Flow Blockchain Primer: Ecosystem & Governance

June 3rd, 2022

The All in One Blockchain

Flow launched on 7 October 2020 with a Proof of Stake consensus mechanism. Flow was developed by DapperLabs, the inventors of Crypto Kitties.

Dapper wanted to address the issues they saw deploying on Ethereum. They did so by focusing on scalability via fast and cheap transactions and security via a different smart contract language (Cadence) that made writing secure code easier.

Here’s how the Flow documentation puts it:

There are four pillars that make Flow unique among existing blockchains:

Multi-role architecture:* Flow’s design is unique, allowing the network to scale to serve billions of users without sharding or reducing decentralization of consensus.*
Resource-oriented programming:* smart contracts on Flow are written in Cadence, an easier and safer programming language for crypto assets and apps.*
Developer ergonomics:* from upgradeable smart contracts and built-in logging support to the Flow Emulator, this network is designed for results.*
Consumer onboarding:* Flow was designed for mainstream consumers, with payment onramps catalyzing a safe and low-friction path from fiat to crypto.*

Flow scales by separating work into four different roles: Collection, Consensus, Execution, and Verification.

Flows horizontal scaling design

Collection is the process of accumulating transactions, which are then verified in the Consensus stage, before they are Executed and finally Verified. Each stage has different hardware requirements, and some roles need whitelisting by DapperLabs, who review hardware requirements to keep availability up.

Thanks to its vertical instead of horizontal consensus design, Flow is designed to scale without sharding.

FLOW Governance

Blockchain vs. Protocol Governance

To understand the state of FLOW’s governance, first some perspective.

Blockchain governance (FLOW is a blockchain, of course) is a very different animal to protocol governance. Blockchain’s are the infrastructure, the piping and cables and roads that build the metaverse. Protocols use this piping, and thus often face different governance challenges.

Blockchain upgrades must be done with explicit care. Because they are decentralized, most participating nodes must agree on an upgrade and install the respective software before the blockchain performs according to the changes desired.

Bitcoin upgrades are governed via Bitcoin Improvement Proposals (BIPs), while Ethereum has EIPs. You’ve probably heard about EIPs when fee-burn made Ethereum less inflationary in August 2021, courtesy of the EIP-1559 upgrade.

FLOW Governance & Upgrades in Action

Flow uses a two-month rhythm to implement Sporks, as its synchronized node upgrades are called. Changes to the blockchain are discussed on Discord first and formalized on their Forum. When a mutual understanding has been formed, developers submit a GitHub pull request to the Flow repository and the changes are reviewed and tested. After successful tests they are integrated in the next Spork and go live. You can see the history of Sporks in the Flow docs.

This governance process is highly technical and not very inviting to the average token holder. Flow has been trying to increase participation before the last Spork, which changed transaction fees. Departing from their previous approach Flow governance tried something new and put up a poll at Cast.fyi on April 8th, 2022, where users could vote by staking $FLOW on their choice.

The first Flow governance vote on Cast.fyi

Unfortunately, minor bugs meant the end date of the vote had to be pushed back a week, until the issues were resolved. The vote ended a week later than planned on 29 April 2022. Necessary changes went live on testnet on 27 April 2022 and were included into the next Spork two days later. In the end 95.8% voted Yes. Flow’s governance process is still making its first strides, and the influence Dapper Labs retains means the blockchain is quite centralized for the time being, although this is changing rapidly.

If you want to contribute to Flow governance, you can get active in the Governance Forum and Discord discussions. The best places are the #general and #developer channels on their Discord. Expect the discussion to be rather technical, though.

FLOW Tokenomics

As token weighted governance becomes more prominent, it is important to understand the asset’s use cases and overall allocation. Let’s take a look.

Users need to pay flow to validators for processing transactions. There are two types of transaction fees:

Processing fees cover the fees for a transaction to be submitted and included in a block
Computation fees are added for more complex operations that require efforts beyond updating balances

Transaction fees start at 0.001 FLOW, making the blockchain much cheaper to use than Ethereum and in line with Elrond or Solana. To get validator nodes to work on the roles where they are needed, the revenue distributed to each role is adjusted through the reward coefficients, which adjust according to supply and demand.

Second, Flow offers a unique bonding and infusion mechanism that allows ERC-20 like Flow-native tokens with unlimited supply and easy price discovery. Token issuers use Flow’s bonding contract to issue their tokens in return for deposited $FLOW, which increases demand for the native token with the success of the newly released token. This is not the case on Ethereum or Polkadot, for instance.

Initial Token Allocation

Flow’s initial token allocation

How many tokens were initially distributed at Flow’s genesis and to whom?

1.25 billion tokens were created at genesis
350 million tokens tokens have been set aside for ecosystem development
130 million tokens are set aside for ongoing grants
250 million tokens are intended as part of Flow’s long-term treasury.

Let’s look at who the largest token holders are:

About 13% of all tokens have been purchased by VC holders. While this is a sizable portion of the outstanding supply, we have seen far worse. There’s a decent centralization risk here, but nothing to be too concerned about.

Flow has reserved a significant allocation of tokens to bootstrap the collateral for at least two implementations of algorithmic stablecoins on the network whose security is rooted in the native FLOW token itself. We will discuss FUSD (not to be confused with Fantoms fUSD) in the section about Flow applications.

Tokens can be bought or sold at any time, with the bonding curve acting as an automated market maker. The bonding curve contract acts as the counterparty of the transaction and always holds enough collateral in reserve to buy tokens back, since FLOW has to be deposited to generate tokens in the first place.

Top Flow Projects

For an in depth view of top projects on Flow, head here: Flowverse.co

A few highlights below:

NBA Topshot: The Flow smash hit, NBA Topshot allows fans to own some of the top NBA highlights in the form of short video clips embedded in collector-card-like NFTs. Fans purchase card packs and hope for rare or legendary cards to be inside. Anyone who has collected Panini soccer or Magic the Gathering cards will be instantly familiar with NBA Topshot.
**FUSD: **Or Flow USD is the first official stablecoin native to Flow, and was created by PrimeTrust. FUSD is live on testnet right now, but set to launch on mainnet soon.FUSD can be used to pay for Flow network fees, instead of the native tokens, another unique feature of this blockchain. The BloctoSwap decentralized exchange will provide FUSD-FLOW and FUSD-tUSDT trading pairs.
**BloctoSwap: **The number one decentralized exchange on flow, and an important decentralized on-ramp with the ability to teleport USDT to tUSDT or teleported USDT on Flow’s blockchain.
**Flowty: **Flowty is a peer-to-peer (P2P) collateralized NFT lending marketplace that enables borrowers to access liquidity using Flow-based NFTs as collateral and lenders to generate interest income by funding loans secured by NFTs.
**The Fabricant: **Is a digital fashion startup co-founded by CryptoKitties and Dapper Labs OG Benny Giang. Fabricant features digital haute couture that can be worn in the metaverse and works with designers from the traditional fashion space to advance the artistic dialogue of what digital fashion is all about.