What is Delegated Proof of Stake (DPoS) and how INDX will let you invest in it?
INDX recently announced that expansion into Delegated Proof-of-Stake (DPoS) passive income potential to complement our existing Masternode and Proof-of Stake (PoS) investment options.
In multi-layered blockchain protocols, why is staking necessary, and what is the difference between PoS, DPoS and Masternodes? More importantly, why is INDX deciding to include DPoS in our investment portfolio?
What is Staking?
Staking is a trust mechanism built into the architecture of a blockchain, where a token holder acts as a validator of transactions by “staking” or holding a larger portion of coins in the project’s wallet, for which they are rewarded as the blockchain network grows through continued mining and validations. The Proof-of Stake (PoS) consensus mechanism was developed in 2012, serving as a faster, more secure and less energy-intensive alternative to the Proof-of-Work (PoW) concept for producing blocks or nodes on the blockchain. The proportion and frequency of the reward distributed to staking players is calculated differently, taking variables such as staking duration and staked amount into consideration.
What is DPoS?
Two years after PoS emerged, Steemit, BitShares and EOS co-founder Dan Larimer created Delegated Proof-of-Stake (DPoS), a streamlined version of PoS that uses a small number of elected holders to validate transactions and create blocks between them, rather than spreading the task across dozens of nodes. These delegates work in shifts, with DPoS consensus being reached by the delegate on shift at the time. Delegates themselves are voted in by stakeholders based on their suitability for the task, meaning that it takes more than just a large token holding to get a place at the table. Some DPoS systems also require delegates to deposit a number of tokens as a stake to show their commitment, which is confiscated should they act maliciously towards the network.
DPoS vs PoS
PoS blockchains are fully decentralized, in that anyone with any number of tokens can take part in staking, whereas DPoS is centralized in the hands of a few trusted delegates. Safeguards exist to ensure that delegates cannot alter the blockchain to favour themselves, either intentionally or as the victim of a hack. The need for a single node to validate transactions makes DPoS far quicker than PoS — seconds rather than minutes — although some argue that DPoS blockchains do not constitute absolute decentralization, given that authority is in the hands of the few rather than the many.
DPoS vs Masternodes
A DPoS delegate is similar in many ways to operating a Masternode with a few key differences. The first significant difference involves aMasternode operator buying a large number of coins as a deposit which acts as collateral. This can require a significant capital investment but its intend is to attract Masternode operators that are committed and are disincentivized from acting maliciously on the blockchain. . With DPoS there is usually no minimum investment, and instead more significance is put on the individual’s reputation within the community and their ability to run the node 24/7. The second difference between DPoS and Masternodes are that , anyone with the requisite collateral can spin up a Masternode and start collecting the rewards. The INDX Masternode Portfolio will be achieving this buy utilising funds raised from investors through the INDX token sale to invest in various high performing Masternodes. The downside to allowing any individual with enough capital to become a Masternode operation is that , rewards become diluted as the number of Masternodes on a network increases. INDX is aware of the tokenomics in its dilution risk which is why it has developed a proprietary algorithm (known as Artemis) designed to hedge against Masternode dilution and downtrends in the crypto market. In contrast, DPoS has a set number of delegates, usually between 21 and 101, meaning that rewards will not get diluted over time.
INDX makes DPoS and Masternode investing easy
Expanding into the staking and DPoS arena allows INDX to complement the high yielding Masternode assets currently in the portfolio with larger cap, less volatile currencies, offering investors rewards from the full spectrum of crypto passive income options. INDX has already added DPoS rewards from Cosmos, ICON, Loom Network, Ontology and WAX to our portfolio, with the potential for more to come when suitable opportunities arise. Buying and holding the INDX token is the easiest and safest way for investors to profit from the DPoS consensus mechanism, with 50% of the net rewards being paid out to investors alongside those gained from our Masternode and PoS sources. The remaining 50% of net rewards is reinvested into the portfolio, contributing to the net asset value of the INDX token as well, giving investors security in our tokenomics . We are committed to staying up-to-date with the latest in the industry, giving our investors the best possible returns. We remain proactive, giving our investors the confidence to be passive.
