Dan’s Staking Pool And The Future Of EOS Governance

EOS Amsterdam
Oct 23 · 6 min read

Lots of people debate an overhaul of the EOS governance. On 15 October 2019 Dan Larimer presented the blockchain community some bold and wonderful ideas (his “Blockchain Governance Proposal”) that surely will have great advantages over the current situation. His plans do not name a specific blockchain but it fits EOS.IO definitely.

Dan nuanced the feasibility of his proposal shortly after publishing it, though.. In a recent Medium post (of 18 October 2019, “How Trustless Contracts overcome Artificial Restrictions”) He noted that key elements of his earlier proposal, could easily be overturned by issuing an additional token. We will get back to all that after a short wrap up of the current governance debate.

At the heart of the governance discussions are two big issues. One is vote buying and the other exchanges that vote. Vote buying is an issue because it redirects scarce funds to the voters rather than to the EOS infrastructure. It leads to a race to the bottom: instead of the best block producer attracting the most votes, the block producer that is willing to pay their voters the most receives most votes. Rumour has it that currently BPs pay around 60% of their rewards back to the voters. Exchange voting is an issue because the exchange that votes, has no skin in the game: If EOS goes up, the exchange’s clients profit, not the exchange. The exchange will therefore vote only for BPs that pay it the most, and in doing so, greatly amplify the vote buying effects.

The vote buying issue at the launch of EOS dealt with in a contractual manner: through the EOS constitution vote buying was outlawed. Though there was no effective enforcement, vote buying seemed to be at bay. Then, the current EOS contract became the de facto agreement. That contract does not forbid vote buying. Vote buying took off big time after that. As for the exchange voting: neither the early EOS constitution nor the current agreement deals with that.

Dan’s proposal has many interesting elements. We will scrutinize the two major elements, also in the light of Dan’s recent tweet.

The first one is the creation of six staking pools. An EOS owner must stake his EOS in one of these pools in order to vote. The pools differ from each other through the possibility to retract EOS. The 10 years pool, e.g. enables the owner to retract 0,2% of their staked tokens weekly. The 3 months pool allows to retract 7% of the staked tokens weekly. Each pool gets 5 Million EOS a year. So, by way of illustration, if one voter would stake 1 EOS in one of the pools and he would be the only one, he would get 5 million EOS per year (nice). If ten voters would each stake 10.000.000, — in one pool and if they would be the only ones in that pool, they would each get 500,000 EOS yearly which is a 5% yield. The brilliancy is that more people will be interested in the shorter terms pools and therefore the yield in those pools will be lower because more people would have to share the 5 million in that pool. So it pays to go for a long term interest with EOS. This long term interest means that the voter is or should be more interested in the intrinsic value and the long term success of EOS than short term payouts. This system however does not prevent vote buying as such.

Anyway, Dan’s second article touches on a fundamental issue: he acknowledges that any restrictions on any token use can be circumvented by issuing another token on top of that token that does not have that restriction. All assets can be made liquid thanks to the blockchain, also staked tokens. We are not sure but we wouldn’t be surprised if one could even use smart contracts to make the staked tokens vote in a certain way. But even if the longer staked token are only made liquid, with the voting rights staying with the staked tokens, that might deteriorate the system.

Nevertheless, the staking pools have two very big advantages: they will engage voters because of the rewards and, last but not least, they will make exchange voting impossible. Exchanges need to remain fairly liquid. They therefore cannot stake the EOS they hold for their clients for a long term. They also cannot work with “secondary” tokens to make “their” EOS liquid: if their clients want their EOS to be sold, they just cannot offer to instead sell the “secondary” token.

Another fine element of Dan’s proposal is a pretty hefty if blocks are being missed. If the reliability goes down, so goes the inflation. That affects the voters, but also the block producers themselves. That surely should incentivise voting for technically safe and sound block producers. The idea is, again, simple and effective at first sight. However: this system works fine if everyone votes in everyone’s interest but it doesn’t stop a calculated voter who squarely votes for a technically unreliable BP that offers the highest rewards. This element becomes a modern variation on the good old prisoners’ dilemma: if you all do good, everyone gets slightly better, if one does bad, this one gets much, much better, but if you all do bad, all are left with nothing.

Looking at both remaining issues: the tokenization of the staked votes and the prisoners’ dilemma, we suggest to try and tweak Dan’s proposal on a few points.

Currently voting is continuous and a staked token can vote for BP a and an hour later for BP. Why not change that? And allow to change the votes only once every three months, or even every three years? At the same time, we could change the penalty Dan described in such way that it lowers the inflation on the staked tokens that voted for the non-performing BP, as well as the rewards of that BP (they are both based on inflation, so it could be done).

The effect of all this, is that a voter would really have to scrutinize a BP. The BPs on their turn would have to clarify, much more than they have to do now, how they will run their systems. The longer the term the votes are locked onto a BP, the greater the incentive for a BP to show that they represent a robust and enduring quality. Vote buying will still be possible, but a voter would not vote for a BP that offers to repay, let’s say, 80% of their income, since such voter would run a serious risk to be left with nothing: no voting rewards out of the staking pool and no vote buying rewards since the malfunctioning BP wouldn’t get any rewards anymore.

The vote buying percentage would inevitably find a balance where BPs would function cost effective and yet reward the voters as much as possible.

Regarding the locked vote term we need to find a balance: three years may be a bit much of a term, but three months is probably too little.

We are extremely happy with Dan’s proposal. We support an ongoing discussion on his ideas and are happy to participate on all levels.

About us

Founding block producer for the EOS mainnet. Block producer for the BOS mainnet. WAX Guild candidate. Partner in the Europechain sister chain. Investor in blockchain projects. Governance, intercultural cooperation and security specialist. You can find us here:
EOS Block Producer name: eosamsterdam
BOS Block Producer name: amsterdambos
WAX Guild name: amsterdamwax
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