Tacen 101 – How to earn yield as a Settlement Data Provider
Perhaps some people you know are genuinely interested in cryptocurrency for the technology, but the vast majority of people are looking for ways to earn money. Whether that be through investments, passive income, or earning yield / interest on their money, cryptocurrency and the DeFi industry as a whole offer a growing number of ways to earn money.
At Tacen, we recognize that people need to earn an income, and that good work should be rewarded. We also recognize that security should always be the main priority, and people shouldn’t be forced to risk their money just for a chance to watch it grow.
With that in mind, we’d like to introduce you to our partners at Project TXA and their Decentralized Settlement Layer, which offers you a way to earn money passively.
WHAT IS PROJECT TXA?
Project TXA is building a Decentralized Settlement Layer for Tacen’s new generation of DEXs, called the Hybrid-Decentralized Exchange, or hDEX. Project TXA is creating a revolutionary network of open-source, community operated Settlement Data Providers (SDPs), which are nodes for cross-chain settlement, that will process transactions on this Decentralized Settlement Layer (DSL).
Project TXA is composed of a Decentralized Settlement Layer (DSL) and Cross-chain Settlement Protocol (CSP). Any exchange that operates on top of the TXA Decentralized Settlement Layer must conform to the Cross-chain Settlement Protocol (CSP). For simplicity, such exchange conforming to CSP will be called a Participant Exchange (PE).
The Participant Exchange operates a trust-minimized orderbook and interfaces with a Decentralized Settlement Layer, thereby combining the performance and efficiency of a centralized service while minimizing trust requirements from participating traders. The hDEX being built by us at Tacen, called Tacen Exchange, will be the flagship example of how a participating exchange using Project TXA’s DSL, while conforming to the CSP, offers cryptocurrency traders with the highest quality trading experience possible.
HOW DOES A DECENTRALIZED SETTLEMENT LAYER WORK?
Exchanges running on Project TXA’s DSL don't have to hold user funds in order to execute trades. All trades are done strictly peer-to-peer (P2P), meaning users keep their money in their own custody at all times, and the exchange never takes custody of it.
For each settlement, Settlement Data Providers must report trade data that was signed by the exchange. Trades reported must be in the correct range and sequence. The smart contracts used in this process validate that each trade was signed by the same participating exchange for which the settlement was requested and that the identifier of each trade is within the correct range of identifiers.
The TXA smart contracts will not allow any deposits for trading on a Participant Exchange (PE) until a significant amount of collateral is provided by the PE. The amount of collateral is determined by governance, and used to punish the PE if any constraints are violated by the settlement data signed by the PE. Any aggrieved parties are compensated with the slashed funds, with anything remaining going to a community fund.
HOW DO SETTLEMENT DATA PROVIDERS EARN MONEY?
In order to process settlement data on a DSL, there must be Settlement Data Providers. To qualify to participate in this process, an SDP must stake at least two tokens:
- The Settlement Asset: The same asset that the trader requested for settlement. The total staked by SDPs must be greater than the total amount reported as settled.
- TXA: The total staked by SDPs must be greater than 10% of the total settlement asset amount, with a flat minimum set by governance.
Thus, in order to participate in a settlement, an SDP operator must be registered with a staking account that has enough assets available to meet the collateral requirements of a settlement.
Both tokens are locked when the SDP reports data for a settlement. In the locked state, the collateral cannot be queued for withdrawal or used to qualify for a different settlement. If an auditor detects fraud in the proposed settlement data and reports it to the smart contract, both tokens will be slashed and used to compensate any traders, reward the auditor, and optionally pay into a community fund. If the settlement completes without fraud, the SDPs earn fees proportional to the amount settled (and thus to the amount staked). Fees are paid in the settled asset.
Any SDP can audit the settlements occurring via other SDPs, thus incentivizing SDPs to care for the network, check the honesty of other SDPs, and minimize fraud and errors wherever possible.
HOW MUCH MONEY COULD SETTLEMENT DATA PROVIDERS EARN?
With SDPs earning a set amount of the total volume being settled, there are ample opportunities to earn money by processing data in an honest, accurate, and reliable manner. The exact specifics of the settlement amounts will be dictated by governance protocols, but the easiest way to imagine it is that whatever fee a trader pays, half will go to the PE, and half will be split between all SDPs involved in the settlement.
But how much money could SDPs actually earn? Let’s do some quick math using a recent example of the 24 hour trading volume on a commonly used exchange.
Coinbase charges a flat 1% fee on all trades. On January 27, 2023, Coinbase saw $1.68 billion in trading volume, which means that Coinbase generated $16.8 million in trading fees in one day.
If that amount of trading volume was going through Tacen Exchange, which runs on Project TXA’s DSL, we would see $16.8 million in trading fees generated in one day. With half ($8.4 million) going to Tacen, the other half - $8.4 million – would be split between all SDPs involved in the settlements of those transactions. If there were 16 SDPs involved that day, this would mean that the average SDP earned an average of $525,000 in revenue in just one day in this example. And that’s during a bear market.
As you can see, becoming a Settlement Data Provider is one of the more attractive ways to earn money in the DeFi industry.
HOW DO I BECOME A SETTLEMENT DATA PROVIDER?
The process is not yet open to become a Settlement Data Provider, but we expect Project TXA to announce specific steps to follow to qualify in the near future once the protocol leaves the Open Alpha phase. Currently, it is known that you will need to do at least three things to become an SDP:
- Run appropriate SDP software, with the appropriate hardware to handle data settlements.
- Have access to full nodes for every chain supported by the Participating Exchange.
- Have enough tokens on-hand to stake, including $TXA and whatever the other trading pair of the transaction is.
Again, exact specifics will be announced in the near future.
HOW ARE PROJECT TXA AND TACEN RELATED?
We often think of Project TXA and Tacen as “sister projects” - Project TXA is building the Decentralized Settlement Layer that Tacen Exchange sits on top of. If Project TXA is building the railroad, Tacen is building the trains to ride on top of that railroad.
New to Tacen and wanting to learn what it’s all about? Be sure to follow us on Twitter to catch the latest updates and join our Discord community to meet the team and make friends. We love to give crypto to our community, and staying active on our Twitter and in our Discord server are the best ways to be the first in line.
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