential adversarial actions. The strategic model adopted by Flow not only protects the stakeholders' interests but also contributes significantly to the overall stability and reliability of the network.