Blockchain technology is transforming the way we make payments, vote, validate data, own properties among other things. While early players like Bitcoin and Ethereum have gained a good amount of mainstream adoption, they are unable to meet the rising demand from their users effectively.
This problem of scalability has resulted in a terrible user experience for their users. Celer Network aims to solve this problem with its Layer-2 scaling solution
In this article, you will learn about how Celer Network works and the various utilities of the CELR token.
What is Celer Network?
Celer Network is a layer-2 scaling solution that processes fast, easy, and secure off-chain transactions for payments providers and off-chain smart contracts.
It was established in 2018 by four computing PhDs, Mo Dong, Xiaozhou Li, Qingkai Liang, and Junda Liu. The company is located in San Francisco.
Celer Network has a unique feature called state channels that help to process several transactions by opening up specialized payment channels.
The state channels help in processing high-speed transactions at a low cost, and in a private manner. They also allow users to execute transactions with smart contracts.
Both parties involved in any transaction can interact with each other without using the main blockchain.
State channels are part of a system in Celer network called cStack. The cStack is made up of a cChannel, a cRoute, a cOS, and a cEconomy. The cChannel is also the state channel. It helps to facilitate off-chain payments and smart chain contract interactions.
The cOS is a technical framework that allows DApps to run effectively off-chain. The cRoute, a value transfer algorithm that enables faster transactions. The cEconomy is the foundation of the Celer Network’s overall ecosystem that enables users to enjoy incentives on the platform.
Due to its advanced chain scaling techniques, Celer helps slow dApps on the blockchain to operate 10,000X faster and to enjoy an interactive user experience. Users of such dApps are able to execute instant payments, trade on decentralized exchanges without delay, and play games with millisecond latency.
Celer Network currently supports blockchains like Ethereum, DFINITY, and other EVM-compatible blockchains.
Use Case: Proof of Liquidity Commitment (PoLC)
CELR tokens serve as a reward for users who maintain a stable and sufficient liquidity pool in the Proof of Liquidity Commitment process.
PoLC is a virtual mining process that provides liquidity for Celer network’s off-chain ecosystem. Users who lock up CELR tokens for some time are later rewarded with CELR tokens.
The goal of PLC is to reduce the liquidity barrier for competent parties to become off-chain service providers(OSPs), which creates an efficient and competitive market for reliable off-chain services.
During the duration when the digital assets are locked, the users’ assets cannot be used for anything else other than the liquidity backing process.
The PoLC mining power related to a commitment is equal to the asset value and lock duration, i.e., a user’s mining power will be determined by their asset value and lock duration.
It’s important for you to note that locked liquidity in PoLC does not attract any counterparty risk as it simply shows a commitment to the Celer Network liquidity backing. It’s also impossible to unlock the committed funds early.
Use Case: Liquidity Backing Auction (LiBA)
Liquidity backing auction helps off-chain service providers to request liquidity through crowdlending from users. LiBA also helps users provide liquidity to off-chain service providers.
LiBA has a ranking system for lenders based on a “happiness score.” The score is determined by the interest rate, the amount of liquidity provided, and the amount of CELR staked. As a lender, the more CELR you stake, the more priority you’ll get to provide liquidity to off-chain service providers.
Celer Network enables off-chain service providers to access the liquidity pool globally, through the Liquidity Backing Auction (LiBA) process.
An OSP initiates a LiBA process by announcing that it wants to borrow a certain amount of liquidity for a certain period of time, and will state its auction and borrowing parameters. Then an interested liquidity backer will submit a bid that contains the interest rate, the amount of liquidity to be offered, and the amount of CELR they desire to be paid.
Then the OSP will borrow the liquidity from the winning bidders and pay the auction fee in CELR to the reward pool. The borrowed liquidity will be used as a fraud-proof bond or outgoing state channel deposit.
Use Case: State Guardian Network (SGN)
CELR is used in State Guardian Network as a staking token to insure state availability, provide connectivity oracle, and act as a dispute state transition computation engine. CELR token stakers receive service fees for the diverse services they deliver for the network.
Let’s look at how this works in real-life scenarios. Validators like Stakewith.us and Unagii run nodes that facilitate network operations and earn CELR rewards in return as rewards. Delegators or users of Unagii help in securing the SGN with their votes by delegating their stakes on the Unagii platform to receive a portion of the block rewards that validators receive.
Staking CELR allows Unagii users to earn rewards as an incentive for staking and providing liquidity, and they also receive a fraction of fees paid by SGN users. These rewards are shared on a per-block basis and users can choose to withdraw or compound rewards as they desire.
Although SGN is a layer-2 sidechain, the staking process takes place on mainchain. CELR users can interact with the mainchain contract to stake and withdraw their tokens, and to claim rewards. The validators elected on the mainchain produce, broadcast, and validate blocks for the sidechain.
It is important to note that staking attracts some risks which include slashing and double signing. There is also a 7 day unbonding period for users who want to unstake CELR from the network. During this period, users will not earn rewards and will be vulnerable to slashing.
What the Future Holds for Celer Network
Major platforms like Bitcoin and Ethereum are working on their own scaling solutions. The users of these networks understand that advancement and scaling are important to bring about the needed improvements. One would wonder, what does the future hold for current off-chain solutions in the light of this?
Celer has a great team and famous early supporters from firms such as Pantera Capital, FBG Capital, DHVC, and Stable. This positions them as a strong competition to other projects. They also have a fascinating cryptoeconomics mechanism.
If Celer Network constantly executes its vision and develops a stronger use case, it will have a substantial impact on its long-term value.