Since June 2017 the EOSIO blockchain software team has stood strongly for a feature of token voting that has delighted some fans and infuriated others — the “6 month lockup” required to stake EOS tokens for voting.
On March 12, 2018, block.one CTO Dan Larimer announced that the EOS.IO software has dropped the 6 month lockup from the list of committed features of the software.
Three things have combined to lead to this decision.
- Token Shorting has Matured
- Community Feedback
- Experiences with Steemit
Here’s a close look at each. But first… why was there ever a 6-month lockup?
Design Goal of the Original 6-Month Lockup
Every feature one creates in a system, is there with the intention of serving one or more specific goals. For EOSIO, a big concern was “How do we get the community to cast careful, thoughtful votes to steer the evolution of the system?”
As I’ve written previously, “The health of the EOSIO platform requires people (token holders) to cast thoughtful, informed votes for block producers and for system upgrade proposals. That requires effort and judgment.”
But there can be other reasons for casting votes, including:
Think you can count on “the masses” to be thoughtful? Not always. Two words: Boaty McBoatface. Good governance may require some sort of disincentive for casting whimsical votes that cost the voter nothing but that can harm the health of the system.
Greed and Corruption
There are entire blockchains where block producers get their positions via voting, and explicitly pay for those votes. Those voters typically show little evidence of interest in the health of those chains, but a lot of interest in getting paid as much as possible. Those blockchains aren’t particularly successful, and there’s every reason to believe such behavior would harm an EOSIO mainnet. While some say “greed is good” the reality is that self-interest, if not guided by incentive systems that link it to the general interest, can destroy the commons.
Every effective free market system includes robust anti-corruption measures. Good governance for the EOSIO Software requires taking measures to minimize corruption.
It would be easy to come up with a couple of initiatives to vote for that might drive up a token’s price in the short term and harm it in the long term. To have a healthy blockchain ecosystem, such initiatives must be discouraged or disincentivized.
Some folks might simply want to harm the chain, for reasons as varied as envy, spite, or competition. Making malicious behavior expensive and difficult would be wise.
Skin in the Game
The intention of the 6-month lockup was to discourage all of the above harmful behaviors (and others) by causing voters to have “skin in the game” in the form of exposure to the long term token price. If a vote harmed the chain, the thinking was, then the voter would be affected by those harmful results. Knowing he would be affected, such a voter would have a strong incentive to think twice about chain-harming behavior.
Token Shorting has Matured
When the 6-month lockup was first envisioned as a response to the need to incentivize thoughtful voting and/or disincentivize thoughtless, corrupt, malicious or greedy voting, there were no easy methods for “shorting” a token.
That has changed. Many cryptocurrencies and tokens can now be ‘sold short’ fairly easily, and that ease is increasing.
This means someone who actively wished to harm a chain and who had enough money to afford to, could both buy tokens (thus ‘going long’) on the chain, and also sell borrowed tokens (‘shorting’) on an exchange. These cancel each other out (known as ‘short selling against the box’ in stock-trader-ese) and leave that person indifferent to the price of that token. (Any rise or fall in the token price would increase the value of one of those two positions while decreasing the other by the same amount, leaving a net exposure of zero.)
With the rise of token short selling, the effectiveness of the 6-month lockup as a method of ensuring skin-in-the-game exposure — at least for well heeled and sophisticated bad actors — is neutered.
The 6-month lockup has always had its critics.
While some of those criticisms were flawed or misplaced, others were simply true. The gist of these is, the lockup could significantly deter voting by smaller holders of tokens, or would cut back their level of voting. In particular, providers of DApps might need a large supply of tokens for bandwidth, and not have many to spare for voting.
Thus the dropping of the 6-month lockup will ease the way for increased voter participation by all holders.
Experiences with Steemit
An earlier effort at creating skin-in-the-game exposure via a lockup is the 3-month lockup for tokens on the Steemit blockchain platform.
Recent experiences show that the lockup has had negligible impact on voting patterns there.
Given all of the above factors, it was decided that the 6-month lockup was no longer an effective way to help achieve the desired goal.
As Lawrence Lessig described in The New Chicago Model, there are four forces constraining people’s behavior in an online group — the law, the code, market forces, and social forces.
By letting go of the 6-month lockup, the EOSIO governance design team are letting go of this particular approach to using code to achieve the desirable outcome of wise votes from token holders with skin in the game. Nevertheless, I believe we can expect to see all four forces continuing to be used by the governance design team in appropriate and creative ways to achieve effective community governance and a vibrant, healthy blockchain ecosystem.
All opinions expressed here are my own.
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