In 2019, companies that catered to the development of the Proof of Stake grew rapidly and became the mainstream of the market. The core of this emerging industry is called Staking-as-a-Service, which has been adopted by Tezos, Decred and Cosmos for its obvious advantages.
Just as the mines in the Proof of Work gather the miners' hashes, such projects allow holders of smaller assets to use their benefits in exchange for the corresponding zones. Block rewards.
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Analysts expect that the Staking-as-a-Service market will intensify as such platforms use more cost-effective means to provide more attractive goods or services, which in turn will lead to a significant reduction in the investment threshold for the encryption economy.
We expect that at the management level, Staking-as-a-Service can produce different results. But we should also foresee that the fees charged by these companies in influencing the direction of the agreement will gradually evolve politically interested interest groups.
This article was written by Max Fiege, a network security consultant, and compiled exclusively by Encrypted Valley .
Political nature of the PoS mechanism
All networks that rely on Liquidity Proof of Equity (LPoS) or Proof of Equity (PoS) stipulate that as a certifier, you must place assets in the network that are not below the lower limit. Non-conforming holders can entrust or pool their native assets into a ready-made verifier.
In this way, they can still obtain the corresponding voting rights based on the share of assets.
The table below shows the thresholds for each product to be delivered, which causes most of the holders to be excluded.
Need to pay attention to the following points:
- The threshold for Cosmos is the top 100 network certifiers. At the time of this writing, 10,000 ATOMs met the minimum required for this requirement.
- The threshold for Decred depends on the “fare.” At the time of this writing, the “fare” is 120 DCR.
- The Polkadot main network is not yet online, so we can only estimate the DOT price based on its IOU market.
- Tezos' recent vote decided to reduce the minimum threshold from 10,000 XTZ to 8,000 XTZ. This change took effect in the summer.
Although the dollar value and the threshold of the native assets on these blockchain networks fluctuate, it is undeniable that these indicators tend to be above the equity holders.
This threshold also makes the block's propagation time normal (the more the verifier is, the longer the block is verified), ensuring that the verifier can get the corresponding benefit. This second-order effect also encourages equity holders to increase and pool more assets to offset the inflationary effects of the voice of the equity production and governance network.
However, it must be pointed out that having a voice in the governance network distorts the characteristics of Staking-as-a-Service and allows us to treat it as a commodity. This is not necessarily accurate.
For different blockchain networks, asset holders have different meanings for speaking, but the facts have proved that their value is not the same:
- Decred: In the Politeia finance department, 10% of the block rewards are used exclusively to reward the “bearer”. The ticket holder can submit and subsequently vote for the proposal. They currently have about 610,000 DCRs or $15 million in “dry powder” (meaning their liquidity) to fund useful activities in the community (eg core developer salaries, meeting trips, etc.). The holders who cannot be the holders of the ticket can pool their DCR with the VSP (Voting Service Provider) to obtain the corresponding voting rights and income rights.
- Tezos: Bakers (ie: certifiers) can vote for up to 20 proposals during each proposal period. According to Tezos' governance mechanism, this proposal period will last for about 24 days in each 96-day cycle. Unlike the ticket holders in Decred, bakers are not eligible for financial incentives; however, in some special proposals they receive invoices for inflation funds, which are fully independent of the 5.51% annual block award ratio. .
- Cosmos: The certifier can submit the proposal at any time, but they must provide 512 ATOMs for a two-week vote. If the proposal is successful, the certifier receives the refund; if it fails, they will lose the ATOM provided. These lost ATOMs will be pooled into the community funding pool to improve the security, usability and continued value of the Cosmos network. At present, the certifier cannot use the funds of the community fund pool, but early management experience shows that the system is more biased towards the Politeia mechanism.
Just as the company advocates the establishment of good business rules and friendly government relations, these teams built on the network want to gradually optimize the control of governance proposals. They need to properly manage their own funds, receive support from their members and fans, and be recognized by community forums to minimize the structural risk of the original agreement changes due to excessive public funding. Because entrusting or pooling public funds into the hands of a few people will become politicized. If one verifier is too strong, the will of others will be distorted and cannot be realized.
Pattern evolution of Staking-as-a-Service
Choosing an honest mine has a market-level impact, and entrusting a specific certifier will have a network management impact. In the case of the former, you can allocate the block reward share to multiple pools; in the latter case, your decision may become a decisive vote for the clearing community fund.
Some may say that the 2014 Ghash.io pool incident is a counter-evidence. But over time, people have forgotten that workload proofs are becoming more and more commoditized, and that proof of equity is becoming more and more politicized. For this reason, we should not expect companies engaged in Staking-as-a-Service to develop in the same path as the BTC pool.
We can go back to the traditional political framework. Historically, those in power have often adopted a tacit attitude toward rent-seeking behavior to counter threats. Here are some examples:
- Under the persecution of the Roman Empire, the early Catholic Church remained strong throughout the Middle Ages;
- Although the protection of labor rights is written into the law, the union dues paid by workers (ie, union fees) are still increasing as part of the salary;
- Party members expect to rank the membership system during their tenure;
- The American Medical Association was originally established to standardize federal government medical legislation and regulatory behavior. However, it has now evolved into a commercial organization.
If this political framework occurs on the “chain”, what will happen?
It is still too early to answer this question, because there is competition between companies engaged in Staking-as-a-Service, and now the relatively high rate of return, even if the transaction costs are spent, the balance of payments can reach a dynamic balance.
But obviously, when there is a controversial proposal in the market saturation period, the latter thing will happen naturally: a certifier or equity pool will sell itself to a specific group of people. After getting enough support, the certifier and the equity pool will realize that they can control the network, charging 5-10% of the processing fee instead of 1% is only a matter of time.
With the promotion and popularization of this model, the new holders will involuntarily bring their own equity assets into the hands of specific verifiers if they want to participate in network governance and not just asset speculation.
We can look at the results of these conflicts:
- Allocation of funds: Due to the expansion of funds over time on networks like Decred and Cosmos, any future funding proposals will be less valued. If a network can survive for ten years, and the currency holders feel that the timing is right, billions of dollars of “dry powder” capital will be freely distributed. These funds can be used for product development or open source hardware production, or simply invite the top 100 holders to participate in a luxury cruise. In order to maintain the voting rights of capital allocation, raising the capital limit may cause anxiety to the token holder.
- Core Developer Emotions: A network like Tezos allows holders to change the original agreement by voting. In the early days, most important technical proposals came from core development teams such as Nomadic Labs. However, as the network develops, the risk of a lack of experience or malicious developers changing the original agreement will gradually increase. To reduce this risk, core developers can “transform” into certifiers or equity pools to increase their reputation and fund themselves.
- Equity Asset Threshold: The current Equity Proof Network (POS) uses a variety of methods to validate the verifier. From Ethereum to 32 ETH, Tezos to 8,000 XTZ and Cosmos to take only the top 100 holders of the address, various methods emerge in an endless stream. In practice, people can gradually find the optimal asset threshold, and other networks will follow suit.
However, if the expansion of the verification pool threatens the veteran certifier's financial income, they may object to it. In this case, an enterprising certifier can find the holders at the marginal position, allowing them to become certifiers at a higher cost to make a proposal.
The above examples not only illustrate why there is a political framework in digital assets, but also emphasize that network stability is especially important in the long run. The facts show that as time goes by, the rights of the verifier will become more and more important, which is in stark contrast to the anti-fragility that BTC has promoted.
In other words, as time goes by, the dominant PoW-type digital assets will be less and less attacked, while the PoS model will be the opposite. The resulting management demand will cause unnecessary losses to the entire network in the form of equity fees, similar to lobbying or sponsorship in traditional political systems.
So, PoS will bring political uncertainty to the blockchain? In fact, large exchanges like Coinbase and Binance will dominate for a long time because they can afford losses, and most of the holders don't care about network governance.
Just as BTC has rewritten the history of money, we should foresee that digital assets using the PoS mechanism will reproduce political groups in the chain. In the long run, even a network such as Ethereum 2.0 that does not have a chain governance mechanism will not necessarily pose a greater threat than the PoW system.
Of course, it remains to be seen whether developers can design a permanent network. After all, the immortal empire will die in an instant, how long can a particular digital asset last?
Max Fiege author
Translation of Potter Li
Source: Encrypted Valley
The content is for reference only, not as an investment recommendation.
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