Blockchain transaction fees face a persistent challenge in balancing network security with operational cost predictability.
In most architectures, users pay transaction fees denominated in the network’s native token, while the native token also functions as a capital asset. When token prices rise, transaction costs rise with them, and routine operations can become prohibitively expensive. When prices fall fees may no longer adequately compensate validators or deter network abuse.
Crucially, token volatility has made blockchain applications commercially impractical with unpredictable costs and complexity for developers, institutions and businesses.
The user and developer perspective
Data from the most recent Midnight community survey highlights how user behavior diverges from how most blockchain network architecture operates.
Among holders of native network tokens, 42% cite long-term investment and store of value as their primary motivation. Another 13% hold tokens for staking and yield. Only 11% report that their main reason for holding the token is to pay for transactions. Even amongst developers, only 15% say the primary reason they hold their network's native token is to pay transaction fees.
Most network participants do not hold tokens because they want to spend them on transaction fees. Forcing the application of a capital asset to compensate for fees to use the network is a clear disincentive to use the network.
At every transaction, a user is faced with a dilemma: do the expected benefits of this transaction outweigh the expected costs?
Added to this, transaction costs can vary wildly. Users have been faced with exorbitant costs, 10x to 100x higher, than the exact same transaction previously incurred.
Furthermore, enterprises deploying applications have difficulty forecasting operational costs because of fluctuations against fiat or stable currencies. This volatility creates barriers when cost predictability is an essential prerequisite for doing business.
Midnight network overcomes this barrier.
NIGHT generates DUST
NIGHT, the native utility token of the Midnight network, is the foundation for network participation, network incentives and value transfer.
Executing transactions on the Midnight network does not consume NIGHT to pay for transactions. Instead, NIGHT tokens generate DUST, a renewable resource used to execute transactions. This design decouples transaction costs from token price volatility. As long as NIGHT is held, it continuously regenerates the DUST required for network operations, which enables predictable operational costs.
Understanding the distinction between a token and a resource is central to the Midnight ecosystem. A token typically serves multiple functions, including acting as a capital asset or a medium of exchange. Critically, tokens are transferable and function as economic instruments with market-determined value.A resource is consumed to pay transaction fees. The resource is also perishable since once it is generated the resource begins to decay.
In the Midnight ecosystem:
- NIGHT is a freely transferable token. It generates the DUST resource, represents governance rights, and acts as a store of value to incentivize participants. Users can send, trade, or exchange NIGHT.
- DUST is a resource designed solely to pay transaction fees. It is both non-transferable and perishable. When DUST is spent it is consumed.
Resource generation and decay mechanics
The relationship between NIGHT and DUST functions like a rechargeable battery. The amount of DUST available is a direct function of the NIGHT used to generate it.
- Generation and capacity: Every 1 NIGHT generates a maximum capacity of 5 DUST. Full capacity is reached over the course of one week. For example, a developer holding 1 NIGHT can generate up to 5 DUST.
- Linear increase until maximum capacity: DUST is generated linearly over time. If a user spends a portion of their DUST, those DUST are consumed, however the NIGHT tokens continue generating more. The amount of DUST will grow until equilibrium is reached. At this point the amount of DUST generated equals the amount decayed, therefore the generation has reached capacity.
- The impact of transferring NIGHT: If a holder transfers some of their NIGHT that is generating DUST (e.g., reducing 10 NIGHT to 5), the maximum DUST capacity adjusts autonomously (from 50 to 25).
- Decay rules: When the backing NIGHT is moved or sold, the existing DUST does not disappear instantly. Instead, it decays linearly at the same rate it was generated. It takes one week for DUST to fully decay if the associated NIGHT has been transferred.
Users can spend DUST even while it is in a decay phase.
A foundation for innovation
The NIGHT-generates-DUST model provides a practical solution to the problem of fee volatility and the cannibalization of capital assets. It also opens new areas for architectural innovation. Developers can design DApps that feel like traditional web applications, where users do not need to manage a volatile gas asset to interact with a service.
As developers experiment with the novel token-generates-resource model and identify unique solutions for complex problems, new applications using these features will demonstrate the full potential of the Midnight network.
Up next
Want to know more about DUST, including how to manage multiple NIGHT wallets generating DUST to multiple addresses? More details are coming up in the next blog about DUST. This will explain Midnight UTXOs, multi-delegation, and how DUST is generated across multi-UTXO paths.
Jump right into the discussion and join the community on Discord.