#8: The Third Party Stakonomy
This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.
Opinions & Observations
Generalized Mining: the LPs Perspective
A comprehensive overview of the opportunities in the “Mining 2.0” space from the people at Cambrial Capital adding the perspective of a limited partner. The post breaks down three broad categories: “Mining & Validating”, i.e. taking part in the consensus process of a decentralized network, “Provisioning”, i.e. providing some resource (e.g. computation or storage) to a decentralized network, and the “Third Party Economy”, which includes opportunities such as market making, arbitrage, curation and a wide range of other ways of participating in a decentralized network as a third party. The post concludes with an insightful discussion of strategies for early-stage VCs and quant funds that might want to engage in this emerging domain.
Staking as a Service: the Return of Fractional Banking
A blog post by Token Foundry arguing that Staking-as-a-Service may result in the return of fractional reserve banking, with staking providers handing out tokens representing claims on assets staked with them first on a 1-to-1 basis, but then increasing the ratio of these tokens to actually staked assets over time to make returns on the additional distributed tokens. The article argues that staking needs to be easily accessible for this not to happen.
I would agree that having a well designed delegation protocol and a good UX for delegators in a Proof-of-Stake network could prevent the emergence of such services, but generally it seems almost inevitable that various types of financial instruments and other derivatives will come to exist in some form in the realm of cryptoassets, especially once larger institutions enter the space. There definitely needs to be a push to think more deeply about the impact of derivatives and debt markets on the security of a Proof-of-Stake system, hit me up with your thoughts on this!
The End of the HODL Meme
In the third part of the “Proof-of-Stake Ecosystem” series on the Chorus One blog, I am discussing how long-term investors in PoS cryptoassets should think about participating in staking versus other options such as simply hodling or loaning out tokens. In the post I introduce the costs and risks associated with the various options in a PoS network, especially focusing on the factors influencing the decision to run validation infrastructure yourself versus delegating to staking providers.
News & Updates
GENERALIZED MINING CANON — Messari started a collection of resources that deal with everything around network participation and staking. Staking Economy is also featured, thanks!
CASPER CBC, SIMPLIFIED AND ILLUSTRATED— Following the release of a paper draft for the Casper CBC family of protocols two explanations breaking down the mathematical paper about the Correct-by-Construction consensus mechanism have made their way into blog post format. Highly recommended if you are willing to dive deep into consensus research!
UNDERSTANDING DISTRIBUTED CONSENSUS — If you need a refresher on what distributed consensus means, Preethi Kasireddy got you covered with an overview going into the basics of a distributed system, replicated state machines, the FLP impossibility, Byzantine fault tolerance and much more using many illustrations that make the topic accessible and help to digest the load of information bundled in this post.
PROOF-OF-STAKE CRYPTONOMICS — A primer on the game theory underlying a PoS network with Vest’s Axel Ericsson on the Zero Knowledge Podcast.
ETH INFLATION AFTER SERENITY — A discussion on ETHresearch around the inflation schedule in Ethereum once PoS becomes active. Interesting comment from Vitalik about the length of the unbonding period potentially varying depending on how many other stakers are withdrawing at the same time.
HASH WARS — Some interesting data calculating the cost of the ongoing Bitcoin Cash hardfork serving as another case study for why we need to move to PoS.
LOOM PLASMACHAIN VALIDATORS — The team at Loom Network, a platform for building highly scalable sidechains to Ethereum with a focus on games and social apps, announced the onboarding of the first validators to their upcoming Ethereum Plasma sidechain.
COINMINE — An operating system and device designed to help owners participate in decentralized networks, e.g. through mining, staking or running a lightning node with a user-friendly interface. Interesting concept, unsure about the implementation/feasibility.
TECH CHOICES FOR VALIDATORS — A comprehensive breakdown of technology choices for validators by IRISnet’s Sophie Huang (written in the context of the Cosmos Network, but many considerations are also relevant when designing validator infrastructure in other PoS networks).
ARAGON’S FIRST PROPOSAL VOTE — The first governance vote of the Aragon project is currently taking place. $ANT holders are voting whether the project should adopt AGP-1 as the official governance proposal process.
COINFUND & MULTICOIN ON UNCHAINED — Another discussion of Generalized Mining with Jake Brukhman from CoinFund and Tushar Jain from Multicoin Capital on Laura Shin’s Unchained podcast.
LIVEPEER’S MERKLE MINE— Multicoin’s Kyle Samani breaking down the Merkle Mine distribution mechanism deployed by Livepeer in an attempt to achieve a wide distribution of tokens.
Opinions expressed are my own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.
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