The Missing Piece to the EOS Incentive Model: Part 1
A Proposal for Voter Incentivization Through Staking Rewards
The EOS Incentive Structure
“Inflation” is the primary tool which establishes the incentive structure of EOS. Slightly a misnomer, inflation in DPOS refers to the issuance of new tokens into circulating supply rather than any increase of the price of a particular basket of goods. There are two key groups that require incentive to keep EOS running, the block producers and the token-holders who vote. Block Producers are incentivized through a kind of seigniorage of newly issued EOS tokens, which are rewarded in exchange for producing blocks and receiving votes (eosio.bpay and eosio.vpay). In this way, Block Producers are akin to gold miners, figuratively pulling resources out of the ground with the right to introduce them to the market. Their work is absolutely necessary for the EOS blockchain to exist.
Voters, however, are currently excluded from any similar incentive. This is despite the fact that voting necessarily secures the network by increasing the capital threshold of attack on EOS i.e. the cost of purchasing enough tokens to install “malicious” block producers increases as total votes cast increases. Furthermore, a voter sacrifices token liquidity through staking as well as time-value in order to make informed votes. This is regardless of whether or not those votes be cast through direct staking, REX participation, or delegating to a proxy.
Equal Access for All Voters
Token-holders who vote, an act that is critical to the ongoing security of the network, should have access to token seigniorage within the base-layer incentive model otherwise EOS is operating with an incomplete model.
While some may argue that REX is a sufficient incentive to vote, it discriminates against one valuable type of EOS voter in particular, the type that actually uses the EOS tokens they own (e.g. the developer who builds a business on top of EOS). If a developer owns 1,000 EOS and stakes those tokens to access resources and vote, they are denied the same benefits as those token-holders who have no need to access on-chain resources and instead choose to lend them out through REX.
EOS New York proposes that newly issued tokens should be awarded at a dynamic rate to all token-holders who vote.
Through this, token-holders of every type who vote, without discrimination or exclusion, rightly reap the benefits of the base-layer incentive structure with which they were already expected to participate. This also creates an opportunity cost for those who choose not to vote, as the proportionate value of those that do will increase over time.
The Dynamic Rate
The rate of token issuance (inflation) should be dynamic and adhere to the following rule; the higher the voting weight is on-chain the lower the amount of tokens issued to voters is. The reasoning is simple, if the capital threshold of attack of EOS is low then this would incentivize token-holders to raise it. If it’s “high enough” then the rate can be lowered with each time incremental voting weight is applied on-chain.
The idea here is that we establish a minimum voting target of X whereby inflation will remain at the upper bound limit A until this target X is achieved. Every vote that incrementally increases the total voting weight on-chain past X target will decrease the percentage% rate of inflation until the lower bound B is met. After the lower bound is hit is any incremental voting weight is considered just as valuable.
For example (NUMBERS ARE FOR ILLUSTRATIVE PURPOSES ONLY):
- The minimum voting weight target is 75% while the maximum voting weight target is 90%.
- The upper bound of the rate of token issuance is 2% inflation while the lower bound is 1% inflation. If the current voting weight is less than 75% of total possible than the maximum rate of 2% will be active.
- If the current voting weight is between 75% and 90% the rate of inflation will be somewhere between 1% and 2%.
- If the current voting weight is above 90% the rate is 1%.
This is for illustrative purposes only as we are still exploring optimal figures. Discrete numbers will be proposed following rigorous community discussion.
It is worth noting that requirements to receive voting rewards, such as voting for at least n Block Producers, should be considered but were intentionally left out until technical requirements and feasibility became more clear.
Conclusion & Next Steps
Voting is a fundamental pillar of maintaining a functioning DPOS blockchain and so it should be included in the base-layer incentive model. EOS New York, pending feedback from the community, will begin to develop the dynamic inflation rate values and explore the technical requirements of how exactly staking rewards would be implemented. Our stance on inflation, in general, is that it be reduced to a level which includes this program, which we view as a critical piece of the incentive model which operates and secures the EOS blockchain.
If you are interested in this discussion please join us in the EOS New York telegram channel or leave your comment below.