Value Secured ChildChains — Upcoming ChildChain Challenges and Ideas

5 min readFeb 7, 2021

ChildChain is not just a concept, we already see Ardor works smoothly for 3 years.

It has big advance over SingleChain system but also facing some new challenges and some of them already happened.

Challenges

1. Unnecessary Large Amount of ChildChain Tokens and Single Point Risk

The Issuer of ChildChain usually creates an ambiguous large amount (1,000,000,000 e.g.) of tokens at the beginning, sell only a small amount to public and keep the remains as reserve.

They may have reasons, but it raises some problems:

The large amount of unnecessary reserve implies an uncertain value, keep press price down and lower the trust of the token. No one wants to invest a token when Issuer still hold 80%+.
If the Issuer account got hacked it just take the whole ChildChain down. Multisignature can lower the risk but Issuer can always do that on purpose (to manipulate the price, to cover up the failure of the business e.g.).

2. Spam ChildChains and No Measurement of Quality and Risk

If we available ChildChain creation to the public, there will be thousands of ChildChains in one night, probably 90% of them are spams, 9% for fraud, only 1% have good standing but no one can pick them out.

There are 2 solutions right now, but I think both works not so well:

1. Setting a High Fee for ChildChain Creation:

It scares people away when the ParentChain token price is high and useless when the price is low.

It cannot prevent fraud either.

2. ChildChain Creation Approved by Institution:

It somehow against decentralization and no institution can know all business.

Some undiscovered new business model may not be approved forever.

Small teams may not get the attentions and probably give up before hand.

Teams with different languages or in different continent may not get proper communication with institution.

Institution also risks their own reputation and get blamed after 1~2 ChildChain failed.

3. ParentChain Token Has No Value

ParentChain token only has 2 usages: securing the network and paying fees.

There is no incentive to hold ParentChain tokens. It usually traded at a low price and centralized in exchanges.

The security of the whole chain can be easily shocked if exchanges got hacked or have some staking/forging problem.

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Ideas

The idea is quite simple:

In ChildChain Creation, the Issuer set Initial Rate of the token instead of total amount.
Only Issuer Account can exchange ParentChain tokens to ChildChain tokens at Initial Rate.
The exchanged ParentChain tokens goes into a Reserve Account which has only the permission of leasing and accepting Burning Request (explained below).
Every account can send Burning Request to Reserve Account to burn their ChildChain tokens and get ParentChain tokens back at the Initial Rate.

For example, we create a Cat Chain in Ardor:

1. The Issuer Account issues the Cat Chain and set the Initial Rate let’s say 0.1 which means 1 CAT = 0.1 ARDR.
2. The Issuer Account use 10,000 ARDR to exchange 100,000 CAT.
3. 10,000 ARDR goes into the Reserve Account of Cat Chain.
4. The Issuer Account now can distribute or sell 100,000 CAT at CoinExchange (at premium like 0.2~1 ARDR i.e. the ICO price).
5. Everyone can burn 1 CAT to Reserve Account to get 0.1 ARDR back.
6. If Issuer need more CAT (i.e. the second round of ICO), he can do that with the same procedure of step2~3 and the same rate 0.1.

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Advantages

No Unnecessary Creation of Tokens

Only tokens that needed are created, there still remains the ability to create large amount, theoretically 10,000,000,000 CAT for the example above.

If Issuer think he may need 1,000,000 CAT in future, he just need to save 100,000 ARDR in somewhere and use that to create extra CAT in future.

Much Less Single Point Risk

Only a small amount tokens are created and usually the Issuer Account has no token left. If the Issuer Account got hacked the hacker only got the ability to exchange ARDR to CAT at 0.1 rate, he needs large amount ARDR and only benefits when both Initial Rate and ARDR are low.

Issuer should publish an official announcement for every upcoming token creation, so the hack can be detected right after the unexcepted creation transaction is broadcasted.

If the Reverse Account got hacked the hacker can do nothing.

Prevent Spam ChildChains

Setting a Minimum Initial Rate and Minimum Amount can easliy prevent spams.

The ChildChain Token has a Minimum Value

Like CAT at least worth 0.1 ARDR, every ChildChain token has a minimum value.

One try to fraud a lot of people must prepare a large amount ARDR. The victims can still get ARDR back to reduce their lost.

Issurers has Motivation to Keep Working Hard

Issuer has the motivation to work hard, keep the token at a high price(at least higher then Initial Rate) so he can benefit from creations in future.

The ParentChain Token has a Value

Every new ChildChain need ARDR to create tokens.

ARDR are locked in Reserve Account as long as ChildChain token exist.

Every Issuer may save extra ARDR for further creations.

Those give ARDR a value for staking.

Price Stabilized bewteen Parent/ChildChain

If ARDR goes low, Issuers tend to buy more ARDR for creations in future, which stabilize the ARDR price.

If the token goes low, token holders tend to burn tokens to ARDR, which reduce the amount then stabilize the token price.

Remove of Failed Chain

If one ChildChain failed, everyone includes the Issuer has the incentive to burn all their tokens, if all tokens are burned, the ChildChain can be automatic removed by ParentChain, which reduce the data of current blockchain status.

Initial Rate as Quality Measurement of New ChildChain

The higher the Initial Rate is, the more ARDR needed for creation, which means the more capital and confidence the team has,
…which also means the more minimum value the token has,
…also means the more ARDR investor can get back if the ChildChain failed,
…also means the less attractive to hackers.

Investors can simply use Initial Rate as the Quality Measurement of New ChildChains.

Issuer must think twice before setting the Initial Rate, the higher the Initial Rate is, probably the more credit the ChildChain get, but the more ARDR have to lock in Reserve Account.

Issuers good at promotion or with a good reputation can still create tokens with lower Initial Rate.

Risk Factor as Risk Measurement of ICO Price

Risk Factor = ICO Price / Initial Rate

For example, if Issuer of Cat Chain selling CAT at 0.5 ARDR:

Risk Factor = 0.5 / 0.1 = 5

Which means investors will get 1/5 their invest back in the worst case.

Also means if the Risk Factor is low enough, the token still worth a try even with a low Initial Rate.

Burned Rate(%) as Quality Measurement of Ongoing ChildChains

Burned Rate(%) = Tokens Investors Burned / Tokens Issuer Created

For those ChildChain already running for a while, the worse the busniess is going, the lower the token price is, the more holders burned their tokens back to ARDR.

Investors can use Burned Rate(%) as the Quality Measurement of ongoing ChildChains.

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Sum-up

I know these ideas may raise some new challenges, but if the idea works, we get Value Secured ChildChains. Most challenges solved and both Parent/ChildChain tokens get a value and stabilized with each other.

It is nothing new in concept, just like the currency-gold system in old days, combinate with some method in stocks issues.

Anyway, it can be optional which means only a part of ChildChains work in that way.

It also can be extended like Value Secured by another ChildChain.

Just leave the idea. :)