Insights from the Staking Summit 2022 [Part 2]
The Staking Summit brought together the best minds in the Staking industry for an engaging and productive day of discussions around the future of Proof of Stake (PoS). The Summit was a great success; we’re already planning the next one! Join us in 2023 on November 10 and 11 in Lisbon, Portugal.
Our previous newsletter highlighted key takeaways from this year’s Staking Summit. Due to popular demand, we continue our recap with key takeaways on DVT, Governance, and App-Chain MEV. Watch the Summit panels here if you missed the live event.
How does DVT Radically Improve Stake Decentralization?
Keynote: Collin Myers and Oisin Kyne - Obol Network
Decentralized Validator Technologies (DVT) is a technology primitive that addresses validator failures such as software crash faults, hardware availability failure, private key compromise, and Byzantine behavior. It’s useful for validators working with liquid staking pools, institutional staking Providers, at-home solo stakers, and collaborative validator sharing amongst friends/DAOs.
At its core, the mentioned validator failures are rooted in centralization. DVT providers like Obol address three key types of staking centralization concerns:
Client centralization: Prysm’s 41.7% market share amongst consensus clients and Geth’s 80.7% market share amongst execution clients is an increasing centralization risk. For example, many validators would be in trouble if Prysm or Geth have any bugs or vulnerabilities.
Operator centralization: Decentralizing validator sets is extremely important as it effectively prevents a malicious or out-of-business validator from affecting delegator funds.
Deposit centralization: A liquid staking pool that does not adopt DVT is susceptible to one individual validator trying to self-slash or sabotage a pool. With DVT, it needs more than 2/3 of validators inside the pool to be malicious to achieve that.
How to: Governance - Forming Alliances
Panelist: Martin Schmidt - Q, Daniel Hwang - Validator Commons, Mateusz Rzeszowski - Polygon, Michael Kong - Fantom, Will Roopchan - Parity
Host: Martin Schmidt - Q
Governance is the main utility for many tokens. Governance helps establish a roadmap and aligns the incentives of all stakeholders. Although, as an ethos, decentralized, democratic Governance is the north star, some protocols have a more concentrated group of decision-makers for the future roadmap. Others have resorted to building alliances and lobbying, behavior seen in typical Governing decisions and should be expected. We think the best insight on Governance comes from our Summit speakers representing staking providers and PoS networks.
Approaches to Governance vary from network to network. Having said that, we’ve summarized a few takeaways that may serve as philosophical references for establishing good governance mechanisms.
Separation of entities: Mateusz Rzeszowski shared the two-step Polygon approach to governance, 1) the network layer, which relies on validators’ stake to make decisions about the future developments and change of parameters on the infrastructure level, and 2) the community layer, which decides on ecosystem-related matters such as developer grants. It also involves a zero-knowledge private voting system that is Sybil-resistant. In this approach, different entities may be responsible for specific matters, which can speed up decision-making and make decisions more effective.
Split Governance: While many networks ensure each token holder has the same right to initiate a governance proposal and vote, the governance design can further evolve with the idea of delegating tokens to people or validators that you trust or parties that have certain expertise in a relevant field. For example, you may want to delegate your votes to a technical member for smart contract-related proposals instead of someone in charge of the treasury.
Be specific and enforceable: Michael Kong, from Fantom, shared that FTM is enabling stakeholders (in its testnet) to vote on specific requirements of network parameters such as the minimum staking rate requirements for validators and distribution of rewards between validators and delegators. Parameter proposals with the most votes trigger automatic implementation into the network.
On the other hand, Martin Schmidt, from Q Blockchain mentioned many networks failed in building their Governance constitutions due to the lack of enforceability. As such, Governance rules should be enforceable through infrastructure or smart contracts.
Governance flow-through: Some layer-1s, like Q Blockchain, transfer Governance characteristics onto ecosystem DApps and DAOs. Integrating DApps into the governance system prevents potential governance exploitation and allows the applications to be more robust.
Define responsibilities: As a decentralized protocol, the responsibility ultimately rests upon every ecosystem participant to varying degrees. Defining responsibilities helps clear the fog, whether legal, treasury, technical, or other general responsibilities.
App Chain MEV: Building a Customisable, Composable, and Open Future
Keynote: Barry Plunkett - Skip Protocol
Blockchains should be able to control their MEV markets and operations. This includes participation from validators, delegators, retail traders, market makers, and everything in between. Everyone who has a stake in the chain's future should have a voice in how its MEV market operates.
Skip is on a mission to make MEV fully sovereign without sacrificing composability. Skip amplifies the effects of "good MEV" (arbitrage & liquidations) and reduces the effects of "bad MEV" (sandwiching & frontrunning). Distributing the rewards to those who deserve it most: validators and their delegators. The core pillars of this belief are based on the following:
Block-building control - Giving the community the ability to make decisions on block-building rules.
Revenue distribution control - MEV is creating wealth; where should that wealth go, and how should it be divided amongst stakeholders?
On-chain governance - Decisions should be made by the community, including how MEV rewards are distributed.
Compliance - Systems need to be built in ways that the chain and the community of validators can collectively enforce compliance. It must be difficult to opt out of agreed-upon rules decided by most stakeholders.
Transparency - Decisions around MEV on a network should be made by all stakeholders. Delegators should know what choices validators are making, and validators should know what choices the community of validators has made.
Cosmos is made up of many different blockchains with various beliefs on how chains should operate. MEV Sovereignty is embedded in the fact that each chain gets to decide how it treats MEV; there is not necessarily a one size fits all solution. Blockchains have different values in a free market, and the communities that arise around them are a reflection of those values. MEV is normative - how MEV is handled on each chain implicitly describes what and who the community cares about.
Staking at a Glance
🔔 Announcing the SR Rating for Verified Providers
The SR Rating is being developed as part of the Staking Rewards’ Verification Program for Staking Providers. The aim of making the rating public is to increase the transparency behind the verification process and to further differentiate the Verified Providers based on our assessment of their operations.
Read our new journal
🔔 Announcing the Value-Added Rating for Verified Providers
The Value-Added Rating provides a reference point for the level at which the Staking Provider is contributing to the overall ecosystem and community development. The Value-Added Rating references an aspect that goes beyond the main purpose of contributing to the network security. Thus not being considered for the verification of Staking Providers.
Introducing Summit Fireside Chats
Summit Fireside Chats is a new series where we interview validators, protocols, users and community members that attended the #StakingSummit. We discuss staking innovations, trends and banter about the market!
Staking Mondays Episodes
🔔 Underwriting Web3 While Earning Solana Staking Rewards
Global Staking Research
BnB chain node operator Ankr suffered a governance key compromise. The attacker d deployed a malicious contract to mint a very large amount of aBNBc, Ankr’s reward-bearing staked BNB token, and profited ~$7m by dumping what he minted.
Secret Network says it resolved risk from Intel hardware vulnerability
The developers of Secret Network have resolved a vulnerability related to its use of Intel hardware. Security researchers flagged a vulnerability in Intel SGX chips used by Secret for privacy.
Binance Industry Recovery Initiative
Binance led a $1b Industry Recovery Initiative (IRI) to fund web3 developments. Third-party firms and ventures including Jump Crypto, Aptos Labs, Polygon Ventures, Animoca Brands, GSR, Kronos, and Brooker Group have joined and contributed another $50m to the co-investment.
BitDAO launches modular Ethereum Layer 2 network Mantle
BitDAO, a decentralized autonomous organization with a treasury worth over $1.7 billion, has launched an Ethereum Layer 2 network called Mantle, the DAO announced on Wednesday.Liquid Staking Provider Tranchess on Ethereum & qETH Live
BnB-based yield protocol Tranchess expands to Ethereum with its own ETH staking product qETH live for stakers to earn yield.
Aave Freezes V2 Markets
Aave governance has temporarily frozen 17 lending markets on V2 to fend off further liquidity attacks. Paused markets include YFI, CRV, ZRX, MANA, 1INCH, MKR, etc.
BlockFi Filed Bankruptcy
Centralized crypto lender BlockFi filed for bankruptcy protection, after suspending withdrawals amid the ongoing fallout from FTX's bankruptcy.
FTM price rebounds 50% as Fantom reveals 30 years runway
Fantom continued its upward momentum on Nov. 30 amid reports that the Fantom Foundation generates consistent profits and has 30 years of the runway without having to sell any FTM tokens.
Uniswap launches NFT marketplace aggregator
According to a post on November 30, decentralized exchange (DEX) Uniswap announced that users can now trade nonfungible tokens, or NFTs, on its native protocol. As told by Uniswap, the function will initially feature NFT collections for sale on platforms including OpenSea, X2Y2, LooksRare, Sudoswap, Larva Labs, X2Y2, Foundation, NFT20 and NFTX.
LINK Staking Update
Chainlink is launching staking v0.1 on Dec. 6th. Stakers will be locking their funds til the planned launch of v0.2 (in 9-12 months) when the funds can be unlocked or migrated.