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The Clarity Protocol whitepaper

Clarity Protocol

White Paper v1

Clarity: Open Collaboration DAO tooling Smart Contract Library Protocol on the Cardano Blockchain

Clear Contracts and MLabs

Version 1.1

February 2022


We believe human prosperity will be decided at the intersection of cutting edge technology, transparency, and human collaboration. Our mission is to make equitable global financial and governance systems more accessible. To take steps toward this vision and mission, we are building the Clarity Protocol. 

The Clarity Protocol is a library of smart contracts that focuses on creating optimal conditions and incentives to enable decentralized and fair economic growth. At its core, Clarity is an ecosystem where organizations, entrepreneurs, and investors can pool, manage, and govern capital securely, efficiently, and in a decentralized manner.

By allowing democratized access to a library of audited smart contracts serving as DAO infrastructure, organizations and communities can organize, govern and manage themselves in a novel and innovative way. 

Clarity is a protocol built to be user friendly, allowing even non technical DAO communities and members to be able to participate in on-chain DAO interactions. This protocol aims to lower the barrier to entry so that anyone can create, manage, and participate in DAOs that operate on-chain. 

This paper discusses the Clarity Protocol, the technical aspects behind it, and the incentive structures it creates within the Cardano ecosystem.   

1. Introduction 3

2. Clarity Protocol Overview 3

3. $CLARITY, The Clarity Protocol Token 4

4. Why Cardano? 6

5. EUTxO and Plutus 6

4.1 Smart Contracts 6

4.2 Technical Considerations 6

4.3 Extensibility 7

4.4 Technical Challenges in the Cardano Ecosystem 7

4.5 Protocol Logic 8

4.6 Future Features 9

5. Conclusion 10

1. Introduction

We want to provide the Cardano ecosystem with a trustworthy, simple, and cost effective way to create, manage, and govern decentralized autonomous organizations (DAOs). Clarity is a DApp enabled protocol that lets anyone create, manage, and govern any type of organization on the Cardano Blockchain.

Clarity provides the building blocks to form decentralized organizations in the form of streamlined DAO creation, robust treasury management, and end to end proposal execution. The governance structures of organizations built on Clarity are malleable and flexible through the ability to change and enhance the governance protocols as innovations in DAO infrastructure become accessible.  

Moreover, the Clarity protocol rewards structure financially incentivizes widespread collaboration and sharing across the Cardano ecosystem.

2. Clarity Protocol Overview

The Clarity Protocol will be the first Decentralized autonomous organization on the Cardano blockchain whose goal is to act as a platform that facilitates organizations, entrepreneurs, communities, companies, and investors to operate in a transparent, efficient, and friendly manner.

Whether you are a community of investors wanting to operate an investment DAO, a community of educators wanting to build an educational DAO, a community of environmentalists wanting to create a climate DAO, a musician who wants to interact with their fanbase via a DAO, or a group of friends who want to operate a DAO, Clarity provides a non-technical solution for anyone to make their idea a reality. 

We are building this protocol to ignite the next generation of communities to come together in a transparent, innovative, and novel way.

The protocol will have set parameters and rules that will govern the operations of the DAO. These parameters and rules can be amended, added, or omitted by the governance of the protocol. The governance of the protocol will be decided by votes of $CLARTY token holders. 

Another paramount role of the foundational Clarity smart contract library will be to verify membership of organizations/communities/companies in the network and verify the individuals are following established rules.

The network will generate revenue in the form of fees that are charged when interacting with the smart contract library. These fees are split between the Clarity treasury, the Clarity rewards pool, and to the developer of the contract involved in the interaction. This fee split serves to contribute to internal capital, incentivize stake within the protocol, and also incentivize technical innovators to contribute to the protocol.

The main services of the Clarity Protocol:

  1. Provide an end-to-end interface to allow everyone to create DAOs, manage treasuries, and provide end-to-end proposal execution.

  2. Create a protocol that financially incentivizes collaboration and sharing of breakthrough technologies involving DAO infrastructure.

As DAOs continue to gain traction and their utility is realized across industries and verticals, the Clarity protocol will provide the next generation of companies with the tools they need to get their DAO off the ground.

3. $CLARITY, The Clarity Protocol Token

$CLARITY will serve as a utility and governance token, governing the Clarity protocol. The Clarity ecosystem will reward holders with fees derived from protocol usage.  Holders of this token will be able to:

  1. Create and vote on proposals to dictate the direction of the protocol

  2. Earn rewards and take part in the revenue distribution incentive model

Revenue Distribution model:

Revenue Distribution Incentive Model:

Developer of Smart Contract Template

  1. The protocol is designed to incentivize technical discoveries involving DAO infrastructure to be shared among the Cardano community. By rewarding developers directly when their smart contract template is used they are incentivized to create and submit smart contracts that provide maximal utility and enhancement of the Cardano DAO ecosystem. Furthermore, when an important breakthrough is made, the person who made the breakthrough is incentivized to share this early, accelerating the pace of collaboration and innovation on Cardano.  

Clarity Treasury

  1. Fees distributed to the Clarity treasury will be allocated depending upon the results of proposals and votes executed by $CLARITY token holders. $Clarity holders can vote on protocol changes to continuously upgrade and evolve the protocol. 

Staking Rewards

  1. Holders of $CLARITY are incentivized to stake their assets to receive rewards directly from fees derived from protocol usage. Clarity platform-generated fees are collected and distributed to token holders in ada. Rewards are distributed proportionally to the amount of $CLARITY each user holds. 

4. Why Cardano?

  • DAO tooling does not yet exist on Cardano which helps make us a non-consensus high upside solution. We will bring to market a product that the Cardano community is actively looking for.

  • Cardano’s ecosystem is built to be extremely friendly to community organizations. The Cardano ecosystem believes that DAOs will be a cornerstone of blockchain innovation.

  • We are deeply integrated in the Cardano ecosystem and have community support and funding. We actively work with many communities and partners within the ecosystem and form mutually beneficial collaborative relationships.

  • Cardano has reliably low transaction fees and lower energy consumption compared to PoW competitors.

  • Smart Contracts executed on Cardano are formally verifiable. 

5. EUTxO and Plutus

5.1 Smart Contracts

The functionality of smart contracts on Cardano’s EUTxO model are encompassed by two different scopes:

  • On-Chain: A set of Plutus scripts run by nodes during transaction validation. These verify a transaction constructed Off-Chain.

  • Off-Chain: Business logic that builds transactions according to specified rules defined in the On-Chain scripts.

Smart contracts deployed on the Cardano blockchain are written in the programming language called Plutus, a derivative of Haskell.

  • Haskell: A functional programming language that can be verified through formal proofs.

  • Plutus: A Derivative of Haskell created specifically for Cardano to enable for robust, formally verifiable smart contract script development.

Both of these scopes can be provided to the user in a secure, decentralized way, which keeps the user in control of their data, and allows for protocols to be extended and integrated together.

5.2 Technical Considerations

The Clarity Smart Contracts will include the following On-Chain structures:

  • Manager Contract - used to register and unregister DAO’s managed by the system

  • DAO Template Contract - manages staking, voting, and rewards for a single organization

  • Voting Template Contracts - voting for forum threads, treasury spending, update voting rules

  • Treasury Template Contract - fund management for DAOs

5.3 Extensibility

Clarity smart contracts are built by design to be extensible. This mechanism would allow a DApp developer to implement voting and rewards systems that integrate directly with their custom protocol. This allows many protocols to begin DAO operation before launching the protocol, without needing to change once the protocol goes live. This can include direct interaction with a live protocol such as setting interest rates in a DeFi application using DAO voting procedures.

Additionally, this would allow developers to post plug-in contracts that integrate with the DAO Template contracts to continually extend its feature set.

The goal of this protocol is to be a community driven, self-evolving library of smart contracts that serves the needs of the community, and to push the boundaries of innovation within the DAO tooling landscape.

5.4 Technical Challenges in the Cardano Ecosystem

The Cardano Ecosystem, like many blockchain ecosystems, is facing a number of challenges:

  • Congestion

  • Smart contract parallel and concurrent behavior

  • Plutus Application Backend (PAB) development

  • Developer availability

Clarity offers the following plan to address each of the above:

Congestion: Clarity will offer the most efficient smart contract approach to DAO setup possible, including escrow and batching systems as needed to ensure a positive user experience, even in the face of chain congestion.

Parallel and Concurrent behavior: Clarity DAO’s are designed to avoid state-contention in every user interaction. Users will not face issues relating to concurrent smart contract behavior.

PAB Development: MLabs has developed a utility library for constructing smart contract transactions that replaces PAB. This is in use today and is well-maintained. We do not depend on the PAB.

Developer Availability: MLabs has partnered with Clear Contracts and has a vested interest in both the short and long term success of the protocol. MLabs has more than 100 smart contract engineers, many of whom boast Haskell and Plutus experience. This provides Clarity with unparalleled access to strong developer resources now and into the future.

5.5 Protocol Logic

5.6 Future Features

Clarity is being built to accommodate the following features on chain in a version 2 release: 

  • Treasury Yield Optimizations

  • DAO Lending

  • Additional voting structures/systems

  • Onchain conflict resolution

  • Plug-in contract portal

  • Dispute Resolution optimizations

6. Conclusion

The Clarity protocol is the first DAO tooling of its kind available on the Cardano blockchain. By creating a smart contract library for DAO tooling, the Clarity protocol creates a set of incentives that prioritizes collaboration over competition in the Cardano ecosystem. This fundamental innovation to how knowledge can be shared for profit in Cardano can easily be applied to other domains beyond DAOs, including DeFi, DApps, DCompanies, and beyond.