*** Updates to FLR distribution reflect 1/19/21 for this article.

 

Since Flare Network was first announced back in November 2019, the Flare blockchain has been adapting to meet the demand for its smart contract capabilities. Originally, Flare had planned for the native asset of its network to be a stablecoin; however, those plans have been scrapped in favor of Spark (FLR). FLR acts as a governance and collateralization mechanism for the Flare blockchain as it can be posted as collateral for the minting of f-assets and simultaneously be used to provide data estimates to the Flare Time Series Oracle (FTSO). As an incentive for FLR holders to provide accurate data estimates to the oracle, the FTSO delivers daily rewards to FLR token holders whose data feeds are within the inner 50% of all data estimates provided for each closure of the FTSO, which happens every few seconds. FLR is not used for the security of the network allowing for the functionality and scalability of the digital asset.

Now that we have established what Spark (FLR) is, we can dive into the distribution and future release schedule of FLR, which like the network has been developing. The starting supply of FLR will be 100 billion to be dispersed amongst various stakeholders over the course of 25 – 34 months with an average of 3% of the total supply per month being released to pre-allocated parties. The Flare Network is considered to be a utility fork of the XRP Ledger (XRPL), but unlike traditional blockchain forks, a utility fork is meant to drive value to the originating network of the fork. Therefore, the distribution of Spark will include 38 billion of the supply being delivered to eligible XRP holders excluding known Ripple Labs wallets. To have been eligible for the FLR airdrop, one would have had to hold XRP on a participating exchange or wallet on December 12, 2020 – 00:00:00 UTC. Participating exchanges and wallets can be found on Flare’s website. Additionally, 25 billion FLR will go to the company behind the creation of the Flare blockchain, Flare Limited, and 20 billion FLR will go to the Flare Foundation, which is to be governed by FLR holders and have board members that are separate from Flare Limited. Finally, 12 billion FLR will be distributed to the rewards pool designated for f-asset minters excluding minters of FLTC because a 5 billion FLR rewards pool is specially being assigned to the minters of FLTC. It is likely that the FLR delivered to XRP holders is less than 38 billion due to XRP being held on non-participating exchanges during the snapshot period and FLR unclaimed by June 11, 2021 on self-custody wallets. However, while the unclaimed FLR was originally meant to be burned, a recent Flare blog revealed that the unclaimed FLR will be attributed to the general f-asset rewards pool, which is estimated to possibly increase to upwards of 15 billion by June 11, 2021. In final, the estimated allocation of the originally minted 100 billion FLR is handed out as follows: 38 billion for eligible XRP holders, 25 billion for Flare Limited, 20 billion for Flare Foundation, 12 billion for the general f-asset rewards pool, and 5 billion for the FLTC rewards pool.

The amount of participation from exchanges and wallets for the Spark (FLR) airdrop was unprecedented in nature and is a truly novel way of integrating existing crypto communities like Litecoin and XRP into the initial token distribution. While there may only be 100 billion pre-minted FLR at launch, the distribution of FLR will not end there. In a move that will surely throw crypto community mainstays for a loop, Flare has opted to introduce an inflationary component to its network that will be governed by the holders of FLR. At launch, the inflation rate will be set at 10% per year of the original supply of FLR for the first six months. This means that there will be 5 billion newly minted FLR to be delivered as rewards to FLR holders participating in the FTSO over the first six months the Flare Network is live. At the end of this six-month period, FLR holders will hold a governance vote to determine the inflation rate from that point forward for the network. FLR holders will surely need to consider the price of FLR, f-asset collateralization ratio, value of f-assets minted, and participation rates to determine the appropriate rate of inflation until the next vote. Unlike traditional fiat systems run by central banks with no accountability to their citizens, Spark allows the citizens of the Flare Network to decide how much inflation will be of benefit to them. While inflation is normally viewed in an extremely negative light by the crypto community, Flare’s use of inflation will allow the system to scale as more value pours in and provide incentives for its users to continue to deliver accurate data estimates to the FTSO for f-assets to be utilized in decentralized finance and smart contract protocols.

In conclusion, Spark (FLR) is being used as the governance token of the Flare Network and will fluctuate in value as the overall utility of the network fluctuates. This provides a unique value opportunity for the FLR token, which does not conflate the safety of the network with the value locked in the native token. It instead allows for the composability of FLR as a mechanism for governance, collateralization, scalability, and incentivization. The initial distribution of the 100 billion pre-minted FLR will be distributed over the course of two to three years with the first 15% being unlocked at launch. Spark’s airdrop will be distributed across Flare Limited, Flare Foundation, eligible XRP holders, and the two designated reward pools for the minting of f-assets. The bootstrapping of FLR liquidity and use cases across varying stakeholders will diversify the participant base in the network and hopefully drive adoption and participation at launch. Finally, inflation is being utilized for and governed by FLR holders to prove beneficial to all participants of the Flare Network. Flare is looking to bring smart contract functionality to non-turing complete blockchains to drive utility through otherwise dormant cryptocurrencies in the form of decentralized finance and smart contract functionality. It certainly will be interesting to see how this social and financial experiment will fair amongst other blockchain systems, but it has the potential of a future behemoth in the rapidly evolving space.

 

Sources

1 Philion, Hugo. Introducing Flare. https://blog.flare.xyz/introducing-flare/. November 14, 2019.

2 Philion, Hugo. The Flare Network. https://blog.flare.xyz/the-flare-network/. August 10, 2020.

3 Philion, Hugo. Claiming Spark FAQ’s. https://blog.flare.xyz/claiming-spark-faqs/. November 6, 2020.

4 Philion, Hugo. Further Information on the The Spark Token Distribution. https://blog.flare.xyz/further-information-on-the-spark-token-distribution/. November 23, 2020.

5 Philion, Hugo. The XRP:FLR Claim Ratio. https://blog.flare.xyz/the-xrp-flr-ratio/. December 18, 2020.

6 Philion, Hugo. Flare Recap & LTC Integration. https://blog.flare.xyz/integrating-litecoin-flare-recap/. January 14, 2021.