#14: Staking Goes Mainstream
By: Felix Lutsch
Tags: Staking, Crypto, Proof Of Stake, Cryptocurrency, Blockchain

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

News & Updates

Cosmos Hub Launch

The Cosmos Hub pulled off a smooth decentralized launch and saw staking participation grow at an unprecedented rate. At the time of writing, there are 93 validators and almost 50% of the circulating token supply at stake!

A big part of this was the support that various validators offering tools and help to Atom holders to delegate their tokens (shoutout especially to the tools from Staking Facilities, Figment Networks, Certus One, Validator Network, and Cosmostation). Additionally, there’s the official command line documentation, the Chorus One Ledger delegation and governance tool, and our comprehensive tutorials on how to delegate using the CLI. The official GUI web wallet Lunie should also be available soon.

The Hub launched without transferability of Atoms enabled. This function needs to be activated through the on-chain governance process, after which people that didn’t participate in the fundraiser can finally become Atom holders (at the time of writing the upgrade following this vote is estimated to take place mid-April). Find an overview of how proposals pass through Cosmos Hub governance here.

The first transfer enablement proposal was already in motion but was declined because it was underspecified. The exact design of a proposal and the governance process itself are still very much evolving, but the first signs of activity point to a bright future for the Cosmos ecosystem.

ENTER COINBASE

Coinbase announced their entry into the staking ecosystem with the launch of their XTZ (Tezos) custody and staking solution, which even got featured in an article on the Wall Street Journal. The service is regulated and insured, with plans to add support for governance participation in Q2 2019.

TOTAL VALUE IN STAKING

Our friends at Staking Rewards keep adding new data and now visualize the total value that is staked across all staking projects (PoS (e.g. Tezos and Cosmos), DPoS (e.g. EOS and Tron), and Masternodes (e.g. Dash)). According to their data, there is almost $5bn staked at the time of writing.

A visualization comparing the dollar-equivalent of tokens staked across live networks.

ENIGMA SECRET NODES

Privacy for smart contracts on Ethereum is close with Enigma announcing the details of their network launch. There will be a minimum requirement of 25,000 ENG to run a secret node and there is a limit of 50 genesis nodes at launch. 30 of these will be selected based on their performance (uptime) in a testnet competition called the “Genesis Game”. 10 further nodes will be selected based on their contributions to the Enigma ecosystem and 10 based on a lottery (weighting determined by the Genesis Game score).

750,000 ENG are reserved as block rewards in the first year of operation, in the longer term fees are planned to compensate secret node operators. There is no in-protocol delegation and no slashing at launch of the network.

WORKLOCK

NuCypher announced how they plan to distribute NU tokens to incentivize participants to use NU for its intended purpose. Tokens are distributed after ETH is escrowed in a smart contract. This escrowed ETH will only be released after some amount of work (running a staking on the NuCypher network) has been registered.

It’s exciting to see experimentation with new token distribution schemes that try to filter for active participants in the network. Related mechanisms that come to mind are Livepeer’s Merkle Mine (featured in Staking Economy #8) and FOAM’s Proof of Use, where token sale participants had to actually use the tokens they bought before they became transferable.

TENDERMINT FUNDING

Coinciding with the launch of the first blockchain in the Cosmos Network, the Cosmos Hub, the team developing the core technologies (Tendermint) successfully raised $9mn from investors Paradigm, Bain Capital, 1confirmation and others.

TEZOS BFT

Tezos is exploring to introduce Tendermint-based BFT consensus in its Proof-of-Stake system to achieve faster finality. Cryptium Labs, who are collaborating on this effort with Nomadic Labs, Arthur Breitman, and the French research center (CEA) also received an additional grant to develop improvements to the core Tezos baking and consensus protocol.

BISON TRAILS

One of the first blockchain node infrastructure as-a-Service company aiming to deliver a one-stop solution that delivers highly secure, available, and geographically distributed nodes to users. An ambitious target considering the effort currently required to validate on quickly evolving early stake Proof-of-Stake networks. Excited to see how this service will look in action!

VALIDATOR ARCHITECTURE DETAILS

A technical deep-dive into one of the more sophisticated validator setups on the Cosmos Hub by the team behind Iqlusion.

STAKING TOP 50

A ranking of the top Twitter accounts related to staking based on the amount and influence of followers. Staking Economy ranks #7 in the Staking category (#70 in the News & Research category), thanks to everyone that supports and follows @StakingEconomy on Twitter!

Opinions & Observations

On Centralization in Proof-of-Stake

A central objective in blockchain networks, heavily discussed especially in the context of Proof-of-Stake, where influence is derived from staking token ownership. But what does decentralized even mean? What is decentralized enough? How can the creation of a decentralized network be economically incentivized?

A mixture of token distribution and market dynamics are bound to create a network in which some entities secure a higher proportion of the network (see e.g. this framework for token holders deciding whether to operate validator infrastructure versus delegating or this recent analysis of economies of scale in Ethereum’s Serenity).

Particularly exchanges are well-positioned to become large players in this ecosystem. The question is how a PoS network can become architecturally decentralized enough (using Vitalik’s framework of decentralization) to minimize the likelihood of a single failure bringing down the network and also politically decentralized enough to avoid having a situation where a small set of entities colluding may endanger the functioning of the network.

Regarding architectural decentralization, one part is to have teams that take different paths in designing their infrastructure, which results in a diverse network that should overall be more resilient to a single point of failure. Staking providers that control a large portion of stake should be able to invest more into securing and making their architecture redundant, leading to a more resilient setup. Achieving political decentralization purely through the means of economic incentives is a harder task, and it feels to me like decentralization might require token holders to look beyond purely maximizing their token-denominated yield. If you’re interested in this topic, check out the first discussion on (de)centralization in Cosmos hosted by Chorus One featuring a wide array of validator representatives. We will be hosting similar discussions in the future, reach out to us if you are interested to participate!

Finally, a look into the staking space by Meltem Demirors reflecting on the inaugural staking summit. The article mentions estimates that staking could evolve into a billion dollar market as early as mid-2019 and features an overview of players in the ecosystem, as well as key topics that came up during discussions at the event that took place on the 18th of March.