# Collateral
## Collateral Overview
Collateral is a foundational requirement for Hardware Providers (HPs) within the Impossible Cloud Network (ICN). It ensures HP reliability and safeguards the network by holding HPs accountable for their performance.
### What is Collateral?
Collateral consists of ICNT tokens locked by HPs, proportional to their provided storage capacity. Tokens remain locked for the entire commitment period, signifying HPs' dedication to fulfilling network obligations.
### Purpose of Collateral
* **Network Reliability**: Ensures accountability, penalising HP underperformance via slashing.
* **Long-Term Commitment**: Encourages sustained participation, enhancing network stability.
***
## Collateral Requirements
Collateral is categorised into Node Collateral and Network Collateral.
### Node Collateral
Directly provided by HPs to guarantee node reliability. Calculated as:
$$
\text{Node Collateral} = (\text{Reward per Petabyte} \times \text{Capacity (PB)}) \times 6
$$
* **Initial Requirement**: 100% upfront.
* **Undercollateralisation**: 100% of HP rewards diverted until fully collateralised.
### Network Collateral
Ensures overall network stability, calculated as:
$$
\text{Network Collateral} = \left(\frac{\text{Node Capacity}}{\text{Network Capacity}}\right) \times \text{Total Unlocked Supply} × 0.5
$$
* Provided by HPs or external delegators.
* ICNT Collateral providers (HPs and delegators) earn additional staking APY based on total network collateralisation.
***
## Commitment Periods
* **HP Commitment**: Initially 36 months, extendable in increments of 6 months.
* **Delegator Commitment**: Regular ICNT holders can delegate for a minimum of 1 day, allowing flexibility.
***
## Overcollateralisation & Undercollateralisation
### Node Collateral
* **Undercollateralisation**: Full reward diversion until the requirement is satisfied.
* **Overcollateralisation**: Allows HPs to add additional capacity without needing extra collateral.
### Network Collateral
* **Undercollateralisation**: Triggers proportional reward diversion (initially 0% during early protocol stages).
***
## Delegation
Delegation allows ICNT holders and ICN Link holders to provide Network Collateral to HPs, sharing network rewards and fostering decentralisation.
### External Delegators
#### **ICN Link Holders**
* **Locked Token Delegation (vICNT)**: Delegation permitted during the vesting period.
* **Post-Maturation Delegation**: Once tokens mature into ICNT, they can delegate as regular ICNT holders.
#### **Regular ICNT Holders**
* **Liquid Token Delegation**: ICNT can be directly delegated to HPs.
* **Minimum Delegation Period**: 1 day, after which tokens can be re-delegated or withdrawn.
***
## Slashing and Penalties
Collateral may be slashed due to performance violations; specifically downtime ensuring HP accountability.
### Triggering Events
* Service downtime
* Performance threshold violations
***
## Withdrawal and Recommitment
Collateral remains locked for the entire commitment duration. Upon expiry:
* **Withdrawal**: Full collateral becomes available.
* **Recommitment**: HPs may extend commitments in 6-month increments.
***
## Staking APY for Network Collateral
ICNT providers receive a staking subsidy (APY). The APY depends on two factors:
* **Total Tokens Staked (TTS)**: A higher percentage of total tokens staked results in a lower APY.
* **Commitment Duration**: The APY rates below reflect a commitment period of 4 years. Shorter commitment periods will result in lower APYs.
***
### APY Formula
The base APY is calculated using a convex interpolation formula:
$$
APY(S) = \left(1 - \left( \frac{S}{T\_S} \right) ^ p \right) \cdot APY\_{\text{start}} + \left( \frac{S}{T\_S}\right)^p\cdot APY\_{\text{end}}
$$
Where:
* $$S$$ is the current staking ratio (from 0 to 1)
* $$T\_S$$ is the target stake (e.g., 0.5 for 50%)
* $$p$$ is the curvature exponent
* $$APY\_{\text{start}}$$ is the APY when $$S=0$$
* $$APY\_{\text{end}}$$ is the APY when $$S = T\_S$$
***
#### Commitment Duration Scaling
To reward longer commitments, a scaling factor is applied to the base APY
$$
\text{ScalingFactor}(\tau\_{\text{stake}})=0.01\cdot\left(\frac{C\_1 \cdot \tau\_{\text{stake}}+C\_2}{\tau\_{\text{stake}}+C\_3}\right)
$$
Where:
* $$\tau\_{\text{stake}}$$ is the commitment duration in days
* $$C\_1 = 153; C\_2=925; C\_3 = 950$$ are constants calibrated to approximate an exponential curve
This rational formula was chosen to approximate exponential growth while remaining efficient for on-chain implementation.
***
### Final APY
The final APY is calculated as:
$$
APY\_{\text{final}}(S,\tau\_{stake}) = APY(S)\cdot\text{ScalingFactor}(\tau\_{\text{stake}})
$$
This mechanism ensures that staking rewards scale down as total participation increases, while boosting incentives for long-term contributors.
| Total Staked (TTS %) | APY at 4-Year Commitment (%) |
| -------------------- | ---------------------------- |
| 0% | 110.00% |
| 5% | 40.59% |
| 10% | 30.27% |
| 15% | 23.54% |
| 20% | 18.42% |
| 25% | 14.24% |
| 30% | 10.68% |
| 35% | 7.57% |
| 40% | 4.80% |
| 45% | 2.29% |
| 50%+ | 0.00% |
---
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