Delegation

Delegation

Delegation within the Impossible Cloud Network (ICN) allows token holders to contribute Network Collateral to Hardware Providers (HPs). This mechanism empowers external investors or participants to help HPs meet their collateral obligations, while sharing in the rewards generated through providing network services.

Figure 1: Delegation Process Flowchart This flowchart illustrates the process of delegation in the Impossible Cloud Network (ICN). Token holders, known as Delegators, can choose to lock their ICNT tokens in escrow and delegate them to Hardware Providers (HPs) to fulfill Network Collateral requirements. Delegators include ICN passport holders (type II), who delegate through their NFT, and ICNT holders who delegate directly. Non-passport delegators earn additional delegation reward on their locked tokens as a reward. At the end of the delegation period, delegators have the option to either withdraw or re-delegate their tokens. The flowchart also shows that rewards are distributed between HPs and delegators based on the agreed-upon share.

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How Delegation Works

Token holders have the option to delegate their locked tokens, with two primary categories of delegation:

• ICN Passports (Type II): These holders can delegate their locked tokens (vICNT) during the lock-up period as Network Collateral to support HPs. Upon maturity, the tokens transition to ICNT, allowing the holders to commit these tokens like a regular delegator.

• ICNT Holders: Standard ICNT holders can delegate their tokens directly as Network Collateral to HPs.

Delegation aligns with the commitment periods of HPs. Delegated tokens are managed through automated smart contracts, which maintain network stability and secure HP operations by ensuring collateral is locked for a fixed term.

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Rewards for Delegators

Delegators earn rewards for contributing Network Collateral based on the share of the rewards allocated by the HP. This ensures that delegators are compensated fairly for the risk and commitment they undertake. Rewards are distributed as follows:

• Reward Share from HPs: HPs offer a percentage of their rewards to delegators. This percentage is subject to market sentiment and negotiation but is capped at a maximum of 40% of the HP’s rewards.

• Delegation Reward Calculation: $\text{Delegation\_Reward} = \text{Collateral\_Share} \times \text{HP\_Reward\_Share} \times \text{HP\_Rewards}$

• Staking Subsidy: In addition to reward sharing, ICNT holders who lock their tokens as collateral receive an additional staking subsidy based on the overall network collateralisation level. The longer the lock-up, the higher the staking rewards.

This reward structure provides incentives for delegators to continue supporting the ICN by locking ICNT as collateral, ensuring that the network remains reliable and that HPs have sufficient backing.

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Withdrawal and Re-delegation

After the initial 36-month lock period, delegators may choose from the following options:

1. Re-delegate to an HP: Continue to support either the same HP or a different one, extending the delegation period.

2. Withdraw Collateral: Withdraw their tokens back into escrow, subject to the lock-up conditions of the HP's commitment.

If an HP’s Network Collateral is undercollateralised or slashed due to non-compliance, the delegated collateral is at risk. In such cases, the delegator can withdraw the remaining ICNT only after the slashing penalties have been applied.

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Incentives for Hardware Providers

Network Collateral plays a vital role in enabling HPs to provide capacity in the ICN. By receiving delegated collateral, HPs can meet their network collateral requirements more easily, allowing them to:

• Expand Capacity: Accept larger or more capacity requests from SPs.

• Optimize Financial Commitments: Attract collateral without fully locking their own ICNT.

This flexibility encourages HPs to grow and participate actively in the network.

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Risks for Delegators

While delegation provides the opportunity to earn rewards, it also carries risks, particularly if the HP underperforms. Specifically:

• Slashing Risk: If the HP fails to meet its obligations, a portion of the Network Collateral (including delegated collateral) may be slashed. Slashing is capped at a value equivalent to 1x Node Collateral.

• Loss of Delegated Collateral: Delegators may lose a portion of their tokens if penalties are applied.

By participating in delegation, token holders directly contribute to the stability of the ICN, sharing both in the risks and rewards of maintaining a robust decentralised infrastructure.

For more information on slashing, please visit the Slashing Page.