Delegated Proof of Stake via Proof of Reinvestment

BlockchainKid
Aug 1, 2019 · 5 min read

Brought to you by BlockchainKid, made possible by EOS Blocksmith

Introduction

As the debate around vote buying continues, various members of the EOS community have shared their ideas to strengthen the network’s voting mechanics and enhance the incentive system. In this article, I present a governance overlay to Delegated Proof of Stake called “Proof of Reinvestment” or “PoRE” as an additional idea for the community to consider.

The EOS community remains divided over the use of voter rewards. Those in favor of incentives point to voting as a resource, commodity and aspect of ownership that should be monetizable like other resources on the EOS blockchain. Those against vote buying speak of its potential to erode security, decentralization and long-term value in the network by fundamentally altering the meritocratic and reciprocal relationship between tokenholders, Block Producers and the network itself.

The Proof of Reinvestment concept is an amalgamation of ideas and borrows from designs discussed by other notable EOS community members; however, under PoRE, I attempt to marry these ideas into an integrated strategy. As with most of my ideas, I envisage this concept being one potential aspect of a larger set of governance changes which would contribute to more equitable EOSIO incentive systems in the future.

Proof of Reinvestment

The ability to vote and affect network outcomes is a privilege and should be treated as such. “Simple” token ownership should confer to the tokenholder the right to core network resources, including RAM and CPU. However, in order to continually affect network decisions, I argue that one should continually reinvest in the network as a pledge towards its future.

PoRE attempts to disrupt the relationship between power and profit by forcing network participants to choose one at the expense of the other. Under PoRE, to exert power power via voting, an account holder must continually “reinvest” in the network by forgoing income and subject themselves to a loss of purchasing power over time.

While the details are subject to further discussion, the design parameters of the PoRE concept are as follows:

  1. Allocate a portion of inflation on a pro rata basis to all EOS accounts based on the number of staked EOS per account. This is called the “Universal Inflation Entitlement Rate” (or UIE Rate). For example, assuming 1% of inflation for BP pay, 2% of the remaining 4% (i.e., half) which goes to eosio.saving could be redirected to eligible accounts to fund the UIE.
  2. Enable customizable UIE Rates as an EOS account parameter. Account holders may choose their UIE Rate between 0% and 100% in 20% increments. For an account to receive its entire share of the Universal Inflation Entitlement, the customizable parameter must be set to 100%
  3. Enable customizable Vote Power (VP) as an EOS account parameter. The Vote Power parameter, which is always the complement of the UIE Rate, (i.e., VP=1-UIE Rate) gives weight to an EOS account’s staked tokens for the purposes of voting.
  4. Implement non-linear parameter adjustment once parameters have been set. Adjustment to new parameters are back-end weighted over an extended period of time (e.g., 120 days)

The implications of these changes on the EOS voter and incentive system include:

  • EOS account holders are forced to trade off control and profit. For an account to claim 100% of its share of UIE, the account’s Vote Power must be set to zero. In other words, to maximize rewards and optimize purchasing power, an account holder must forfeit their voting rights entirely. Forcing this trade-off reveals each account’s greatest motivations
  • For voters, the ongoing ability to affect network outcomes comes at the cost of dilution and requires continued proof of reinvestment in the network by forgoing inflation awards
  • An account holder must always be “pro-power” or “pro-profit”. Enforcing UIE Rate and VP parameter changes in increments of 20% requires a 60%/40% allocation “at best”
  • The incentive to “flip-flop” parameters is mitigated through non-linear adjustment (i.e., back-end weighted) of VP and UIE Rate over time before their full effects can be experienced

An Illustration

Brace yourself, here is some math…

Illustrative EOS Token Model with Assumed UIE / VP Rates
Hypothetical EOS Account Holders
Annual EOS UIE Rates per Account based on UIE / VP Trade-Off

In Conclusion

In recent weeks, I’ve been encouraged by very positive developments on the EOS mainnet, most notably the support among Top 21 EOS BPs for EOS42’s proposal to change the articles of the regproducer contract.

It caused to reflect and reconsider my preconceptions and remain open-minded about the future. As such, I considered abandoning the Proof of Reinvestment concept entirely so not to further cloud the discussion with underdeveloped and unlikely ideas.

However, while difficult to implement and somewhat uncertain in its outcomes, I find the idea of separating power and profit in this way to be too intriguing to ignore. As always, I welcome others in the community to discuss, test, develop or dispute this idea to continue the evolution of EOS blockchain governance.


A huge thanks to EOS Blocksmith for sponsoring the creation of independent EOS content. EOS BlockSmith is a leading Block Producer candidate out of Silicon Valley that is committed to unwavering financial transparency, accountability, and integrity. They publish high quality and trusted educational content, actively engage with the community, and build tools for EOS.IO users, developers, and block producer candiates. Find out why they’re recommended by their peers and industry professionals at eosblocksmith.io

About BlockchainKid: I am a long-time EOS supporter and advocate for decentralized technologies. As a compensation and corporate governance consultant, I regularly consult with private and publicly-traded companies on items such as executive pay and incentives, compensation risk, shareholder rights and board structure, and help them ensure compliance with (or an understanding of) disclosure and governance best practices enforced (or encouraged) by the Securities Exchange Commission (SEC), Institutional Shareholder Services (ISS) and Glass Lewis. Contact me on Telegram @theblockchainkid

More From Medium

More from BlockchainKid

More from BlockchainKid

The EOS Elephant in the Room

More from BlockchainKid

More from BlockchainKid

More from BlockchainKid

What the Fork is Telos?

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade