Regen Foundation stewards 30mm REGEN that have been set aside for Community Staking DAOs (if you’d like to learn more about our variant on PoS, please read up here).
We’d like to begin a strategy of staking these tokens, and are going to outline our strategy below. Please use the following two weeks as a public comment period before we implement.
There are a number of factors that we’ve been weighing in considering how to approach this pool. Below I’ll go through, point by point, on a number of factors.
How does the stake status of these tokens affect network security?
Generally, Proof-of-Stake networks target a high ratio of staked to unstaked tokens. The security model of Proof-of-Stake is that an attacker would need to control 33% of the network to halt the network, the thinking being that it would be prohibitively expensive to acquire this kind of stake, or literally impossible if staked tokens move past 67% of the supply.
In the Community Stake governance model, this security analysis doesn’t fully hold for this 30mm REGEN pool, in that the Foundation will never sell these tokens, and once allocated, they will be permanently locked. That said, bonded tokens are fundamentally more secure than unbonded, so dependending on your risk scenarios, you might have a significant preference to stake this pool.
If the Community Stake Pool isn’t staked, won’t it dilute the power of future Community Staking DAOs?
The purpose of these pool is to fund the creation of a variety of Community Staking DAOs (we should be announcing our first enDAOments in coming weeks). At mainnet, this pool represented 30% of the supply. Since we haven’t yet staked these tokens, this pool has already shrunk as a percentage of the supply. By staking some or all of these tokens, we could limit dilution, as long as we allocate staking rewards for this pool (my personal preference—more on that below).
How will you balance the interests of token holders and validators in this decision?
It is in the financial interest of other token holders that these tokens remain unstaked. This is because staking rewards are distributed across staked tokenholders. For example, if inflation is 20%, and 50% of the supply is staked, the APR for staked tokenholders is 40% (20%/50%). As of this writing, about 43mm are staked, giving an APR of 46%. If we were to stake the entirety of the CSDAO pool now, that would drop to 27%, simple because the CSDAO allocation would be soaking up 41% of all rewards issued on the chain. This would also tip the balance above the staking target threshold, which would eventually push the inflation down to 7% (as it is now on Cosmos). That said, 7% is still vastly greater than any conventional financial returns (a significant portion of the global sovereign debt market is actually negatively-yielding right now).
To turn our gaze to the validators: the high percent staked, the better off they are. Even with decreasing inflation rates, they still get to capture a set percentage of assets under management. So if we almost double the number of tokens staked, on average, their yields will almost double (and we do intend to delegate this stake as broadly as possible).
Where does commission enter into all of this, and what kind of provisions are there for validator economics?
Top of mind for me is validator economics; validators won’ t indefinitely validate for a network if they’re perpetually losing money. It’s quite challenging to accurately estimate validator running costs, as there are some many variables (geography, grade of hardware, grade of internet connection, dedicated staff, security protocols, etc.). Also, we want a network that works for all validators, and this means having an equal enough distribution that validators down near the bottom of the rankings can still pay their expenses. Alternately, we don’t want a flat distribution, as it would be extremely difficult for new validators to break into the set.
All of this leads me to believe that whatever formula we adopt should compensate for commission rate. Above a certain commission threshold, this pool shouldn’t be delegated to certain validators. Alternately, if one validator operates at a 10% commission, but another operates at 5%, and they both receive the same stake, the former makes twice as much revenue; this is a scenario we want to avoid, as it incentivizes market inefficiency. On the other hand, validators perform the most fundamental aspect of network security and operability, and we don’t want a race to the lowest fees in a way that drives out small validators for big operations that can subsidize their operations.
What would happen to staking rewards?
It is my personal belief that this pool should be set aside for future Community Staking DAOs. These aren’t Foundation funds, so I don’t think they should be earmarked for anything other than what the pool was initially created for. The Foundation already has 5mm staked tokens, and will be using the staking rewards from those tokens as part of its discretionary spending in support of its mission.
Should uptime and a history of slashing affect delegations?
To my knowledge, this isn’t yet public knowledge (not viewable on the block explorer). Likely a project that would be good to have integrated in the SDK going forward.
How does a validator’s commitment to Regen Network’s regenerative mission play into this?
We would love to be incentivizing validators to become deeply engaged in not just keeping the network running, but also in developing new functionality for our broader community and getting involved in other ways. That said, there’s not currently enough data to go on for this to enter into calculations in a way that wouldn’t simply bias towards projects that mention something about it on the Regen Forum (which we have no way of systematically verifying yet).
On behalf of Regen Foundation—the steward of this 30mm pool—I propose the following delegation strategy for this 30mm REGEN pool:
- Once a month, 5mm of this supply will be delegated according to the following protocols. The final 5mm will be retained unstaked for us in the enDAOment process.
- A snapshot of the stake distribution and commission rates is taken.
- This snapshot is used to determine the distribution of stake.
- There will be two metrics used to weight delegations: place in the rankings, and commission rate.
- Validators in the top 5 will receive a prominence weight of 0.25.
- Validators in rank 6 through 10 will receive a prominence weight of 0.5.
- Validators from 11 to 35 in the rankings will receive a prominence weight of 1.
- Validators from 36 to 40 in the rankings will receive a prominence weight of 0.5
- Validators from 41 to 45 in the rankings will receive a prominence of weight 0.25.
- Validators from 46th through 50th in the ranking will receive a prominence weight of 0.125.
- Commission adjustment will simply be the inverse of commission rate (a commission of 10% gives a commission weight of 10; a commision of 5% gives a commission weight of 20). Commissions of zero will be treated as 1%.
- The supply to be delegated (5mm REGEN) will be split across all 50 validators according to these weights.
- In the following round, the same process will be performed—taking a snapshot of rankings and commission rate—with the exception that an adjustment will be performed to the delegation numbers to ignore previous REGEN staked in this fashion. In other words, a validator that changed rankings because of this strategy won’t be further penalized or promoted in future rounds because of this change.
See the implications of this policy here.
The numbers used in this snapshot were taken on Monday, April 26th.
During the following two weeks, please submit your comments. I will present this proposal on the community call tomorrow, and we’ll have Discord office hours sometime next week. We’ll be especially attuned to comments regarding principles and mechanisms that can optimize for the health of the network as a whole. Public comment period will end at midnight Eastern on Tuesday, May 11th. A policy revised to incorporate comments will be implemented in the days to follow.
A little background on myself and this proprosal—I’m the President of the Board of Regen Foundation and have been around Regen Network since the early days. This proposal is the product of a Delegation Working Group within the Foundation, and has incorporated input from others in Cosmos space.