This interview was done as part of the 2021 Staking Ecosystem Report by Staking Rewards.
The report was sponsored by StaFi Protocol.
Figment’s purpose is to build a better Internet by increasing usage of the next generation of Proof of Stake blockchains.
Q: Do you think proof-of-stake-based governance systems can be applied outside of protocol governance and grants? And how?
A: PoS governance includes both on-chain and off-chain governance, which are two different types of governance. But certainly, the principles and tactics that networks use to organize and govern themselves can be applied outside of those circumstances. We’re seeing this with investment DAOs that mirror protocol DAOs.
Q: How do we ensure and incentivize further decentralization within the staking ecosystem?
A: Protocols should continue to lower the barriers for entry by including validators into the set and incentive all the stakeholders in the network to participate in governance.
Q: What are the biggest challenges for Proof of Stake and Staking, that we still have to overcome or may still face?
A: Accessibility is a challenge, which could be remedied with better UX design. More clarity on regulations and taxes would also help improve the ecosystem overall.
Q: What do you consider to be the most important aspects to attract users to your staking service offering?
A: Along with our attention to detail and prioritization of security, our deep technical expertise and commitment to the entire PoS ecosystem attracts users to our services.
Q: Besides validating blockchain networks, what are you mainly focusing your business operations on?
A: Encouraging the stable growth of Web 3 via developer-first resources, capital, and community.
Q: Which protocol has the most sophisticated token economic staking incentives design? And Why?
A: Easily The Graph. The Graph has two sources of indexer income: new issuance rewards and query fees. However, the new issuance rewards are pooled and divided amongst subgraphs, and the division is dictated by a curation market. The curation market uses a bonding curve. The commission structure is a fixed cut, meaning that a new delegation or undelegation dramatically changes the staking revenue shared between the indexer and its delegators.
Q: What do you think are the most important functions of Network Validators, besides running secure and performant infrastructure that validates the blockchain?
A: Staking node operators are typically the first real businesses operating on a protocol, so they tend to be the most invested on a day-to-day basis, beyond the core protocol team. This uniquely positions operators to drive some of the earliest network decentralization by owning and driving governance responsibilities. Beyond being active and proactive in governance, Figment dedicates resources to education to better bridge the tech with the humans who are or will be stakeholders in the protocol.
Q: How decentralized should a blockchain be? Is there a sweet spot tradeoff between decentralization and performance?
A: A protocol needs to balance the economic incentives of running a validator and contributing to governance to encourage expertise to develop and guide the direction of a protocol. Just as in a public forum, there needs to be a balance between the team and the foundation, those with experience (validators) to support and help the general public (token holders) to achieve end goals that benefit everyone.
Q: Which criteria are you looking at, before you start supporting a project with network validation? What can protocol teams do to win you as a validator for their network?
A: We have a research team that looks into the long-term value proposition of networks, their architecture, and their incentive structure for network participants. Assessing team credibility behind projects is another important part of our research process.
Q: There is a winner-takes-all sentiment emerging around staking derivatives. What do you think about this thesis?
A: We are a multi-chain and apply this theory to all blockchain solutions. There is no perfect staking derivative solution for all network participants.
Q: What are the core value propositions of liquid staking solutions, besides liquidity?
A: Asset flexibility, risk mitigation, and arbitrage reduction. Check out our recent article on liquid staking here.
Quickfire Round:
Q: Which upcoming protocol projects are you most excited about and why? Is there a protocol that no one is paying attention to but should be?
A: Unslashed finance for slashing insurance, Qredo for decentralized custody, and Osmosis for reverse staking derivatives.
Q: Which network or protocol has the most sophisticated staking mechanism or staking use case that is not a Proof of Stake Layer 1?
A: The Graph with their curation element. There are similarities between an AMM, but applying it to the utility of the network outside of creating a market for assets.
Q: Which protocol has the best approach towards governance? And why?
A: There is no such thing as “best approaches” to governance, only “the approaches that have worked so far.” Each protocol uses the tools that they think will work.
Q: Which network or protocol in the market has so far proven to have the best “product-market-fit”? And why?
A: Ethereum
Q: What could be done to increase overall awareness and participation in protocol governance?
A: Clear pathways and directions for foundations to organize their governance, more concise governance instructions for stakeholders to participate, and lower barriers for entry for token holders.
Q: Do you see staking yields competing with DeFi yields? What are the implications of this on network security? How can these be balanced?
A: These are two different types of yield, therefore cannot be compared in this way. DeFi yields are similar to yields in traditional finance, where staking yields are unique to PoS and inflationary token rewards.
Q: Are staking lock-up times of value for protocols? Or unnecessarily overthinking protocol security?
A: In addition to security, it ensures long-term value past the initial launch.
Q: We have seen a lot of talk regarding PoW’s energy consumption in recent months. How important is energy efficiency for PoS’ case when it comes to long-term adoption?
A: It’s not any better or worse than non-blockchain alternatives.
Q: What is your vision of the staking economy/industry in 5 years?
A: This is impossible to predict.
Q: Ethereum 2.0 – What are you most excited about? What are you concerned about?
A: Most exciting: more participation by ETH holders in running and securing the network. Most concerning: failed/abandoned transition to PoS.
Q: With an increasing market lead for proof-of-stake-based networks, is there a future for proof-of-work besides Bitcoin?
A: It is difficult to comment on the future of the market, as technological innovation and human behavior continue to change. In 5 years we could be asking the same questions about PoS.