Protocol Tokenomics

Conduct Protocol pioneers a unique economic model that combines traditional staking mechanisms with Bitcoin network participation, creating a "Proof of Usage" consensus that rewards actual Bitcoin ecosystem engagement.

Proof of Usage Consensus

Unlike traditional Proof of Stake systems that rely solely on token holdings, Conduct's consensus mechanism ties staking power to demonstrated Bitcoin network participation. This approach creates unprecedented Sybil resistance while aligning incentives with the broader Bitcoin ecosystem.

Core Innovation

Staking power derives from four components:

1. CNDT token commitment - Direct economic stake in the protocol
2. Bitcoin fee history - Demonstrated Bitcoin network usage
3. Time-based weighting - Long-term alignment rewards
4. Performance contribution - Operational excellence recognition

This multi-dimensional approach forces potential attackers to acquire tokens, spend Bitcoin fees, maintain long-term positions, and demonstrate operational competence—significantly raising attack costs.

Bitcoin-Linked Staking Formula

Staking power is calculated through a comprehensive formula that balances opportunity across participants while preventing concentration:

Full Staking Power Expression

Staking Power = CNDT_Locked × FEM × TWF × CB

Where:

• CNDT_Locked: Amount of CNDT tokens staked
• FEM: Fee Engagement Multiplier (1.0 to 2.0)
• TWF: Time Weight Factor (1.0 to 2.0)
• CB: Contribution Bonus (1.0 to 1.5)

Fee Engagement Multiplier (FEM)

The Fee Engagement Multiplier translates Bitcoin fee history into bounded staking power through a hybrid model combining recent activity, lifetime contribution, and percentile-based normalization.

Formula:

FEM = 1 + α × √(F*(t) / F_cap)

Where:

F(t)* represents time-decayed, multi-wallet aggregated fees:

F*(t) = Σ_w Σ_i [fee_i,w × e^(-d × Δblocks_i) × γ_w]

Components:

• fee_i,w: Bitcoin fee paid in transaction i from wallet w (in satoshis)
• d: Decay factor (0.0001 per block, or 0.01%)
• Δblocks_i: Number of blocks since transaction i
• γ_w: Wallet aggregation scaling factor (0 < γ ≤ 1)
• F_cap: Normalization cap (99th percentile threshold)
• α: Scaling constant controlling maximum bonus

Square Root Transformation:

The square root introduces diminishing returns, ensuring smaller Bitcoin users gain meaningful influence while preventing linear whale dominance:

% of Cap	FEM (α=1)	Relative Advantage
1%	1.10	Minimal bonus
10%	1.32	Meaningful boost
25%	1.50	Strong advantage
50%	1.71	Substantial power
100%	2.00	Maximum multiplier

Why Square Root?

Spending 4× more in Bitcoin fees only doubles the multiplier, not quadruples it. This creates fairness while still rewarding high engagement.

Time Decay:

Recent Bitcoin activity carries more weight than historical bursts through exponential decay:

weight_i = e^(-0.0001 × blocks_since_transaction)

After approximately 6,930 blocks (~9.6 days at 2-minute blocks), a transaction's weight drops to 50% of its original value.

Multi-Wallet Support:

Validators can link multiple Bitcoin wallets, with newly linked wallets subject to a cooldown period to prevent wallet trading:

• New wallet starts with γ_w = 0
• Gradually increases to γ_w = 1.0 over cooldown period
• Prevents purchasing fee-rich wallets for instant staking power

Time Weight Factor (TWF)

Rewards long-term commitment through linear progression over 24 months:

Formula:

TWF(t) = min(1.0 + (t / T_max), 2.0)

Where:

• t: Staking duration in blocks
• T_max: 12,614,400 blocks (24 months at 2-minute blocks)
• Maximum: 2.0× after 24 months

Progression:

Duration	TWF	Bonus
0 months	1.00×	0%
6 months	1.25×	25%
12 months	1.50×	50%
18 months	1.75×	75%
24 months	2.00×	100%

This creates strong incentives for continuous participation and penalizes stake churn.

Contribution Bonus (CB)

Recognizes operational performance through reliability metrics:

Formula:

CB(t) = min(1.0 + β × (blocks_produced / blocks_expected), 1.5)

Where:

• blocks_produced: Actual blocks signed/produced
• blocks_expected: Scheduled blocks based on stake
• β: Performance multiplier parameter
• Maximum: 1.5×

Performance Levels:

Performance	CB	Description
< 90%	0.90-0.95×	Below expectations
90-95%	0.95-1.10×	Meeting standards
95-99%	1.10-1.30×	High performance
99%+	1.30-1.50×	Exceptional reliability

Treasury Funded

Contribution bonuses are funded from treasury programs, not emissions, preserving the halving schedule integrity.

Economic Security Model

Sybil Resistance Through Economic Cost

Creating multiple validator identities requires:

1. Token acquisition and lockup for each identity
2. Distinct Bitcoin fee history for each wallet
3. Separate infrastructure with high uptime
4. Time investment to build TWF

The Bitcoin fee requirement is particularly powerful—unlike computational resources or tokens, spent fees represent permanent economic commitment that cannot be shared across Sybil identities.

Long-Term Sustainability Model

Transition to Fee-Based Economics

The protocol is designed to transition from inflationary block rewards to transaction fee revenue over time:

Emission Timeline:

Period	Annual Emission	% of Initial Supply	Primary Security Source
Years 1-4	2,628,000 CNDT	~12.5%	Block rewards dominant
Years 5-8	1,314,000 CNDT	~6.25%	Mixed rewards + fees
Years 9-12	657,000 CNDT	~3.1%	Fees increasingly important
Years 13+	Decreasing	<2% annually	Fees primary source

By year 8, transaction volume and fee generation should sustain network security independently of inflationary rewards.

Fee Market Development

Multiple revenue streams support validator sustainability:

Transaction Fees:

• Base operations: Standard gas fees
• Complex contracts: Premium pricing
• Cross-chain operations: Bridge fees

Value Accrual Mechanisms:

• 10% transaction tax on all fees
• Remaining fees distributed to validators

Dynamic Fee Adjustment:

• Increases during high demand periods
• Decreases during quiet periods
• Maintains reasonable costs while capturing value

Staking Yield Optimization

Validators receive combined rewards from multiple sources:

Yield Components:

1. Block rewards (decreasing via halving)
2. Transaction fee distribution
3. Performance bonuses (up to 50% enhancement)
4. Cross-chain operation fees

note

APY estimates assume moderate network activity. Actual yields vary based on network usage, fee generation, and competitive staking ratios.

Protocol Economics

Transaction Tax

The protocol implements a 10% transaction tax on all network fees:

Tax Rate:

• All transactions: 10% tax on transaction fees
• Tax collected goes to the protocol treasury

Impact:

With 1,000 daily transactions averaging 0.1 CNDT fee:

• Annual fees: ~36,500 CNDT
• Annual tax collection (10%): ~3,650 CNDT
• Remaining ~32,850 CNDT distributed to validators

As network activity scales, protocol treasury grows to support ongoing development and ecosystem initiatives.

Fixed Supply Scarcity

No additional minting beyond 21,000,000 CNDT ensures absolute scarcity:

• Genesis: 7,000,000 CNDT (33.3%)
• Emissions: 14,000,000 CNDT over ~60+ years
• No emergency minting or inflation adjustments possible

The fixed supply combined with growing network utility creates long-term value accrual for holders.

Risk Mitigation

Centralization Prevention

Geographic Distribution: Bitcoin usage spans globally, creating natural validator diversity across jurisdictions and regions.

Validator Type Distribution: Different Bitcoin users bring different characteristics:

• Individual users: Geographic diversity
• Mining operations: Energy arbitrage locations
• Exchanges: Financial centers
• Payment processors: Commerce hubs

Progressive Scaling: Square root FEM scaling prevents excessive concentration while rewarding participation, maintaining balanced influence distribution.

Economic Security Evolution

Attack Cost Monitoring: Regular analysis tracks the cost to compromise network security through various vectors:

• Token acquisition costs
• Bitcoin fee requirements
• Time advantages of incumbents
• Performance infrastructure needs

Security Budget Analysis: Evaluation of validator rewards relative to network value ensures adequate security incentives throughout protocol evolution.

Emergency Protocols

Failsafe Mechanisms:

• Temporary reversion to standard PoS if Bitcoin integration fails
• Emergency parameter adjustments through governance
• Multi-signature requirements for critical operations

Crisis Response: Treasury reserves fund crisis management and unexpected opportunities during protocol evolution.

---

This economic design creates a sustainable, secure, and decentralized protocol that uniquely bridges Bitcoin ecosystem participation with next-generation blockchain capabilities.