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Network key concepts

Before diving into the main Network concepts, look through the overview and explore sample use cases.

To launch a Network on Nektar, it's important to understand the following key concepts:

Nektar Roles​

The marketplace offers great flexibility, and the nature of the interactions within the marketplace can vary significantly. For an Operator, this often involves supplying additional compute power for distributed networks, such as providing GPUs for AI inference. The marketplace can also facilitate liquidity for incentivization schemes, where tokens drive attention, usage, engagement, and loyalty—for example, by distributing node licenses. In Nektar, using tokens as collateral is an option, not a requirement.

The roles and interactions required by a Network, as well as the terms for interacting with it, are primarily defined by deposit and reward requirements, which may become immutable once a Network is created. Penalty conditions, if applicable, are outlined in the Network description, as they may pertain to off-chain activities.

Smart contracts​

Every Network operates both as an actor in the marketplace and as a protocol component, represented by a dedicated smart contract created from a factory template based on the configuration provided.

This smart contract enables the following:

  • Network installation into a DAM and setting the amount of delegated liquidity or committed assets to be used as collateral available for it
  • Rewards calculation and distribution through the minting of synthetic tokens
  • Penalty procedures, if applicable

Network whitelisting​

After a Network is created, it must apply for whitelisting in order to participate in the marketplace. Once the whitelisting request is approved, the Network goes live automatically.

Rewards distribution​

The Network’s smart contract triggers rewards distribution regularly and automatically. Rewards are calculated based on deposited and exposed liquidity, the duration of that commitment, and the rewards distribution criteria specific to each DAM/Network setup. Rewards are distributed as synthetic assets pegged to the Network’s native reward token.

Here’s how the process works:

  1. For Delegators: Rewards for Delegators are proportionally based on the amount and duration of their delegated assets. For example, if a DAM commits half of a target asset amount, it receives half of the total potential rewards, which are distributed to Delegators based on their contributions. Delegators claim rewards directly, and upon each claim, a portion of fees is minted to the DAM owner.

  2. For Operators: If a Manager creates a DAM, Operators receive rewards through a continuous stream that begins when they are added by the DAM Manager. If performance issues arise, the Network can adjust the stream, reducing rewards for underperformance or misbehavior.

This framework allows rewards to be flexibly and efficiently distributed among multiple Operators and Delegators within a single DAM.

Penalty Application​

In Nektar, penalties are optional mechanisms tailored to address malicious behavior, poor performance, or other off-chain issues. Unlike staking protocols, penalties are flexible and vary by use case, ensuring a fit-for-purpose approach:

  1. Shared security: When assets are collateralized within the DAM, penalties address operator misconduct. However, Delegators bear the liability for slashing events, as it is their delegated assets that are affected. The maximum slashable amount per day is calculated as: Maximum committed amount / Network duration. If penalties are triggered, the collateral moves to a time-locked vault, opening a dispute period. Stakeholders can review the situation, resolve the issue, and potentially revert the transaction.

  2. Liquidity: For liquidity DAMs, assets are held externally (e.g., in liquidity pools or staking protocols). Misconduct by Operators can lead to slashing, which reduces the DAM's virtual asset balance to reflect the loss. Slashing events must be reported to maintain accurate share pricing and prevent unfair benefits for early leavers. Withdrawals are queued with a cooldown period, and assets stop generating rewards once a withdrawal is requested. This ensures stability and fairness in the event of slashing.

  3. Growth: Growth DAMs operate like vaults, gathering assets and releasing them to Networks through a time-locked vault. There are no penalties in this flow, as assets are committed in advance and released linearly to the Network. If a Network exhibits bad behavior, the DAM can escalate concerns to the community, potentially halting the asset stream and redirecting funds back to the DAM.

Penalties primarily address Operator behavior, but Delegators face the financial impact of slashing events. To mitigate risks, Networks are encouraged to provide performance transparency through regular updates. DAM owners can remove underperforming Operators from their DAMs to safeguard participants.

Currently, penalty mechanisms are managed manually by Networks, with no native enforcement or dispute resolution in place. However, these features are being considered for future enhancements.