Staking Economy (Series 7) is wary of Staking Profit, talking about Slash risk! ! !
Since the acceptance of Staking Economy has been widely accepted, the interest in this field has been extremely high. In particular, the holders of the PoS Consensus have begun to recognize their rights and have joined the Staking army. For a time, the WeChat group is amazed at Xx's annual interest rate (Livepeer 150%, Cosmos 20%…) is filled with money. As everyone knows, there is always another side behind the interests: risk! ! !
Start with Staking's original intention. Stake was originally an important means of participating in the security of the PoS public chain network. The currency holders obtained the voting rights through Staking. This behavior is similar to the behavior of the mining machine provided by PoW. With enough computing power in PoW, the network will become more robust, and with enough Staking in PoS, the network will become more robust. Therefore, when the PoS consensus is designed, Staking is used to replace the power loss to reduce the "meaningless" energy consumption problem in the blockchain consensus.
As early as 2011, the PoS consensus was first proposed. The most important point was to try to use the token power (Voting Power) of Stake to replace the power weight in PoW to eliminate energy consumption.
I'm wondering if as bitcoins become more widely distributed, whether a transition from a proof of work based system to a proof of stake a might happen. What I mean by proof of stake is that instead of your "vote" on the accepted transaction History being weighted by the share of computing resources you bring to the network, it's weighted by the number of bitcoins you can prove you own, using your private keys.
But this also makes the PoS consensus face another question: How does the network attract the holders of Staking?
PoS draws on the incentives of BTC. Each block encourages the miners to earn a certain amount of income, similar to BTC's coinbase. Only those who perform Staking can get these rewards. Of course, these rewards are based on the current existence of the token is an inflation. In the PoS consensus, we call this inflation non-dilutive inflation, and as the name suggests, Staking's tokens are exempt from dilution. In the PoS consensus after 2014, it is basically used to attract Staking to protect the security of the entire network.
What we usually call Staking's annual rate of return is actually this non-dilution inflation.
The mining risk of BTC miners is that they participate but not necessarily get rewards. Due to some reasons of mechanism design, the risk of mining is much higher than that of PoW. In addition to reward loss, there may be a penalty mechanism called Slash. Most miners or users are mining from PoW. Cognitive, so many people don't know what Slash is, and they don't know the severity of Slash.
In the Tezos community, there is a tzscan browser that specifically records miners who have been Slash. This record shows the specific Slash's mortgage and lost rewards. As you can see from the table below, there are up to 24256 XTZ system deductions (Slash) records, plus 756 rewards lost, calculated, this The certifier lost a total of 170,000 RMB in a one-minute block. Miners like TezosHODL have a continuous trigger system Slash, and the rewards are lost. What is more painful is that their mortgage is deducted.
So the severity of Slash can be imagined, so who is taking this risk? In fact, in the design of different chains, the bearers are different, but in summary, the people who are taking take the whole risk. Staking's holders will receive a profit, and it is also appropriate to bear the corresponding risks.
A typical example is Cosmos, which performs Staking in Cosmos. The holder enjoys an annual benefit of 7-20%, but at the same time, the holders share the risk of being Slash. Once the system is not in Staking, the system does not The behavior of running, then your Staking token will be deducted a certain amount.
In the current PoS consensus mechanism, in order to encourage the expansion of Staking, many systems have set up roles similar to “experts”. These experts help the holders to take Staking and exercise Staking rights, because Staking is a technical activity with high threshold. It is difficult for ordinary users to participate in it, and the way to entrust the rights can effectively expand the amount of Staking to better ensure safety. If the holder of the currency chooses the principal, it is equivalent to transferring the risk you bear to the client. The professionalism and awareness of the client ensures the security of your Staking token.
In the process of entrustment, although you have the actual Staking power, there is no timely operation right. The "timely" here leads to the second important risk in PoS Staking: lock time.
In the current PoS Staking mechanism, locking the Staking token is a very common method, in order to prevent a famous attack in a PoS, called Longrange Attack, which does not need to be related to the attack. The principle, the way, but need to be concerned about the lock time risk caused by this attack. In fact, you can always redeem your Staking tokens to the system, but each system can't return your tokens in time. When you can't operate your assets in time, you will lose a lot of opportunity costs. For example, their own urgency, high-priced sales, asset replacement, etc., these opportunity costs are sometimes even greater than your Staking year benefits.
The locking period of each project is different, and there is no theoretical proof of the specific relationship between the length of the locking period and the success rate of the long-range attack. It is only known that the longer the locking period, the more secure the network. In the existing PoS projects, most of the user experience and the possibility of attack are considered. The lock-up period is about 15~21 days, the elders are 4 months, or even half a year. Some systems have designed the yield and lock-cycle correlation. The system proposes that the longer the lock-up period, the higher the annual benefit and this dynamic strategy. This strategy is also reasonable, similar to our time deposits in banks, the longer the regular, the more we harvest.
Slash and lock-in cycles are two important risks of Staking, and entrusted rights increase the complexity of risk. Holders and principals, markets and systems, the two relationships need to consider interactions and risks to understand how to use Staking to get enough profit.
Back to our beginning, Staking was originally designed to protect the security of the network, and the incentive system is also to expand the security of the system. The Stakeholders carry out Staking, not so much to obtain the inflation annual interest rate. In order to be more stateful of the entire ecosystem. See the old saying in the group: You bought this coin, but you don't go to cx, it is indeed your fault. This sentence is not rough, put it in the PoS consensus, I think it can be slightly modified: you bought this PoS coin, but you don't go to Staking, it is indeed your fault.
Buying PoS currency and performing Staking to protect the network completely, a more robust network system will provide the world with a stable infrastructure, attracting more eco developers to use, develop, improve, and this will directly affect the system token, making it Appreciation, the appreciation here can be much greater than the value of the Staking annual interest rate.
Therefore, the really powerful holders should be fully aware of the meaning of Staking, know the risk of Staking, and finally get the inflation benefit through Staking. Don’t always listen to the media and say that the interest rate is high this year, and the interest rate is low that year.