Staking Contracts(2) | How to select supported projects?
Author : Liam ; Middle
This is the second of the 3 series articles introducing Staking Contracts.
In the previous article, the basic functions of SCs are introduced while we mentioned that Stafi takes an integrated approach of distributing dividends and charging commissions.
In this article, we will introduce the criterion Stafi takes on selecting projects. Stafi will judge whether to support a project through SCs from 4 dimensions: security, influence, revenue and technology.
Security dimension: is it a mature project? How decentralized is it? How dynamic the team is?
Stafi puts the security of a project at the first priority. For Stafi, if the original chain of a project is malfunctioning, the mapping relationship in the SC would be sabotaged, causing the unpegging between rToken and native tokens. Finally, lots of applications and derivative products based on the Stafi Protocol will suffer. When Stafi chooses a project, he will first consider security, and measure the security of the project from the three dimensions — maturity, decentralization level, and team dynamics.
How mature is it?
There are some cutting-edge projects that may have attracted widespread attention in the short term, but due to the lack of maturity, it will not be Stafi’s first choice. In the history of PoS development, there once was some popular PoS chains, but many of them are died or dying — Their miners are seriously insufficient, no one is developing or maintaining the system, and their latest versions are so lagged behind. Therefore, the price of their tokens have the dimmest hope of rising again.
The maturity of the project lies in two aspects. First, the period of time when the project is widely used. Second, the frequency of a project’s iteration. The longer the project is used, the more it is tested time after time. Users are willing to stick to it only if no serious problems have occurred in the daily use. The more iterations a project made, the closer a project is near perfection. More importantly, it means there is a very dynamic team behind it.
How decentralized is it?
For a public chain, the more centralized it is, the more likely it could be manipulated and be attacked. In PoS consensus, the amount of tokens one hold stands for how big the right one has. Therefore, if a fat proportion of tokens is gripped by rather limited nodes, the credibility of on-chain data would be compromised. That is because the chain will be more fragile to “double-spending” attacks and the data will be easier to be tampered with.
Besides, for centralized projects, the market prices of a token would be easily manipulated by big players in the market, in many cases the project members themselves. If Stafi Protocol is introduced, a large number of tokens that is locked by Staking will be released, making it harder to rig the market. The developers of that project may counter-attack by altering codes, making Stafi Protocol incompatible, and then all the efforts that Stafi developers made will be wasted.
How dynamic a team is?
A dynamic team(including developers, foundations, etc.) determines a project’s vitality. Some “fundamentalists” still holds true that an ideal public chain should run on its own, and this is an unrealistic fantasy. There are no such as a set of perfect codes in this world. Even Bitcoin’s codes are far from perfect, which need continuous efforts to optimize it. If a public chain wants to stay healthy, there must be a dynamic and responsible team behind it.
Influence dimension: Notability, scale of token holders, upper-level application prosperity, application network use level
A second priority is a project’s influence. For Stafi, if SCs can support projects with popularity, the value of Stafi will be taken to a new high. By judging influence, Stafi takes an eye on whether there are enough users in a project. Stafi will evaluate from a project’s notability, scale of its token holders, upper-level application prosperity and application network use level.
Notability and scale of token holders
A project’s notability can be primarily judged by the number of followers of its official media account (such as Twitter, Medium, Telegram, etc.). The notability of a project represents how much attention it get, thus reflecting its influence. The scale of token holders is a relatively direct indicator, reflecting how many people have potential staking needs. The two indicators should be comprehensively judged. There could be projects with excellent ideas and intensive media coverage, but if the token holders are small, the project does have real influence. If a project has many token holders but low notability, it may under suspicion that the project may created many fake addresses.
The prosperity of upper-level application and application network use level
Whether the upper-level applications are prosperous is the key to a successful platform public chain. If so, the project is an important part of the whole blockchain ecosystem, and also, it is widely approved by project developers. It is safe to say the prosperity of upper-level application is the real influence for platform public chain projects.
For application chains, the project network use should be paid attention to. It should be noted that how many people are using the service it provides, how frequent and how reliant they are. By those indicators, we can judge whether and how much the project is creating real value.
Of course, there are no clear boundary between platform public chain and application public chain. Some application chains also support the development of derivatives while some platform chains also supply specific services. When Stafi is evaluating a project, we will comprehensively take these factors into consideration, to gauge a project’s real influence.
Revenue dimension: Staking profits
Last, we must evaluate a project from the revenue dimension. Stafi mainly creates value by charging liquid fees, which will be “flowed” to FIS holders in a Buy-Back-Burn approach. In addition, there is also the fee of the transaction, and the subsequent service charges created at the upper layer.The ultimate beneficiaries to all the benefits are FIS holders, but in general, the largest part of the value created by Stafi are taken from Staking. The staking income of a project is an important reference for Stafi when selecting a project.
If SC commission ratio is a constant, the Stafi Protocol’s fee income mainly depends on the project market value and staking profit rate. If it is an application chain, it also includes the return rate of additional operations (please refer to this article) . But in fact, the two are trade-offs. Projects with a larger market value tend to have a lower rate of return, and vice versa.
It is quite reasonable, for the tokens issued by Staking are actually the expenses for secure network operations. For projects with a larger market value, a larger sum of expense can be buried by lower Staking rate of returns, and vice versa. This is because for small projects, high rate of returns can effectively incentivize miners to participate in the network operation.
Most of further issuance designs of a PoS chain are reasonable, which can strike a balance between income and motivation of miners and the cost level of maintaining the security of the network. Therefore, the results of Stafi’s assessment of the profits of staking of projects may be very close. From the perspective of Stafi, as long as the income of staking is not lower than the acceptable level, Stafi will not risk missing a project of potential.
Technology dimension: the development cost of a SC
In the previous article we mentioned that for different PoS projects, SCs support on-chain delegation and profit splitting in varied ways. Some projects don’t have on-chain delegation mechanism (not DPoS), such as Ethereum after the upgrade of Casper. In this case, Stafi will integrate a on-chain project splitting module, thus the development cost will be higher.
Some do have on-chain delegation mechanism, but no on-chain profit-splitting mechanism. But off-chain profit-splitting is unsafe, for validators may misbehave or default, or not timely. In this case, SC also have to integrate an on-chain delegation profit-splitting module to prevent validators from misbehaving.
There is an extreme circumstance that, EOS does not support on-chain profit-splitting, and bans profit-splitting for validators, calling it bribes. Stafi cannot do anything to help that.
From a technology dimension, in order to save development resources, Stafi prefers developing SCs for those projects that support on-chain delegation and profit-splitting.
Exit mechanism
For Stafi, the project pool supported by SCs is running water. When the project no longer meets the entry criteria (for example, the market value is too low, or excessive centralization), the project may be liquidated. The liquidation of a project will be initiated by the Foundation and voted by the FIS holders. The rToken of the liquidated project will be forced to redeem.
In some extreme circumstances, such as major security incidents in the original chain, a project may possibly be urgently liquidated.
Summary
Here’s what we are thinking when Stafi is selecting a project. And we think it is worthwhile for the successful development and operation of SCs. We will evaluate development cost from a technical dimension; judge a project’s influence from a notability dimension. Meanwhile, in order to ensure rTokens are pegged to original tokens and dodge unpegging risks, it is paramount to assess a project from a security dimension. In the next and last article, we will further explain the mechanism that SC takes while facing unpegging risks.
About Stafi Protocol
Stafi Protocol is the first decentralized protocol that provides the liquidity for Staking assets.
Website: www.stafi.io
Twitter:@Stafi_Protocol
Telegram: https://t.me/stafi_protocol
