Blockchain-Backed Risk Pooling and Self-Regulation Protocol for Alternative Payment Providers (DeMI)
draft-shubralov-demi-sro-payment-security-01

Independent                                              E. A. Shubralov
Internet-Draft                       AI Cybersecurity LLC / IP Shubralov
Intended status: Informational                              28 July 2026
Expires: 29 January 2027

    Blockchain-Backed Risk Pooling and Self-Regulation Protocol for
                  Alternative Payment Providers (DeMI)
              draft-shubralov-demi-sro-payment-security-01

Abstract

   This document specifies a Best Current Practice (BCP) for risk
   management, automated self-regulation, and transaction settlement
   integrity among alternative payment service providers (APPs)
   operating in emerging markets without formal ISO/PCI-DSS coverage.
   It defines an architectural specification for a decentralized self-
   regulated organization (SRO) compensation pool deployed on the
   Ethereum Layer 1 blockchain.  The protocol mitigates time-delayed
   fraud vectors, liquidity mismatches, and cross-border settlement
   frictions through cryptographic batching, zero-trust geo-distributed
   validator networks over private MPLS/satellite topologies, and
   automated algorithmic underwriting.

Status of This Memo

   This Internet-Draft is submitted in full conformance with the
   provisions of BCP 78 and BCP 79.

   Internet-Drafts are working documents of the Internet Engineering
   Task Force (IETF).  Note that other groups may also distribute
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   Drafts is at https://datatracker.ietf.org/drafts/current/.

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   and may be updated, replaced, or obsoleted by other documents at any
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   material or to cite them other than as "work in progress."

   This Internet-Draft will expire on 29 January 2027.

Copyright Notice

   Copyright (c) 2026 IETF Trust and the persons identified as the
   document authors.  All rights reserved.

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   This document is subject to BCP 78 and the IETF Trust's Legal
   Provisions Relating to IETF Documents (https://trustee.ietf.org/
   license-info) in effect on the date of publication of this document.
   Please review these documents carefully, as they describe your rights
   and restrictions with respect to this document.  Code Components
   extracted from this document must include Revised BSD License text as
   described in Section 4.e of the Trust Legal Provisions and are
   provided without warranty as described in the Revised BSD License.

Table of Contents

   1.  Introduction  . . . . . . . . . . . . . . . . . . . . . . . .   2
   2.  Terminology . . . . . . . . . . . . . . . . . . . . . . . . .   3
   3.  Protocol Mechanics and Smart Contract Architecture  . . . . .   4
     3.1.  Transaction Batching Pipeline . . . . . . . . . . . . . .   4
     3.2.  Dynamic Algorithmic Underwriting  . . . . . . . . . . . .   4
     3.3.  Core Solidity Implementation Reference  . . . . . . . . .   4
   4.  Regional Resiliency and Network Topology  . . . . . . . . . .  11
     4.1.  Regional Embassy Node Topology  . . . . . . . . . . . . .  11
     4.2.  Isolated MPLS and Satellite Network Mesh  . . . . . . . .  11
     4.3.  Capacity-Aware Round-Robin Load Balancing . . . . . . . .  11
   5.  API Specifications  . . . . . . . . . . . . . . . . . . . . .  11
     5.1.  POST /api/v1/epoch/submit . . . . . . . . . . . . . . . .  11
       5.1.1.  Request Format  . . . . . . . . . . . . . . . . . . .  12
       5.1.2.  Response Format . . . . . . . . . . . . . . . . . . .  12
     5.2.  POST /api/v1/claims/request . . . . . . . . . . . . . . .  12
       5.2.1.  Request Format  . . . . . . . . . . . . . . . . . . .  12
       5.2.2.  Response Format . . . . . . . . . . . . . . . . . . .  13
   6.  Security Considerations . . . . . . . . . . . . . . . . . . .  13
     6.1.  Validator Key Isolation and Remote Signing  . . . . . . .  13
     6.2.  Local Slashing Protection Synchronizer  . . . . . . . . .  13
     6.3.  Mempool Shielding and Front-Running Mitigation  . . . . .  14
   7.  Embassy Node Validator Implementation . . . . . . . . . . . .  14
     7.1.  Vertical Validator-API Integration Architecture . . . . .  14
     7.2.  Institutional Staking and Compliance  . . . . . . . . . .  15
     7.3.  Automated GAS Fee Rebate Loop . . . . . . . . . . . . . .  15
   8.  IANA Considerations . . . . . . . . . . . . . . . . . . . . .  16
   9.  Normative References  . . . . . . . . . . . . . . . . . . . .  16
   Author's Address  . . . . . . . . . . . . . . . . . . . . . . . .  16

1.  Introduction

   Alternative Payment Providers (APPs) including payment aggregators,
   QR-code networks, and mobile wallet ecosystems handle substantial
   transaction volumes in South and Southeast Asia (e.g., India,
   Pakistan, Bangladesh, Vietnam, Cambodia).  Due to their structural
   separation from legacy clearinghouses, these entities lack
   specialized international standards (ISO) or rigid frameworks (PCI-

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   DSS) tailored to their operational risks.

   The primary operational vulnerability is time-delayed fraud ("hit-
   and-run" exploits).  In these scenarios, a customer authorizes a
   payment, the APP receives a temporary confirmation or clearing
   registry, and immediately credits the merchant.  Days later, the
   clearing bank issues a chargeback due to card theft or friendly
   fraud.  If the merchant has already withdrawn the funds, the APP
   incurs a capital loss.

   This document outlines a standardized, extraterritorial approach to
   mitigate this risk by establishing a Self-Regulated Organization
   (SRO) backed by an automated, blockchain-hosted compensation pool.
   This protocol eliminates capital stagnation caused by fixed rolling
   reserves while providing immutable mathematical guarantees to
   financial regulators.

   To ensure absolute resilience and eliminate any Single Point of
   Failure (SPOF), the underlying governance of the protocol completely
   rejects single-administrator control vectors.  The operational and
   emergency management layers are hardcoded into an autonomous M-of-N
   consensus matrix distributed cryptographically among the National
   Embassy Nodes, guaranteeing system survivability and continuous
   recovery even in the event of partial cryptographic key compromise.

2.  Terminology

   The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT",
   "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and
   "OPTIONAL" in this document are to be interpreted as described in BCP
   14 [RFC2119] [RFC8174] when, and only when, they appear in all
   capitals, as shown here.

      *Alternative Payment Provider (APP):* A non-bank financial
      intermediary aggregating local payment methods.

      *DeMI SRO:* Decentralized Mutual Insurance Self-Regulated
      Organization.

      *Embassy Node:* A regional server infrastructure combining an
      Ethereum L1 full node, validator client, and private RPC gateway.

      *Epoch Batch:* A packed cryptographic structure containing a fixed
      interval of localized transaction states.

      *Base Fee and Priority Fee:* Ethereum gas mechanics as defined in
      EIP-1559.

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3.  Protocol Mechanics and Smart Contract Architecture

   The DeMI protocol shifts the risk management layer from private,
   auditable Web2 databases to an autonomous, public smart contract
   acting as a decentralized escrow and risk underwriter.

3.1.  Transaction Batching Pipeline

   To minimize Ethereum L1 gas expenditures, APPs MUST NOT execute on-
   chain transactions for individual payment actions.

   1.  The local APP payment engine logs transactions in real-time.

   2.  Every 10 minutes (the standard Epoch interval), the APP compiles
       all transaction metadata into a Merkle Tree.

   3.  The root hash of the Merkle Tree, along with total volume and net
       risk metrics, is packaged into an on-chain batch submission.

3.2.  Dynamic Algorithmic Underwriting

   The DeMI contract maintains an on-chain ledger of merchant risk
   coefficients.  Instead of static 10% rolling reserves, the contract
   dynamically evaluates the required fee contribution based on the
   formula:

   Contribution Rate = Base_Rate * (1 + (Chargebacks / Total_Volume))

   If a merchant's historical fraud rate spikes, the smart contract
   automatically increases their on-chain collateral requirement for
   subsequent epochs.

3.3.  Core Solidity Implementation Reference

   The compensation pool and risk management ledger MUST implement a
   decentralized, multi-governor smart contract architecture that
   rejects centralized ownership.  Administrative functions such as
   regional node authorization and emergency fund restoration MUST
   require an on-chain M-of-N threshold consensus executed directly by
   the authenticated governance entities.

   The core contract implementation is specified as follows:

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   // SPDX-License-Identifier: MIT
   pragma solidity ^0.8.24;

   interface IERC20 {
       function transferFrom(
           address from,
           address to,
           uint256 amount
       ) external returns (bool);

       function transfer(
           address to,
           uint256 amount
       ) external returns (bool);

       function balanceOf(
           address account
       ) external view returns (uint256);

       function allowance(
           address owner,
           address spender
       ) external view returns (uint256);
   }

   contract DeMISROConsensusPool {
       struct MerchantProfile {
           uint256 totalVol;
           uint256 totalChb;
           uint256 riskTier;
           uint256 dynRate;
           uint256 totalContributed;
           uint256 claimsPaid;
       }

       struct EmergencyProposal {
           bytes32 targetMid;
           uint256 voteCnt;
           uint256 timestamp;
           bool executed;
           mapping(address => bool) hasVoted;
       }

       uint256 public constant BASE_RATE = 30;
       uint256 public constant MAX_CLAIM =
           500 * 10**6;
       uint256 public constant STOP_LOSS = 40;

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       IERC20 public immutable token;
       uint256 public totalReserves;
       uint256 public monthlyClaims;
       uint256 public lastReset;
       bool public frozen;

       address[] public governors;
       mapping(address => bool) public isGov;
       uint256 public immutable threshold;

       mapping(address => bool) public embassies;
       mapping(bytes32 => MerchantProfile)
           public merchants;
       mapping(bytes32 => bool) public batches;
       mapping(uint256 => EmergencyProposal)
           public proposals;
       uint256 public propCnt;

       event EmbAuth(address indexed emb, bool st);
       event BatchProc(
           bytes32 indexed mid,
           bytes32 indexed root,
           uint256 contrib
       );
       event ClaimSettled(
           bytes32 indexed mid,
           uint256 amt,
           address indexed rec
       );
       event Rebate(
           address indexed val,
           uint256 amt
       );
       event Emergency(string reason);
       event Resume(
           uint256 indexed pid,
           uint256 votes
       );
       event PropInit(
           uint256 indexed pid,
           bytes32 indexed mid
       );

       modifier onlyGov() {
           require(isGov[msg.sender], "!gov");
           _;
       }

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       modifier onlyNode() {
           require(
               embassies[msg.sender]
               || isGov[msg.sender],
               "!node"
           );
           _;
       }

       modifier whenNotFrozen() {
           require(!frozen, "frozen");
           _;
       }

       constructor(
           address _tok,
           address[] memory _govs,
           uint256 _thr
       ) {
           require(_tok != address(0), "!tok");
           require(_govs.length >= _thr, "!len");
           require(_thr > 0, "!thr");
           token = IERC20(_tok);
           threshold = _thr;
           lastReset = block.timestamp;
           for (uint256 i = 0;
                i < _govs.length;
                i++) {
               address g = _govs[i];
               require(g != address(0), "!adr");
               require(!isGov[g], "dup");
               isGov[g] = true;
               governors.push(g);
           }
       }

       function setEmbassy(
           address _emb,
           bool _st
       ) external onlyGov {
           require(_emb != address(0), "!emb");
           embassies[_emb] = _st;
           emit EmbAuth(_emb, _st);
       }

       function initiateRescue(
           bytes32 _mid
       ) external onlyNode returns (uint256) {

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           require(frozen, "!frozen");
           propCnt++;
           EmergencyProposal storage p =
               proposals[propCnt];
           p.targetMid = _mid;
           p.voteCnt = 1;
           p.timestamp = block.timestamp;
           p.hasVoted[msg.sender] = true;
           emit PropInit(propCnt, _mid);
           return propCnt;
       }

       function voteRescue(
           uint256 _pid
       ) external onlyNode {
           require(frozen, "!frozen");
           EmergencyProposal storage p =
               proposals[_pid];
           require(!p.executed, "done");
           require(!p.hasVoted[msg.sender], "vtd");
           require(
               block.timestamp
               <= p.timestamp + 7 days,
               "exp"
           );
           p.hasVoted[msg.sender] = true;
           p.voteCnt++;
           if (p.voteCnt >= threshold) {
               p.executed = true;
               frozen = false;
               monthlyClaims = 0;
               lastReset = block.timestamp;
               emit Resume(_pid, p.voteCnt);
           }
       }

       function processBatch(
           bytes32 _mid,
           bytes32 _root,
           uint256 _vol,
           uint256 _chb
       ) external onlyNode whenNotFrozen {
           require(!batches[_root], "dup");
           require(_mid != bytes32(0), "!mid");
           MerchantProfile storage m =
               merchants[_mid];
           m.totalVol += _vol;
           m.totalChb += _chb;

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           if (m.totalVol > 0) {
               uint256 r =
                   (m.totalChb * 10000)
                   / m.totalVol;
               if (r > 100) {
                   m.riskTier = 3;
                   m.dynRate = BASE_RATE * 3;
               } else if (r > 20) {
                   m.riskTier = 2;
                   m.dynRate = BASE_RATE * 2;
               } else {
                   m.riskTier = 1;
                   m.dynRate = BASE_RATE;
               }
           } else {
               m.dynRate = BASE_RATE;
           }
           uint256 contrib =
               (_vol * m.dynRate) / 10000;
           batches[_root] = true;
           if (contrib > 0) {
               uint256 alw =
                   token.allowance(
                       msg.sender, address(this));
               require(alw >= contrib, "!alw");
               m.totalContributed += contrib;
               totalReserves += contrib;
               require(
                   token.transferFrom(
                       msg.sender,
                       address(this),
                       contrib
                   ),
                   "!tf"
               );
           }
           emit BatchProc(_mid, _root, contrib);
       }

       function claim(
           bytes32 _mid,
           uint256 _amt,
           address _rec
       ) external onlyNode whenNotFrozen {
           require(_amt <= MAX_CLAIM, "!cap");
           require(_rec != address(0), "!rec");
           if (block.timestamp
               >= lastReset + 30 days) {

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               monthlyClaims = 0;
               lastReset = block.timestamp;
           }
           MerchantProfile storage m =
               merchants[_mid];
           uint256 lim = m.totalContributed * 2;
           require(
               m.claimsPaid + _amt <= lim,
               "!lim"
           );
           uint256 stop =
               (totalReserves * STOP_LOSS) / 100;
           if (monthlyClaims + _amt > stop) {
               frozen = true;
               emit Emergency("stop-loss");
               revert("!stop");
           }
           m.claimsPaid += _amt;
           monthlyClaims += _amt;
           require(totalReserves >= _amt, "!res");
           totalReserves -= _amt;
           require(
               token.transfer(_rec, _amt),
               "!pay"
           );
           emit ClaimSettled(_mid, _amt, _rec);
       }

       function depositRebate(
           uint256 _amt
       ) external whenNotFrozen {
           require(_amt > 0, "!amt");
           totalReserves += _amt;
           require(
               token.transferFrom(
                   msg.sender,
                   address(this),
                   _amt
               ),
               "!reb"
           );
           emit Rebate(msg.sender, _amt);
       }
   }

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4.  Regional Resiliency and Network Topology

   To guarantee zero-trust operations across jurisdictions with volatile
   internet backbones, the infrastructure MUST separate on-chain block
   execution from public-facing internet routing.

4.1.  Regional Embassy Node Topology

   Each participating country (India, Pakistan, Bangladesh, Vietnam,
   Cambodia) SHALL host an autonomous, isolated data center stack
   ("Embassy Node").  Each node consists of an Ethereum execution client
   (e.g., Geth or Nethermind), a consensus client (e.g., Lighthouse),
   and a secure regional API gate.

4.2.  Isolated MPLS and Satellite Network Mesh

   All peer-to-peer (P2P) traffic dedicated to node replication,
   synchronization, and local RPC query forwarding MUST be encapsulated
   within a private Multi-Protocol Label Switching (MPLS) VPN network
   mesh.

   To protect against physical cable severing or local state-level
   network censorship, every Embassy Node MUST deploy a secondary
   satellite uplink (e.g., Low Earth Orbit satellite terminal).  The
   edge router MUST automatically failover to the satellite channel
   within 500 milliseconds if the primary MPLS connection is dropped.

4.3.  Capacity-Aware Round-Robin Load Balancing

   Regional applications interact with nodes via local private RPC
   endpoints.  Traffic load balancing across international node
   boundaries MUST use a Weighted Round-Robin (WRR) algorithm.  The
   weights MUST dynamically adjust based on real-time node resource
   telemetry (CPU load, network throughput, and mTLS connection
   latency).  If Node A (e.g., Bangladesh) experiences hardware
   saturation, traffic MUST be progressively offloaded to Node B (e.g.,
   India) proportionate to Node B's remaining system capacity.

5.  API Specifications

   Embassy Nodes MUST expose a standardized, authenticated REST API for
   Web2 payment processing engines.  All endpoints MUST require
   authentication via TLS client certificates (mTLS).

5.1.  POST /api/v1/epoch/submit

   Invoked by the APP backend at the end of each 10-minute epoch.

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5.1.1.  Request Format

   {
     "merchant_id":
       "0x7465737400000000
        0000000000000000
        0000000000000000
        0000000000000000",
     "epoch_id": 10842,
     "batch_root":
       "0x3a4f8e...b2c1",
     "metrics": {
       "total_volume_usd":
         154250.00,
       "total_chargebacks_usd":
         420.00,
       "transaction_count": 3120
     }
   }

5.1.2.  Response Format

   {
     "status": "QUEUED",
     "batch_root":
       "0x3a4f8e...b2c1",
     "calculated_premium_usd":
       462.75,
     "risk_tier": 2,
     "estimated_gas_eth":
       "0.0042"
   }

5.2.  POST /api/v1/claims/request

   Invoked to pull settlement funds when a time-delayed clearing
   chargeback is validated.

5.2.1.  Request Format

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   {
     "merchant_id":
       "0x7465737400000000
        0000000000000000
        0000000000000000
        0000000000000000",
     "claim_id": "99214-X",
     "amount_usd": 350.00,
     "evidence_hash":
       "0x88f2...99aa",
     "destination_wallet":
       "0x9E7D...421B"
   }

5.2.2.  Response Format

   {
     "status": "SETTLED",
     "transaction_hash":
       "0xbc55...0112",
     "amount_paid_usd": 350.00
   }

6.  Security Considerations

   Operating an SRO compensation pool over a public L1 blockchain
   requires stringent defense-in-depth measures to counter Advanced
   Persistent Threats (APTs) and consensus level exploits.

6.1.  Validator Key Isolation and Remote Signing

   Embassy Nodes hosting Ethereum validators MUST NOT store consensus
   signing keys (BLS12-381 keys) on the same virtual instance as the
   network-exposed execution or consensus clients.  Validators MUST
   utilize a dedicated, air-gapped Remote Signer sub-network or a
   Hardware Security Module (HSM) implementing EIP-3044 standards.  The
   node requests signatures via encrypted RPC, preventing key
   exfiltration if the public endpoint is compromised via an unpatched
   zero-day.

6.2.  Local Slashing Protection Synchronizer

   To eliminate the risk of a "slashing event" (accidental double-
   signing of blocks which results in the destruction of staked
   Ethereum), a localized anti-slashing database MUST be replicated over
   the MPLS VPN mesh.  Before an Embassy Node signs a block proposal on
   behalf of the pool's validator array, it MUST query the distributed
   database to confirm no other node has signed a conflicting block hash

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   at that specific blockchain slot.

6.3.  Mempool Shielding and Front-Running Mitigation

   Public mempools expose institutional transactions to MEV bots that
   execute front-running or sandwich attacks, causing slippage and
   artificial cost hikes.  Embassy Nodes MUST route all transaction
   blocks through private block production relays (e.g., Flashbots MEV-
   Boost) rather than standard public broadcasting.  This ensures that
   data updates and settlement allocations pass directly to trusted
   mining pools, remaining invisible until they are mined into an
   immutable block.

7.  Embassy Node Validator Implementation

   To ensure deterministic transaction inclusion, maximum protocol
   uptime, and absolute isolation from public network vulnerabilities,
   Embassy Nodes SHOULD implement a unified, vertically integrated
   validation and API routing stack.

7.1.  Vertical Validator-API Integration Architecture

   Traditional blockchain interactions rely on third-party RPC providers
   (e.g., Infura, Alchemy), which introduces latency and vector risks
   such as man-in-the-middle (MITM) attacks and MEV front-running.  Each
   DeMI SRO National Embassy Node MUST operate its own execution client,
   consensus client, and an attached internal validator infrastructure.

   graph TD
       subgraph P [Embassy Node]
           PE[Payment_Engine]
           RPC[Private_RPC]
           EE[Execution_Engine]
           CL[Consensus_Layer]
           ETH[Ethereum_L1]
       end
       PE -- mTLS --> RPC
       RPC --> EE
       EE <--> CL
       CL --> ETH
       EE --- ETH

   *  *Direct Execution Interlock:* When the Web2 API gateway receives
      an Epoch Batch via POST /api/v1/epoch/submit, it MUST sign the
      transaction using the APP's institutional hot wallet and broadcast
      it directly to the node's local Execution Engine (Geth or
      Nethermind) via an internal IPC socket, completely bypassing the
      public internet.

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   *  *Validator Priority Injection:* The local Consensus Client
      (Lighthouse or Prysm) MUST be configured to prioritize blocks
      containing transactions originated from the node's own private RPC
      endpoint.  When the Embassy Node's validator is selected as the
      slot proposer on Ethereum L1, it MUST inject the queued DeMI SRO
      transactions at the top of the block execution payload, reducing
      inclusion latency to zero.

7.2.  Institutional Staking and Compliance

   Operating public-facing validators within an enterprise financial
   contour requires strict compliance with recent institutional
   blockchain frameworks.  Embassy Nodes SHOULD adhere to the guidelines
   established by major institutional Ethereum initiatives and working
   groups focused on corporate node validation:

   *  *EEA Standards:* Node operators MUST implement the EEA Enterprise
      Architecture specifications regarding node access control,
      permissioned network routing over MPLS, and zero-knowledge
      evidence auditing for local central banks.

   *  *DVT Frameworks:* For financial risk mitigation, nodes SHOULD
      utilize distributed validator technology (DVT) frameworks (such as
      Obol or SSV Network).  DVT allows an Embassy Node's 32 ETH
      validation key to be split into multi-signature shares distributed
      securely between the sub-nodes of India, Pakistan, and Vietnam.
      This guarantees that if one physical data center goes offline, the
      remaining "embassies" can cooperatively sign blocks, preventing
      slashing penalties and maintaining continuous transaction
      ledgering.

   *  *RPC Sanction Filtering:* While the smart contract logic is
      immutable and extraterritorial ("Code is Law"), national Embassy
      Nodes MAY configure their private RPC layer to comply with local
      financial intelligence regulations (e.g., FIU-IND in India) by
      cross-referencing merchant wallet addresses against official local
      blocklists before broadcast.

7.3.  Automated GAS Fee Rebate Loop

   As specified in the protocol economics, all gas rewards earned by the
   validator (specifically the Priority Fee and block tips via MEV-
   Boost) for processing DeMI batches MUST be programmatically funneled
   back to the smart contract's treasury.

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   The node handler script MUST monitor on-chain events and execute a
   quarterly rebalancing transaction, moving accumulated validation
   rewards from the validator's withdrawal address back into the
   DeMISROCompensationPool balance, thereby lowering the net operational
   costs of the alternative providers to near-zero levels.

8.  IANA Considerations

   This document requires no registry assignments or interventions from
   IANA.

9.  Normative References

   [RFC2119]  Bradner, S., "Key words for use in RFCs to Indicate
              Requirement Levels", BCP 14, RFC 2119, March 1997,
              <https://www.rfc-editor.org/rfc/rfc2119>.

   [RFC8174]  Leiba, B., "Ambiguity of Uppercase vs Lowercase in RFC
              2119 Key Words", BCP 14, RFC 8174, May 2017,
              <https://www.rfc-editor.org/rfc/rfc8174>.

Author's Address

   Evgeny A. Shubralov
   AI Cybersecurity LLC / IP Shubralov
   Email: draft-submission@demi-sro.org
   URI:   https://demi-sro.org

Shubralov                Expires 29 January 2027               [Page 16]