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DPoS Mechanism Analysis of Lisk

Lisk is a decentralized app (dApp) and sidechain development platform, and it is one of the earliest blockchains that uses DPoS consensus algorithm. Lisk is secured by 101 active delegates voted by LSK token holders. An account holder can submit votes in batches, and each batch can contain up to 33 votes. The most votes an account holder can cast is 101, and there is a fee of 1 LSK each time a user cast a batch of votes.

To encourage delegates to stay active as well as to invest more in the network, elected delegates receive block rewards and transaction fees. At the time of this article, the reward is at 4 LSK per block (it goes down according to a preset schedule). The amount of LSK awarded to each delegate is calculated as follows:

  • Block rewards: 4 LSK
  • Average block time: 10 seconds
  • Take into account of 101 delegates, a round of each delegate is 1010 seconds
  • There are 60*60*24*30 = 2,592,000 seconds per month
  • Therefore, assuming no transactions in any of the blocks, each delegate will receive roughly 2592000/1010 * 4 = 10,265 LSK per month (approximately $90,000 at the current market price).

Please keep in mind that the amount of LSK calculated above is based on the assumption that there are no transactions in any of the block. If a delegate verifies 10,000 transactions per month, then they will receive additional 10,000 * 0.1 LSK = 1,000 LSK per month. At the time of this article, the block height of Lisk is 6,156,649, and the block reward will drop to 3 LSK/ block when block height reaches 7,451,520 which is in roughly 158 days.

Under the current network rules, LSK allows its delegates to share block rewards with their supporters to attract token holders’ participation. The percentage varies from delegates to delegates and can be as high as 100% or as low as 5%. The following graph illustrates some statistics associated with the top 101 delegates on the LSK network. The Y-axis represents the percentage of block reward each group shares, and the diameter of the circle shows the size of the group. The statistics are recorded as of Jun 10th, 2018.

Here are some key observations:

  • Independent delegates only account for 9% of the total delegates, and they have to share, on average, 70% of their block rewards to stay elected. They are the genuinely decentralized delegates because they have no association with any other organizations. However, on average, they only have 30% of their rewards left for their development efforts.
  • Elite(ELT) group shares 25% of its block rewards and owns over half, at 55%, of the elected delegates. Such high percentage potentially implies a 51% attack to the network. Part of the reason why ELT has managed such a high elected rate is that voters must vote for all Elite members to receive the shared rewards. Also, every member of Elite must vote for other members. Elite’s policy also mandates its members to donate 5% of forged LISK to the Elite Lisk fund that is used to support Lisk ecosystem. Add the numbers together, ELT members pocket 70% of the block rewards.
  • As for the GDT group, its members share roughly 20% of the block rewards to its voters. Only some members require voters to vote for all GDT members to be qualified for rewards. So GDT group is a bit more decentralized than Elite. However, a lot of GDT members offer 6.25% additional rewards if voters have voted for all GDT members. As a result, 32 out of 33 members of the GDT group are elected delegates.

Moreover, as shown in the above graph, we also noticed that, over the past three months, the composition of delegates is almost static for every round of blocks. The advantage is that these delegates are generally stable and reliable, which ensures the continuity of running LSK blockchain, but the drawbacks are also evident. Because of the dominant position gained by ELT and their all or nothing voting policy, it is hard for voters to switch the votes to other potential candidates without taking a hit in their income. If a voter decides to shift the vote to other candidates, without community majority support, it is unlikely that those votes can shake the status quo and the voter stand to lose a large chunk of their rewards because of the voting policies we discussed earlier. Under current voting environment, independent delegates and delegates from minority groups have to offer as much as three times more rewards to retain the votes. The fact that 87% of the delegates are from just two groups is not aligned with the intended decentralization idea of the blockchain.

In summary, ELT and GDT groups currently dominate Lisk’s consensus delegate seats. Their collusion, if it happens, can pose potential threats to the Lisk network. Independent delegates have to share a lot more forging rewards to keep themselves in the top 101, which is not most economically efficient. However, through reward sharing, voters with small to medium size stakes have the incentive to vote, thus guarantee a much higher participation rate within the network. Furthermore, the static delegates structure is relatively stable and secure at the early stage of a blockchain. After all, decentralization isn’t free, and all systems have to make trade-offs between performance, cost, and the degree of decentralization.


About InfStones

InfStones is a Silicon Valley based company, providing cloud management services and security solutions for Blockchains.





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