IOTA the Ultimate Economic Model and Secure Scaling of Smart Contracts

IOTA recently released their idea for Assembly, the permissionless network of validators that will allow trustless execution of Smart Contracts on IOTA.

Assembly will be its own network on top of IOTA with its own token. It’s designed to provide incentives to run validator nodes and build out the IOTA ecosystem with the community, the IOTA Foundation and Venture Capital firms that were seed investors in the project.

The concept that I’ll introduce bellow can coexist with Assembly and can be implemented independently. No new concepts will be added. We’ll reuse existing solutions from Ethereum, Cardano (IOTA already started extending its UTXO ledger), and we’ll use things that are planned for Assembly.

This solution will scale horizontally, while having FULL security and also incentivizing running nodes and holding tokens. It will provide a real dividend to ALL IOTA token holders WITHOUT inflation!

Assembly will have a root contract ran by high mana nodes. This means that high mana nodes will run WASP nodes which ‘speak’ the smart contract language. This means that L1 will ultimately act as the Supreme Court where all disputes are settled. Good, we’ll reuse this solution too!

Unlike Assembly we’ll introduce a solution that only requires the IOTA token and no additional network on top of IOTA needs to be formed.

We’ll begin by extending the UTXO ledger to support validity and fraud proofs as used in Ethereum today.
This is essentially just a new UTXO type that won’t be interpreted(calculated) by Hornet nodes, but just recognized. The base layer (the Tangle) is feeless and cannot be turing complete so Hornet nodes can’t compute these proofs directly, but they can act as load balancer and delegate the computation to a WASP node which can be used for turing complete computation. The WASP node will tell the Hornet node whether the proof is valid or not, and the Hornet node will use that information to form its opinion and vote on the UTXO. Once the Hornet node forms its opinion, consensus is achieved as normal with Multiverse (OTV on a set).

This allows anyone to run a smart contract chain with their own committee and guarantee security just by using one of these UTXO types instead of standard UTXOs used for the permissioned ISCP chain as we have today.

As with any smart contract there has to be a fee for the computation used and nodes have to be incentivized. L2 nodes, the committees that are formed will naturally charge a fee for their service and that is their incentive, a part of that fee (a fixed fee probably) will go to the IOTA DAO for each state transition of these ‘special’ UTXOs on L1 (the Tangle). Because IOTA’s consensus is leaderless and asynchronous and there is no “The Tangle” at any point in time this is where the DAO comes in to play. The DAO will periodically form and vote on a snapshot which holds all iota addresses and their balances to distribute the collected fees proportionally to all token holders! This is like a dividend and there is no inflation!

How does this scale?
It scales horizontally by adding WASP nodes to Hornet nodes. Each Hornet node can define its node capacity and depending on the usage can add or remove WASP nodes. The Horned node only acts as a load balancer for these ‘special’ UTXOs. It recognizes these new UTXOs and delegates them to a WASP node to calculate and return an opinion. When the WASP node becomes congested the Hornet node can independently add a new WASP node by scaling out its capacity. It has a direct incentive to do so and process as much of these UTXOs as possible and collect as many fees for the IOTA DAO knowing its rewards are proportional to the overall fees collected.

How is this secure?

It inherits the full trust of L1 because the same entities who validate the UTXO ledger validate L2 smart contract execution.

This design is so extendable, new UTXOs can be added and new complex logic can be formed without any changes to the underlying protocol.

This proposal creates a fair system with a direct incentive for holding tokens and generates a real return (no inflation) for all token holders equally.

If this idea gets traction, I’ll do a video explaining the concept in more details.

Hope this sparks many new interesting conversations!

Luka