What is Overlap

Overlap is a decentralized oracle that democratizes truth through performance-driven participation and direct voter accountability. Users delegate voting power to trusted validators who compete for task assignments, with rewards flowing back to their supporters based on performance.

This guide provides a comprehensive overview of the protocol's mechanics and operational flow.

Core Mechanics

Becoming a Validator and Competition

Anyone can become a validator by staking the required minimum balance and registering with the protocol. Validators build trust through user voting, and only the highest-ranked participants become eligible for task assignments. Tasks are awarded to validators who demonstrate consistent and accurate performance, fostering a competitive environment where trust is earned through reliability and fairness. Rewards are directly tied to the accuracy and consistency of a validator’s work.

Becoming a validator:

• Minimum stake amount.
• Competition for user votes.
• Ongoing performance monitoring.
• Rewards tied to performance.
• Distribution of rewards with voters.

Delegating Voting Power

Users delegate their voting power to trusted validators, who act on their behalf in task execution. Funds staked with a validator convert into voting power and generate staking rewards. A user’s votes influence a validator’s eligibility for task assignments and are proportional to each user's portion of the rewards.

Key Features:

• Influence: The sum of user votes determines which validators are eligible to resolve tasks.
• Flexible: Split votes across multiple validators.
• Dynamic: Modify allocations at any time based on a validator's performance.
• Rewards: Earn rewards on staked funds from the validator's performance.

Task Eligibility and Assignment

Only the top-ranked validators become eligible for task assignments. Tasks are assigned probabilistically based on a validator's performance metrics, instead of voting power and staked funds.

Assignment Process:

• Only the top validators by vote power can be assigned tasks.
• Completion rate, accuracy, and reliability track a validator's performance.
• A probabilistic system elects validators for a task, favoring those with greater performance.
• Validators with great performance will be elected more often for a task, earning more rewards for themselves and their voters.

Reward Distribution

Overlap ensures fair reward distribution by splitting payments between assigned validators and their supporters, creating common incentives for fair resolution.

Payout Process:

• The assigned validators submit their votes on a task.
• Overlap processes their votes.
• If a validator align with the majority, task rewards are split earned and shared with their voters.
• Rewards are credited automatically upon task finalization and can be claimed immediately by all validators and their voters.
• Validator performance is updated from this task.

Incentive Alignment:

• Validators are motivated to allign with the majority to earn rewards.
• Voters are rewarded by electing successful validators.
• Successful validators earn more tasks by maintaining high performance.
• Unsuccesful validators are removed from the list of eligibility.
• Fairness and performance are rewarded.

Dynamic Strategy Adjustment

Users are able to reallocate their votes at any time to optimize returns based on validator performance. This incentives performance monitoring, vote reallocation based on data, risk management through diversification, and reward optimization while hardening fairness in the system.

Fairness Mechanics

The protocol implements incentivization mechanisms that ensure fairness by introducing penalties against validators who deviate from crowd consensus.

Schelling Point

Overlap introduces a strong Schelling point where validators are incentivized to converge on the expected consensus, based on direct penalties and indirect cost of opportunity.

Economic Penalties:

• Validators who deviate from the majority have their initial deposit slashed.
• The slashing factor is proportional to the deviation from the majority.
• Slashed rewards cannot be recovered from the protocol.
• Stake below a certain threshold removes the validator from the list of eligibility.

Performance Penalties:

• Each validator's performance decreases as they deviate from the majority consensus.
• The penalty factor is proportional to the deviation from the majority.
• The probability of assignment decreases for validators with lower performance.
• The expected rewards decrease as a result of reduced task assignment.
• Vote reallocation occurs as users shift support to higher-performing validators.
• Eligibility is removed for validators whose votes decrease beyond the required threshold.