Harmony (ONE): how the blockchain and its token work

Key points

• Harmony is a high-throughput blockchain with fast, low-cost transactions.
• Its architecture features sharding and a proprietary Effective Proof-of-Stake (EPoS) algorithm, enabling high capacity. The network is currently split into four shards.
• Harmony’s native cryptocurrency trades under the ticker ONE and ranks among the top 150 cryptoassets by market capitalisation.
• The Harmony platform hosts a developed ecosystem with dozens of active decentralised applications.

Founding and mainnet launch

The Harmony Protocol company was founded in 2018 in the United States by Rongjian Lan, Nick White, Stephen Tse and Sahil Dewan. They previously worked at major technology firms, including Google, Amazon, Apple and Facebook.

Early in 2019 the team raised $28.5m across three investment rounds.

Harmony’s mainnet went live in June 2019. In May 2020 the network was decentralised by enabling delegation of staked ONE to validators.

Key features of the Harmony blockchain

Two features drive Harmony’s performance:

• a unique Effective Proof-of-Stake (EPoS) consensus mechanism;
• sharding—splitting the chain into parallel segments.

EPoS builds on the widely used Delegated Proof-of-Stake model, under which tokenholders can participate by delegating their coins to validators.

Consensus among validators uses the Fast Byzantine Fault Tolerance (FBFT) protocol. It processes transactions in parallel across shards, boosting speed and efficiency. As a result, block production on Harmony takes under two seconds.

FBFT proceeds in three phases:

1. Announcement. At the start of a round, a randomly selected leader creates a new block and sends its hash to all validators;
2.  Preparation. Validators verify the message, sign the block hash and return the signature to the leader. At least two-thirds of votes are required to complete this phase;
3. Commit. The leader aggregates the signatures into a single signature and broadcasts it to validators. They verify that two-thirds of votes were indeed collected in the previous phase, then sign the approved block, which the leader finalises once at least two-thirds of signatures are gathered.

How sharding works

Harmony’s consensus cycle is an “epoch” of 32,768 blocks (about 18.2 hours). Validators are organised across the main network (Beacon Chain), which coordinates consensus among shards.

Shards operate in parallel. Each has its own validator set, chosen at random from a global pool for the next epoch. Transactions and blocks are confirmed independently in every shard.

Sharding is essential to Harmony’s scalability. Each shard maintains its own blockchain and state database.

Network components synchronise at the end of each epoch. The “zero” shard—the Beacon Chain, or “beacon”—acts as coordinator for the others. It produces a fixed number of blocks, and other shards synchronise their chain heights to it. Once an epoch ends on the Beacon Chain, that change is propagated to the rest.

At present, most network activity sits on the Beacon Chain; shards 1, 2 and 3 are scarcely used, though they continue to produce blocks. In its current configuration, Harmony reaches around 2,000 transactions per second. The number of shards can be increased as demand grows.

Supply and utility of the Harmony (ONE) token

The project initially issued its native cryptocurrency on BNB Chain. A 2.8bn ONE allocation was sold to large investors during funding rounds.

Harmony later held an IEO on Binance Launchpad, selling a further 1.575bn ONE. With the mainnet launch in June 2019, the native coin was migrated to Harmony’s network, and 12.6bn coins were minted.

As of September 2022, the total ONE supply exceeds 13.15bn, with no hard cap. Around 441m ONE are issued annually to reward validators, implying roughly 3% yearly inflation. Because transaction fees are burned, effective inflation depends on network activity.

Key uses of ONE include:

• paying transaction fees (under $0.0005 per operation);
• participating in governance and development via a DAO system;
• staking.

Harmony supports three user-token standards, analogous to Ethereum’s: fungible HRC-20, and non-fungible HRC-721 and HRC-1155.

Staking ONE

Harmony has expanded the number of validator slots several times as needed and now has over 800 slots. However, just over 150 validators are active.

Validators must hold at least 10,001 ONE in their wallet. Tokenholders delegate ONE to chosen validators in exchange for a share of block rewards. As of mid-September 2022, delegated ONE staking yielded over 9% annually.

A key difference between EPoS and DPoS is Harmony’s reward distribution, which promotes decentralisation. Nodes with smaller stakes earn higher returns than large validators, encouraging many smaller nodes rather than a few big ones.

The Harmony ecosystem

Activity on Harmony surged in 2021 alongside other EVM-compatible networks—Polygon, Avalanche, Fantom, BNB Chain and others.

According to DeFi Llama, as of September 2022 the chain hosts about 60 DeFi protocols. In total, more than 200 decentralised applications have launched on Harmony. EVM compatibility made it easy to integrate successful Ethereum projects.

Notable protocols on Harmony include the SushiSwap DEX, the Aave lending platform, the Synapse and Router Protocol cross-chain bridges, and the Beefy yield aggregator. The GameFi segment features DeFi Kingdoms, Defira, MarsColony, Knight & Peasants, Moon Robots and others.

In January 2022, total value locked (TVL) in the Harmony ecosystem reached $1.35bn. In the following months, amid a bear market, TVL fell below $40m.

Network activity declined sharply. On January 24th 2022 more than 5.3m transactions were processed in a day; by September the average did not exceed 250,000 per day, with around 10,000 active wallets. The DeFi Kingdoms game accounted for nearly half of on-chain activity.

The attack on the Horizon cross-chain bridge dealt a heavy blow, from which Harmony has yet to fully recover.

The Horizon bridge hack: $100m stolen

On June 23rd 2022 hackers breached the Horizon Ethereum Bridge, stealing about $100m in cryptocurrencies from users.

The Harmony team offered the attackers $1m, then $10m, for the return of funds. The proposals were ignored and the proceeds were laundered via the Tornado Cash mixer. Experts believe the notorious Lazarus Group, affiliated with the North Korean authorities, may have been involved.

A month later the team published a compensation plan that included a hard fork to mint new ONE tokens for victims. The Harmony community rejected the proposal.

Since August 2022 the community has discussed a new recovery plan involving issuance of a special governance token and the creation of a DAO called Recovery One Foundation.

Key partners and outlook

In 2019, as Harmony’s mainnet launched, the core developer began partnering with leading crypto projects. Partners included:

• Chainlink, a decentralised oracle network;
• Ankr, a decentralised compute environment and platform for business applications.

Harmony also collaborated actively with wallet teams and staking providers.

In April 2019 Harmony signed a partnership with Nomica, a securities tokenisation platform that aimed to use the chain to record token ownership and automate management.

In autumn 2019 Harmony Protocol unveiled a $300m fund to develop the ecosystem through end-2025. Of that, $180m was allocated to developer grants and $50m to finance 100 regional DAOs. The plan also included ten developer hackathons and incentive programmes for liquidity providers and partners.

The next step, in 2022, was the Harmony One Accelerator, a comprehensive programme with four tracks:

• Harmony Venture Network — sourcing strategic investors;
• Harmony Talent Network — attracting developers, designers and other specialists to the ecosystem;
• Harmony Advisors Network — expert advice on corporate structure, finance, tokenomics, legal and more;
• Harmony Services Network — a curated list of service providers for blockchain firms, from smart-contract auditors to liquidity providers.

In June 2022 the Harmony Protocol team announced a partial suspension of the fund owing to heavy losses from the Horizon bridge attack.

Further reading

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What is NFT staking and how does it work?

What is Web3?

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What is Chia Network (CHIA)?