Decred Research

StakerDAO
StakerDAO
Oct 30, 2019 · 8 min read

By Christian Arita — October 30, 2019

Introduction:

Decred is described as an autonomous digital currency with governance integrated into its blockchain. It is a fork of btcsuite, a Bitcoin fork written in Go, with differences in its function and consensus algorithm. These differences include an add-on function to embed governance and its consensus mechanism is a hybrid of Proof-of-Work and Proof-of-Stake. Decred also implemented Politeia, a censorship-resistant system for public proposals around funding and project-level decisions.

Factsheet — Metrics:

Price: $12.9

Market Cap: $140mn

Liquidity: $970k

Circulating Supply: 10.6mn

2050 Supply: 20.6mn

Yield: 9.3%

Staking Ratio: 50.4%

Beta to BTC: 0.97

Correlation to BTC: 47.0%

DCR Initial Investor Allocation:

  • 8% Pre-Mine:
  • 4% Company 0 + Developers
  • 4% Airdropped

Select Investors: Placeholder, BlueYard Capital

Indexed Price Performance


History:

Decred’s founding team originally built an alternative implementation to Bitcoin named btcsuite written in Go instead of C++. Unfortunately, btcsuite did not gain traction with the community. Around the same time, a user known as “tactotime” on the Bitcointalk forum began work on memcoin2, which proposed a hybrid consensus protocol and control over the supply through participatory voting. In 2014, tacotime, _ingsoc (another anonymous member), and Jake Yocom-Piatt met to discuss memcoin2 and the idea around “decentralized credits”. Tacotime ultimately went on to found Monero, but the rest of the team continued to focus on what is now known as Decred. Decred launched in February 2016.

The network launched with $1.5mn in funding from Company 0, a development company. 8% of the total 21mn supply was initially minted, half of which was distributed to early adopters and the other half to reimburse prior development costs. The rest of the supply is being mined over time.

Team:

Jake Yocom-Piatt • Dave Collins • Jonathan Zeppettini

Jake Yocom-Piatt — Project Lead:

Jake graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Science in Physics. Jake went on to pursue a Master of Science in Physics at the University of Chicago.

Dave Collins — Lead Developer:

Dave Collins is a member of the founding team.

Jonathan Zeppettini — International Operations Lead:

Jonathan is the chief evangelist for Decred.

Technology:

Consensus Algorithm:

Decred launched in 2016 to focus on governance through democratic input and sustainable funding. Decred’s consensus system is a hybrid of Proof-of-Work and Proof-of-Stake. Within the Proof-of-Work system, miners perform the same actions seen within Bitcoin, but receive 60% of the block reward. The remainder is distributed as 30% to Proof-of-Stake validators and 10% into a development fund. PoS validators receive 30% because they are in charge of approving a PoW miner’s blocks as well as voting on proposals.

Overall, validators serve several purposes, one of which include changes to the consensus mechanism. Changes proposed occur in the following order: 1. a proposal is put forward, 2. the accompanying code related to the change must be developed, 3. the network of miners and validators must then upgrade their software, and 4. finally, voting will commence and if accepted, the new consensus rules are activated.

Other purposes include influencing PoW miners through the block reward so malicious behavior is not exhibited by miners. This works by allowing validators to withhold a miner’s reward when miners may be mining empty blocks while conforming to consensus rules. PoS validators can also generally provide additional security through the 5 votes, which are called on in each block and ensure validity of the blocks when at least 3 of the 5 voters agree. This also makes the network resistant to contentious hard forks because miners are unable to build on a chain unless validators who vote on the blocks also agree. Lastly, validators document voting in each block related to the Treasury and other proposals submitted through Politeia.

Governance:

Politeia is a platform for Decred’s governance process, which over time will guide the Decred DAO. Politeia has a web platform for browsing, discussing, and submitting proposals, but voting takes place via a Decred wallet. Proposals on Politeia take the form of a course action such as policy implementations or software development as well as proposals regarding the Treasury. Politeia was also built to ensure transparent censorship. Transparent censorship is when users are able to prove censorship of a proposal through a timestamping application known as dcrtime.

Politeia Website


Validators & Staking:

Validators use DCR to stake on the network to earn rewards in exchange for securing the network by validating the work of PoW miners and to vote on proposed protocol changes. Passive users and investors can delegate their stake to a trusted validator. Within the network, validators are DCR holders that receive a “ticket” after locking up their tokens. While staking, DCR holders lock up their tokens for an average of 28 days, but tokens could potentially be locked for up to 142 days with a small chance of expiration prior to validation. This period subjects token holders to price fluctuations in DCR. The current ticket price is 134 DCR and is determined by a staking difficulty algorithm, which sets the purchase price so that a target pool size of 40,960 tickets is maintained. 5 tickets are pseudo-randomly selected for block validation. In order to approve a block, at least 3 out of 5 validators need to agree on the validity of the block. Penalties are incurred by PoW miners if all 5 validators within a block do not approve. As of now, 60% of newly minted tokens flows to PoW miners while 30% go to PoS validators and 10% into a development fund. The same tickets are also used to vote on potential upgrades to the Decred protocol. Votes are counted over a ~30-day period (8,064 blocks) and require a 10% quorum and at least 75% approval. Tickets are destroyed after validation/voting and the holder receives the purchase price + reward for participation. Decred’s rewards are set to decrease over time so that the most variable driver of the reward ratio will be price performance.

Ticket Price

Source: Decred Explorer

Staking Participation (%)

Source: Decred Explorer

Treasury Balance (DCR)

Source: Decred Explorer

Decred Reward (%)

Additional data: Link

Select Projects:

Lightning Network Support is under active development, but was implemented on May 9, 2019. Although operational, Decred recommends any significant amounts to be delayed until further maturity. The Lightning Network is a Layer 2 protocol that enables fast and low-cost transactions along with higher throughput.

Enhanced Privacy details were released in late August 2019 with a priority on obfuscation of traceability over transaction size. Decred has implemented a form of CoinShuffle++, a process for creating CoinJoin transactions where the output addresses are anonymized through a mixnet. Further reading: Link.

Decentralized Control of Funds is the final step in achieving the decentralization of Decred’s developer organization. While the step is on the roadmap, implementation may take considerable time and requires success around Politeia, its governance system.

A Decentralized Exchange is on the roadmap and the first step taken toward its release is an atomic swap tool released in the fall of 2017. The DEX was formally voted on this past summer and development has commenced.

Community Statistics:

Decred:

  • 4,691 commits
  • 102 contributors
  • 9 branches

Twitter: 40.6k Followers

Telegram: 3.0k Members

Reddit: 9.6k Members


Conclusion:

Our view is that the project’s main differentiator versus similar blockchain networks like Bitcoin is good governance and additional layers of security. The founders’ critiques of Bitcoin related to core developer centralization for proposed changes are fair whereas in Decred the community has greater input into proposals. Overall, Decred is iterating on several exciting features for the future and it can still co-exist in a market where other networks like Bitcoin thrive.


Sources:

Messari

CoinMarketCap

Decred Documentation

Placeholder Website

BlueYard Medium

Decred Blog

Decred Digest

Coinmonk

Additional Links:

Website

Documentation

Github

Twitter

Telegram

Reddit


Appendix:

Beta: a measure of volatility for an asset in relation to a benchmark. One can think of beta as direction and magnitude of an asset’s move in relation to its benchmark’s move.

Blockchain: a system in which a record of transactions are maintained across a distributed network

Byzantine Fault Tolerant: a protocol capable of reaching consensus in the presence of malicious parties within a distributed system

Correlation: a measure of the linear relationship of an asset in relation to a benchmark. One can think of correlation as the direction of an asset’s move in relation to its benchmark’s move.

Consensus algorithm/mechanism: the method in which various parties agree on the state of a network

Forking: an event where a blockchain network can permanently or temporarily split into two or more branches

Multi-Factor Rank: Each asset is percentile ranked within a factor. Each score within a factor is then equally weighted for a composite score.

Proof-of-Stake: a consensus mechanism requiring a stake to engage in validation

Proof-of-Work: a consensus mechanism requiring users to solve complex mathematical problems to propose new blocks

Smart contract: a contract where terms of agreement are programmatically written

Volatility: a measure of the variability around an average, specifically a calculation of standard deviation.


About:

StakerDAO: StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner.

Christian Arita: Christian is the Staker Stability Team Lead. His team is responsible for research, proposal development, and product implementation across all Staker products. Prior to working within crypto full-time, Christian worked at Deutsche Bank in research covering thematic topics with a focus on the US and major regions. Christian graduated from UC Santa Barbara with a degree in Economics & Accounting.

StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner. Explore our original research, insights, and opinions here.

StakerDAO

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StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner.

StakerDAO

StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner. Explore our original research, insights, and opinions here.

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