TomoChain — EOS — Lisk: Comparison of PoS-voting based reward engines
Introduction: From PoW to PoS to DPoS and PoSV
The first and probably most noted consensus mechanism used by well-known Blockchain projects like Bitcoin and Ethereum was Proof-of-Work (PoW). In a network that uses PoW to reach consensus, transactions are processed by miners, who are competing against each other to solve a cryptographic puzzle in order to create a block. By the time that those networks grow, the difficulty of the puzzles and the required computing power and electricity consumption rises strongly. Even though an enormous amount of computing power is put in the network, Bitcoin for example is only capable of processing less than 10 transactions per second.
As the attention and demand for Blockchain technology and the related energy consumption grew, developers were trying to find solutions to reach consensus in a more energy-saving way. The first approach to this was the invention of Proof-of-Stake (PoS), where the network participant who creates the next block is not chosen by the computing power he spends on the network, but by the size of his stake. Because of this energy-saving mechanism, many PoS-based consensus variants have been proposed in order to solve the scalability problem most Blockchains are facing.
Outgoing from the energy-saving approach, a new PoS-based consensus model called Delegated Proof-of-Stake (DPoS) was developed. In this model, the number of network participants who have to process the transactions by creating and validating the blocks are limited to a certain number, which strongly improves the throughput of transactions. To still ensure decentralization of the network, participants who want to become transaction processors — also called block producers, delegates or masternodes, have to apply and stakeholders can vote for the candidates, where their voting weight depends on the size of their stake.
DPoS Blockchains are hotly debated. While some argue that it’s the perfect solution for the scalability problem most Blockchain projects are facing, others are fearing that the limited number of transaction processors could incentivize them to collude and manipulate the voting system. We will expand on this by comparing the voting and reward systems of two Blockchain projects, which realize different forms of DPoS mechanisms with the PoSV consensus mechanism approach developed by TomoChain. PoSV could be mistaken for a DPoS mechanism at first sight, but realizes some significant enhancements like higher requirements for the transaction processors and a low threshold plus financial incentive for the voters, what will likely strengthen the democracy and reliability of TomoChain compared to DPoS Blockchains.
Number of block producers/delegates/masternodes
There are 21 block producers in the EOS network, 101 delegates in the Lisk network and 150 masternodes in the TomoChain network, who are chosen by the stakeholders via voting to participate in the system consensus and block creation.
Candidates who want to become EOS block producers don’t have to hold a certain amount of EOS or pay a fee to run for election. Lisk delegate candidates have to pay a fee of 25 Lisk to register on the Lisk Hub but don’t have to hold a certain amount of LISK. TomoChain masternode candidates have to deposit 50k TOMO to the voting smart contract in the Tomomaster DApp to run for election what will costs an average transaction fee (almost zero).
Lock time after resign
If an EOS block producers decides to resign, there are no consequences and he could run for election again immediately. A Lisk delegate who resigns would not receive back the fee of 25 LISK but could also run for election again immediately without having to pay any further fees. If a TomoChain masternode would resign, the 50k TOMO he deposited would be locked in the voting smart contract from that time for 30 days.
Number of votes
EOS stakeholders can vote for up to 30 block producer candidates, LISK stakeholders for a total of 101 delegate candidates and TOMO stakeholders can vote for as many masternode candidates as they want.
The voting weight of EOS stakeholders weights the same on each of the maximum of 30 votes depending on the size of the stake. If you hold 100 EOS for example, you can cast 100 votes to 30 different candidates. The same applies to the voting weight of LISK stakeholders, each of the maximum of 101 vote weights the same. TOMO stakeholders can determine how much weight they want to distribute with each vote. If you hold 100 TOMO for example, you can vote for one candidate with your full weight of 100, however you can also split it up to vote for two candidates with 50 weight on each and so on.
Voting is free for EOS stakeholders. TOMO stakeholders have to pay an average transaction fee that goes close to zero, while LISK stakeholders have to pay 1 LISK for each batch of 33 votes. Voting for the maximum of 101 candidates costs 4 LISK.
Voting lock time
After successful voting, the wallet balance of an EOS stakeholder will be staked and is locked from then until 72 hours after unstaking again.
The wallet balance of a LISK stakeholder can be unstaked after voting without a lock-time. The part of the balance that is used for voting by a TOMO stakeholder will be staked and locked for 48 hours after the user decides to unstake.
Frequency of voting rounds
Votes cast remain valid for 365 days in the EOS network, but lose weight every week. After 90 days of voting inactivity for example, the weight of the casted votes has lost 20%. The recent voting outcome and the resulting change of block producers is put in place each time 252 blocks are created (~126 seconds).
Votes cast in the Lisk network will remain valid with their full weight until they are changed. Those changes will put in place the recent delegates every time 101 blocks are created (~1010 seconds).
Votes cast in the TomoChain network also remain valid with their full weight until they are changed. The recent voting outcomes will be realized every time 900 blocks are created (~1800 seconds)
As there are no transaction fees in the EOS network, block producers are rewarded by the annual inflation exclusively, which is limited to 5% in the first year and will be determined by the community via voting after the first year.
Lisk delegates are rewarded by the transaction fees of the blocks they create and the decreasing annual inflation rate which results in a fixed inflation after five years.
TomoChain masternodes are rewarded by the transaction fees of the created blocks and the block rewards from decreasing inflation.
Block reward reduction
After the mainnet launch of EOS in 2018 the total block reward for the first year was capped at 50 million EOS. As mentioned before it’s up to the community to determine the annual inflation by voting after the first year.
Lisks total block reward is decreasing for the first five years. In the first year (2016) the reward was 15 million LISK, this amount decreases by 3 million LISK every year, resulting in an infinite annual inflation of 3 million LISK after five years.
After the TomoChain mainnet launch in Q4 2018 the block reward for the first and second year is 4 million TOMO annually, for the third, fourth and fifth year it’s 2 million TOMO annually and for the sixth, seventh and eighth year it’s 1 million TOMO annually. After eight years the circulating supply will be around 100 million TOMO and the annual inflation will be either halted or kept at 1 million TOMO or less.
The 5% annual inflation of EOS is split up to 4% for the worker proposal system where the community decides by voting what it will be used for (research and development projects for example). The other 1% is the reward for the block producers and again split up to 0.25% for the creation of blocks, depending on the number of produced blocks and 0.75% for block producers and standby block producers, depending on the number of votes obtained.
Lisk delegates are rewarded by the annual inflation for creating blocks, depending on the number of blocks they create and by the transaction fees included in the blocks they create.
The masternodes in the TomoChain network are rewarded by transaction fees, included in the blocks they create, and by rewards from the annual inflation for the signing of blocks, which are split up in three parts:
- The first part of 40% will be distributed among the masternodes depending on the number of blocks they sign.
- The second part of 50% will be distributed among the the voters of the masternodes proportionally based on the voting weight spent on the according masternodes
- The third part of 10% will go to the masternode Foundation initially run by the TomoChain company to further develop the network.
As already stated, there are standby producers in the EOS network, which are block producer candidates who received a significant amount of votes, but not enough to become a block producer. They stand by in case a block producer stops working or leaves the network and are rewarded with a proportion of the block reward depending on the number of votes they received. There is no such thing as standby producers in the Lisk or TomoChain network.
Reward share with voters
As well in the EOS network as in the Lisk network there is no fixed share in reward for the voters of block producers or delegates. It’s up to them to decide whether — and if so, how much of their reward they share with their voters. Voters of TomoChain masternodes have a fixed share of 50% of the masternodes block reward they receive for signing blocks as mentioned earlier.
We notice that DPoS Blockchains like EOS are not creating real incentive for stakeholders to take part in the voting — because there is no fixed reward or direct advantage to do so. There is even a possible disincentive for large numbers of stakeholders, such as in the Lisk voting system, where stakeholders with a small stake would have to spend a major part of it on voting fees — without any guarantee their chosen candidates get voted in and they will be rewarded in return. In the past this has lead to a situation where 6% of the network participants were in control of 83% of voting weight, enabling collusion of delegates and major stakeholders, leading to centralization of the network.
In contrast, the new PoSV consensus mechanism with its advanced voting features that TomoChain enables, incentivizes all stakeholders to take part in voting as it is free and stakers directly benefit financially. This will likely result in a higher degree of decentralization and furthermore will strengthen the whole ecosystem, because stakeholders have incentives to vote for reliable masternodes with high performance.