Collateral
Last updated
Last updated
Collateral Overview
In the Impossible Cloud Network (ICN), collateral is a foundational requirement for Hardware Providers (HPs) to participate in the network. Collateral ensures that HPs are committed to providing reliable, high-quality services and serves as a safeguard to protect the network in case of underperformance or failure to meet Service Level Agreements (SLAs).
Collateral refers to the ICNT tokens that HPs must lock up in the network to cover the storage capacity they provide. By staking these tokens, HPs demonstrate their commitment to fulfilling their network obligations over a specified period. The amount of collateral required is proportional to the storage capacity offered, and it remains locked for the duration of the commitment period.
Network Reliability: Collateral ensures that HPs remain accountable for maintaining the network’s standards of uptime and performance. If an HP fails to meet these expectations, their collateral is at risk of being slashed.
Long-Term Commitment: The commitment period for collateral incentivises HPs to maintain a long-term presence in the network. This ensures the stability of services and guarantees that HPs are committed to their role in the ICN ecosystem.
Hardware Providers (HPs) must lock collateral in ICNT based on the storage capacity they offer. Collateral is divided into Node Collateral and Network Collateral, both serving different purposes within the ICN.
Node Collateral is locked by HPs directly and ensures the performance and reliability of individual nodes. It must be equivalent to six times the current monthly reward of the node.
Initial Requirement: HPs must provide at least one-third of the Node Collateral upfront.
Reward Accumulation: If the required Node Collateral is not met, all HP rewards are diverted to build Node Collateral until the requirement is fulfilled.
Network Collateral ensures the stability of the network as a whole. It is proportional to the HP's capacity and can be provided by HPs or external delegators, thereby enhancing decentralisation.
Delegation: Delegation allows ICN passport (type II) holders or ICNT holders to provide Network Collateral to HPs. Delegators earn a share of the HP rewards along with additional delegation reward for their contribution.
For more details on delegation, please refer to the Delegation Page.
The commitment period for collateral is essential for ensuring HPs are dedicated to delivering reliable services over a defined time frame.
Minimum Lock Period: HPs are required to lock their collateral for a minimum of 36 months when they first join the network. This ensures a long-term commitment to the network's reliability and stability.
Rolling Basis Extension: HPs can extend their commitment in increments beyond the initial 36 months. The longer the commitment, the more attractive the HP becomes for network requests, with incentives for extending the commitment.
Higher Rewards: HPs with longer commitment periods receive higher reward multipliers, encouraging them to maintain a longer-term presence in the network. This ensures stability and helps attract service requests from Service Providers (SPs).
For more details on reward multipliers, visit the Reward Tiers Page.
In the Impossible Cloud Network (ICN), Hardware Providers (HPs) must balance the collateral they lock with the storage capacity they provide. Node Collateral and Network Collateral each have distinct mechanisms for handling overcollateralisation and undercollateralisation.
Node Collateral is a fundamental requirement for each HP to ensure their individual nodes meet the service standards expected within the ICN. The following conditions apply:
Undercollateralisation: If Node Collateral is under the required amount, 100% of the HP's rewards are diverted until the Node Collateral requirement is fully met. This guarantees that each node has sufficient "skin in the game" to meet performance expectations.
Overcollateralisation: If Node Collateral exceeds the required threshold, the HP can use the excess collateral to add capacity to the network for free. This makes overcollateralisation advantageous as it allows HPs to expand their storage contribution without requiring additional collateral for the new capacity.
Network Collateral is required to support the overall stability and integrity of the ICN and can be provided by HPs or through delegation by ICNT holders. The handling of undercollateralisation and overcollateralisation for Network Collateral differs from Node Collateral:
Undercollateralisation: If Network Collateral falls below the required level, HPs face two consequences:
Reward Multiplier Reduction: HPs receive a lower reward multiplier, which affects their total earnings until they meet the required collateral level.
Rewards Diversion: A percentage of HP rewards will be redirected to build up Network Collateral based on the level of undercollateralisation:
0% <= Collateral < 60%: 75% of rewards diverted.
60% <= Collateral < 80%: 60% of rewards diverted.
80% <= Collateral < 100%: 30% of rewards diverted.
Collateral >= 100%: 0% of rewards diverted.
Overcollateralisation: If Network Collateral exceeds the required threshold, HPs are rewarded with an increased reward multiplier, making them eligible for higher earnings. This incentivises HPs to not only meet but exceed the collateral requirements, which ultimately strengthens the network's reliability.
The Delegation mechanism allows external ICNT holders to contribute collateral to Hardware Providers (HPs), helping HPs meet the collateral requirements necessary to participate in the network. This system opens up opportunities for investors to earn rewards by supporting HPs, while HPs benefit by meeting collateral thresholds without locking up all the collateral themselves.
Delegation with Locked Tokens (vICNT): Holders of an ICN Passport Type II have the unique ability to delegate their locked tokens (vICNT) to Hardware Providers during the lock-up period. The delegation supports HPs by contributing towards their required collateral.
Transition to Regular ICNT: Once the locked tokens mature and become available as ICNT, passport holders can re-commit these tokens as collateral similar to a regular ICNT holder.
Delegation of Liquid Tokens: Regular ICNT holders, who do not possess an ICN Passport, can directly delegate their tokens to an HP. This allows them to support HPs while sharing in the rewards generated by providing collateral.
Delegation Period: Tokens are typically delegated for a minimum period of 12 months, during which they are locked in an escrow account. Delegators have the option to re-delegate or withdraw their tokens after this period, depending on the agreement with the HP.
While delegation offers opportunities for rewards, it also carries risks. If the HP underperforms or fails to meet their obligations, the delegated collateral may be subject to slashing, just like the HP’s own collateral. Delegators should carefully evaluate the HP they choose to support, as they could lose part of their tokens if the HP’s collateral is slashed.
For a detailed breakdown of how delegation works and the risks involved, visit the Delegation page.
Slashing is a critical mechanism within the Impossible Cloud Network (ICN), designed to ensure that Hardware Providers (HPs) maintain high performance standards. If an HP fails to meet its service obligations, their collateral—both their own and any delegated collateral—can be slashed as a penalty.
Collateral at Risk: If an HP fails to meet service requirements, such as experiencing service downtime or breaching their Service Level Agreement (SLA), their locked collateral becomes subject to slashing. This penalty ensures that HPs remain committed to delivering reliable services to the network.
Triggering Events: Slashing is triggered by specific events, including:
Service Downtime
Poor Performance
SLA Violations
When these conditions are met, the ICN protocol enforces slashing automatically.
Impact on Delegators: If an HP’s own collateral is insufficient to cover the penalty, the slashing extends to any delegated collateral provided by external investors. This means that delegators may also lose part of their tokens if the HP they supported underperforms or violates the SLA.
Risk Management: Delegators should carefully assess the HP they choose to support, understanding that their delegated collateral is at risk if the HP’s service performance is inadequate.
For a detailed breakdown of the slashing process and the specific penalties, visit the Slashing.
For Hardware Providers (HPs) in the Impossible Cloud Network (ICN), collateral is staked for the duration of the remaining commitment period. During this time, the collateral is locked and cannot be withdrawn. However, once the commitment period ends, HPs have the flexibility to either withdraw their collateral or extend their commitment through recommitment, ensuring continuous eligibility for rewards.
Collateral Withdrawal: At the end of the commitment period, HPs are able to withdraw the full amount of collateral that was originally staked. This marks the completion of the HP’s commitment to the network.
No Partial Withdrawal: Unlike ICN passport holders, HPs cannot withdraw partial amounts of collateral during the commitment period. The entire amount remains locked until the period ends.
Extending Commitment: HPs can choose to re-collateralise their stake before the end of the commitment period. By extending their commitment in 6-month increments, HPs can maintain their eligibility to provide services and continue earning rewards.
Incentives for Longer Commitment: The Reward Tiering system encourages HPs to lock their collateral for longer periods by offering higher reward multipliers for extended commitments. This makes it advantageous for HPs to re-collateralise, ensuring they receive maximum rewards for their contribution to the network.
For more information on the reward multipliers associated with different commitment periods, refer to the Reward Tiers page.
