The tens of billions of dollars in the pan-PoS ecosystem: What issues need us to seriously consider?

2019 will be the "year of rights", and many companies are committed to the development of products, services, projects, investment products, and the initiative to seek development, commercialization and advancement of equity models. In the past six months, the progress of related companies and projects has made people impressed with the development of the equity ecology.

It has to be acknowledged that the pan-PoS ecosystem (including DPoS, master node systems, etc.) occupies a considerable proportion of existing blockchain projects, and more projects will refer to such mechanisms in the future. For a mechanism that is more flexible than PoW, what are the issues that need to be considered in the development of PoS?


Current status of the equity certification project

As of March 26, 2019, there were 11 PoS (Profits) agreements with market capitalizations exceeding $100 million, including other types of PoS models, such as the primary node system. The total value of these agreements is close to $9 billion and the average annual return on investment is about 5%. This means that the current equity market has at least $450 million in annual equity incentives.

In addition, there are some billion-dollar network projects, including BNB and Cardano (ADA), which are preparing to switch to the PoS mechanism. There are also many network projects in the promotion process that will adopt the PoS mechanism. It appears that these network protocols are conservatively estimated at $8 billion. If we use the same 5% return, this market expects to have a return of $400 million a year. Conservative estimates show that in the middle of 19 years, the market value of the equity market will reach tens of billions. It is conceivable that the competitive landscape of products, services and investment vehicles that invest in relatively low-risk investment strategies is heating up.


Who is involved?

Investors are trustees, and if they hold assets for a long time, they should earn a percentage of inflation in order to maintain their share of the entire network. Most funds don't have enough capabilities and don't want to personally participate in the PoS network. Individual investors also have no ability to learn, follow up, and participate in the mechanisms that are carefully designed for each agreement.

Everyone needs to spend a lot of time and energy to collect effective data and conduct basic research. It is not easy to understand how each protocol works. From a service provider's perspective, no entity can provide services to each network, let alone long-term services, because not all networks are identical. Therefore, if you want to study thoroughly, you need a lot of expertise. However, no company or organization can thoroughly study all the agreements.

A large number of stakeholders will be affected by the evolution of the equity ecosystem and will have a vested interest in the outcome. Some of them are passive and some are more active. However, all participants will play a key role in the future equity ecology and should be a voiced person. The chart below details some of the key players currently in the equity ecosystem.

In the future, the establishment of a functional equity ecosystem will depend on continued cooperation and communication between these parties. Regarding how this ecology is better established, we have raised a few questions and we can discuss together:


Become a traditional financial accessory?

The original design concept of PoS refers to the structure of listed company's equity to a certain extent. As far as the current PoS project is concerned, many of the rights and responsibilities of holding Token are similar to some assets in the traditional financial market, so it is easier to be Many new investors accept it.

But in essence, PoS is re-engineering an economic system. The so-called stake holder bears far more than the voting rights of the board of directors. It is to make every effort for the entire project, even the restructuring of the economic system.

From a micro perspective, does a single project have to learn the tax incentives of a limited partnership to pass on some of the expenses to investors? How to calculate, manage, and process returns effectively, accurately, for example, through contractual payments or through other means? Is the income cashed on a regular basis or allowed to be compounded? Is the income distributed in the form of tokens or mixed with other assets? How is the income tax managed?

From a macro perspective, how do you design the parameters of an investment product for the entire PoS market? How to manage volatility and equity gains? Use fixed or floating rate of return? Predicting how the market, synthetic derivatives and other hedging strategies can be combined with equity strategies to provide investors with better products?

Designing a PoS into an idealized independent economic system, or a traditional partnership structure, is another question of To Be or Not To Be.


How to introduce tax, legal and regulatory mechanisms?

Clearly, there is a need to explore a new legal and regulatory environment in this emerging world. Fortunately, almost all participants firmly believe that coordination and cooperation with regulators is in the best interests of the world of rights. This includes advocacy work and the creation of templates, tools and standards, as well as regulations, taxes, internal controls and disclosure standards.

First, there is a qualitative question about equity income. Is this dividend income, passive income, savings income, 1099 MISC income (also known as miscellaneous income, used to report “non-employee income” to the US Internal Revenue Service) or something else? In terms of taxation, the determination of fair market value is one of the most difficult issues, because most of the time the market price of a currency exchange does not reflect the price of a position that can be traded. It may be helpful to use pricing rules for the sheet and over-the-counter markets.

Another idea is to create something like LIBOR (London Interbank Offered Rate), and some industry participants have created interest rate setting mechanisms, including exchanges and over-the-counter trading platforms. When tax regulators from around the world begin to tighten regulation in this area, they may use the existing systems of the company in the field as a reference. Therefore, it is important to set a precedent that is fully researched and supported.

Some companies in the United States have begun to draft relevant content and work hard to understand the US market more clearly. These companies agree to share these templates, and participants will be actively working to build a public knowledge base of these documents. In addition, some companies agreed to take the lead in hiring leading professional services companies to post some introductions and preliminary comments after exploration and research to help develop the field.


How does the economic structure appear to be more “decentralized” among participants?

Coase described in company theory that the issues that behavioral economics has been discussing for the past 100 years are:

What happens when the interests of the agent (service provider or agreement team) conflict with the interests of the principal (investor)?

The answer is that there may be fixed interest rates and Qatar behavior (an organization of independent companies that produce similar products with the aim of increasing the price of such products and controlling their production). The solution to this problem is the basic idea of ​​PoS: creating a secondary market for the sale of voting rights, thus creating an independent market for governance. To prevent free-riding behavior, use the token economy to reward the submission of protocol upgrades. People, let participants have more right to speak.

But how does this Token economy become more “decentralized” and equitably motivate everyone to prevent conflicts of interest?

The main concern in the first question is what kind of rewards are given to investors, and here we need to think about how to distribute rewards. In addition to the basic economic model that we naturally think of, there is a very forward-thinking idea here.

This idea may soon be implemented on EOS: in order to solve the problem that predecessors have distributed limited resources to unfairness of future generations, the project can charge all token holders 5% of the annual fee for the second year of redistribution. . In this way, about 99.5% of the initial resources will be reallocated within 100 years. This is the "Universal Resource Inheritance" (URI).

Of course, in addition to this, the dispute resolution mechanism introduced by EOS, the “constitution”, is also worthy of reference for the Pan-PoS project.


Do you need to set a proper noun?

In different PoS projects, there may be different interpretations of the same nouns, and the differences in these understandings may be very subtle, so we tend to use a more popular, standardized description to explain the project's operation. mechanism.

At present, most of us are analogous to traditional financial concepts to explain some aspects of the project, but this will inevitably lead to some misunderstandings, such as the nature of the token, the way the proceeds are distributed, and so on.

On this basis, foreign organizations have established and shared the Staking 101 document and identified methods for standardizing common terms and definitions. The purpose of these efforts is not to commercialize language, but to create more consistency in how to interpret “rights”.

The entire Staking economy world is still at a very early stage, and how it will evolve in the future will not be clear, but it will be interesting:)

(Translator: Eric; Source: Orange Book)