FLOW Token is the native cryptocurrency on the Flow blockchain, a decentralized layer 1 blockchain created by Dapper Labs, the company behind CryptoKitties. FLOW is used for payments within decentralized applications (dApps) that are constructed on the network. Additionally, it facilitates the utilization, deployment, and creation of smart contracts that are essential for the development of applications on Flow. ^[1]

Overview

Flow is a blockchain network that utilizes Byzantine Fault Tolerant (BFT) consensus algorithms and proof-of-stake (PoS) to ensure high efficiency and security. The Flow blockchain is designed to overcome the throughput limitations of traditional PoS blockchains by separating the selection and ordering of transactions from their execution. ^[3]

FLOW is the native currency of the Flow network, and it serves as the asset of reward for validators participating in network consensus. FLOW is also used to pay transaction fees and as a reserve asset for secondary tokens. FLOW's diverse use cases include its use for peer-to-peer payments, staking rewards, security deposits, storage of assets, collateral for secondary tokens, and participation in governance. FLOW is the catalyst for diverse new communities to access blockchain and decentralized applications, building and benefiting from real use-cases. ^[2]

Utility

The FLOW token has various utility use-cases within the Flow blockchain ecosystem. FLOW token holders have several options for using their tokens, including paying for computation and validation services through transaction fees, using FLOW as a medium of exchange, using it as a deposit for data storage, using it as collateral for secondary tokens, and participating in governance on the network. These diverse use-cases make FLOW a versatile token that can be used in various ways within the Flow ecosystem. ^[2][4]

Importantly, FLOW is required for the creation and usage of all other tokens on the network – to pay for storage and/or serve as collateral. ^[2]

DApps, Games, and Smart Contracts

Developers can integrate FLOW directly into their apps for peer-to-peer payments, charging for services, or enabling consumers to earn rewards for the value they create. FLOW is made to be available for developers and users at all times to transact with on the network, making it the primary currency for apps, games, and smart contracts built on top of the Flow blockchain. ^[2]

Small amounts of FLOW token are also required for every activity on the network – from new user accounts to storage for assets and smart contracts. As the network matures, FLOW token holders will be able to use their FLOW in an evolving number of ways. ^[2]

Staking Rewards

Token holders can earn rewards by staking their FLOW as a security deposit and working to secure the network through running validator nodes – or delegating their stake to professional operators to run validator nodes on their behalf. Validator nodes receive staking rewards and transaction fees in exchange for providing the security, computation, and storage services the network needs. ^[2]

Fee Payment

The Flow blockchain's high throughput, low fees, and full ACID guarantees enable developers to implement decentralized exchanges (DEXs) that act as a clearing house between tokens. Applications on Flow can tap into the reality of a perfect payment experience that is seamless for all parties: buyers pay in any currency they have; sellers price and receive in any currency they want. Frequent batch auctions on Flow can also be used to defeat front-running attacks on these DEXs. ^[2]

Bridge Asset

FLOW token’s ubiquity on the network makes it the main bridge asset for currency exchanges between thinly traded token pairs. As the number of secondary tokens on Flow becomes large, the number of possible trading pairs increases exponentially, meaning that some swaps will require an intermediary asset like FLOW. ^[2]

Token Economics

Broad Distribution

Flow recognizes that a broad distribution of its native token is essential for the network's decentralization and long-term success. A centralized control over the token supply could prevent easy access by developers, who require the native token to deploy new smart contracts and pay for transaction fees as well as cover storage and account deposits on the network. ^[2]

Flow's large-scale engagement programs, such as Cloudburst Partners, Floodplain Validators, and Decentralized Reputation and Incentive Protocol (DRIP), aim to attract diverse new communities to access blockchain and decentralized applications. Good user experience design also makes owning and using FLOW seamless. Ultimately, FLOW will bring all communities building on the network together to create and share value. ^[2]

Low Monetary Inflation

Blockchains like Flow rely on decentralized communities running validator nodes to support the network's activity and secure the value of assets. Some blockchains create and distribute new tokens to attract validator node operators to their networks. ^[2]

However, monetary inflation comes at a cost. The newly-created supply of tokens dilutes all token holders, acting as a tax on holding or day-to-day usage. To avoid this, Flow has a cap on monetary inflation. Inflation on Flow decreases as network fees increase. ^[2]

In a steady state, Flow guarantees a set payout to node operators and only issues new tokens as necessary to make up the difference between transaction fees and that guaranteed payment. As transaction fees approach this payout amount, new issuance approaches 0%. If transaction fees exceed the payout amount, they are held in an escrow account and used to offset future inflation indefinitely. ^[2]

Genesis Block

Flow's genesis block was created in June 2020, with 1.25 billion FLOW tokens. The breakdown of genesis block holders is outlined below: ^[6]

Staking

Staking is a crucial aspect of the Flow blockchain, as it requires validator nodes to lock a security deposit denominated in FLOW tokens to participate as part of the infrastructure that runs the blockchain. The process of staking acts as a bonded deposit that can be seized if the validator attempts an attack on the network. This is an effective method of preventing low cost “sybil” attacks, where one actor masquerades as many individuals to gain undue influence over the network. ^[6]

Staking Rewards

Validator rewards on Flow were enabled on mainnet in December 2020. Flow distributes a fixed portion of the total FLOW token supply each year as rewards to validator node operators through a combination of new issuance (inflation) and transaction fees. As a proof of stake network, 100% of inflation is distributed to stakers, meaning holders of FLOW tokens will not be diluted as long as they are actively participating. The total reward will be chosen carefully to be as small as possible while preserving the security of the network. ^[6]
To encourage stakers to fill needed node roles, reward coefficients adjust the revenue assigned to each role. If a role is consistently under-staked, payouts increase until the staking balance aligns with the target ratio. Validators and node operators can withdraw rewards immediately, but Flow nodes must follow protocol procedures to receive rewards. Deviations can result in lower rewards or punishments to ensure security and optimize performance. ^[6]

Governance

Governance for the FLOW token involves both off-chain and on-chain mechanisms, with the goal of eventually transitioning to full on-chain governance. ^[7]

Off-Chain Governance

Initially, the development team will operate independently to build for the decentralized community. Anyone can submit improvement proposals on the Flow GitHub repo, which will be reviewed by a core development team led by Flow’s Chief Architects. Protocol upgrades will be proposed to node operators who then make independent decisions on adoption. ^[7]

On-Chain Governance

Starting in late 2020, on-chain voting began as a signaling mechanism. Votes are not binding, but they are visible to the entire community and guide the development team's efforts. Various ecosystem development efforts will be dispersed across decentralized autonomous organizations (DAOs) which will require FLOW or 'FLOW-infused' tokens for voting. Service protocols built on top of the Flow network will be the first components to be transferred to fully on-chain governance. ^[7]

Representative Council

Over time, the Flow community will help define and provide feedback on network upgrades implementing on-chain governance. Initially, FLOW stakeholders will vote for a representative council that can make day-to-day decisions. The council's vote acts as a "default" that every token-holder can accept by doing nothing, or actively override. Proposals can be brought on a public forum with full transparency to anyone with access to the blockchain. In practice, decisions will be made primarily by the council, but all decisions will be made publicly, and any stakeholder can organize grassroots action by token stakeholders to veto specific decisions or to vote to replace council members. ^[7]

Types of Decisions

There are three types of decisions made via the governance process: Ecosystem decisions, Protocol parameters, and Protocol upgrades. Ecosystem decisions relate to the functioning of the network that cannot be expressed within the protocol definition, such as choosing council members and finalizing any grants or prizes set by the foundation. Protocol parameters can be modified by the governance process, and some aspects of the protocol (such as the number of seats available for each node type) do not require a protocol upgrade. Protocol upgrades can theoretically change anything about the protocol, but in practice, they will be exceedingly rare and require large participation and buy-in from every FLOW stakeholder. ^[7]