This interview was done as part of the 2021 Staking Ecosystem Report by Staking Rewards.
The report was sponsored by StaFi Protocol.
Harmony is your open platform for assets, collectibles, identity, governance. We are an open and fast blockchain.
Q: Do you think proof-of-stake based governance systems can be applied outside of protocol governance and grants? And how?
A: Absolutely yes. At the core of a proof-of-stake based governance system is the principle that to participate in the system, you must have a stake in the system. You have to have skin in the game. For protocol governance, that means that validators or node operators are materially interested in the success of the protocol and so they have a stake in the game. These governance systems are fairly straightforward once you establish your initial conditions. What is considered a “stake”? How are votes weighted? What are threshold requirements for participation? Each of these questions help establish the fact that voting, in these systems, is a privilege and a responsibility.
The tools for proposing alternatives for voting, for discussing issues, for collecting, tabulating and auditing each vote – these tools exist and are fairly easy to use. Once you have found a population that has a material interest in an area of governance — roll out these tools and you will have a governance system.
Q: How do we ensure and incentivize further decentralization within the staking ecosystem?
A: Decentralization is the third stage in a staking ecosystem. The first stage is to ensure network stability. The second stage is to ensure communication and coordinated action. Once systems and norms are in place to accomplish the prior two steps, you can turn to decentralization. Here, decentralization can be accomplished by lowering the barriers to participation. Lower the minimum amount someone can stake. Facilitate the establishment of validator nodes with technical how-tos, services, and even recommended specs. Provide channels for technical and marketing support. The easier it is to set up and run a validator node, the more people will participate in decentralization.
Q: What are the biggest challenges for Proof of Stake and Staking, that we still have to overcome or may still face?
A: The main two issues I see are scaling and full decentralization without too much overhead. Most people are still used to following someone else, they do not really take part in decentralized governance where a lot of people have to drive it forward.
Q: How can smaller Staking-as-a-Service companies differentiate themselves from large players like exchanges providing staking services (e.g. Binance, Kraken, Coinbase)? Is there a danger of centralization?
A: Smaller staking services are usually more hands on with customers and they give better APY compared to exchanges. Exchanges usually do not maintain their validators well so they are frequently offline or produce sub-par rewards compared to staking providers. The staking as a service has actually boomed lately and there are quite a few serious companies in the field already.
Q: What are your thoughts on the permissionless nature of staking from a legal standpoint? (due to no sign-up, or verification process, delegators cannot be explicitly forced to agree to the terms of service)
A: Delegators agree on the commission set by the staking provider and whatever on-chain rules the network itself has. Risk factor and trust is on the delegators, they should learn and get to know their staking provider as much as possible.
Q: Since the overall space is not matured yet, at which point, do you think, should governments and central banks move to regulate the staking space?
A: Never. Regulation should only come after clear harm is shown, not before.
Q: How much resources should VC investors allocate towards staking/governance participation? And what’s the best approach for them to deal with those in general?
A: VCs need to focus on their core competency which is investing in risky start-ups run by promising teams and focusing on making a return for their partners. Staking is an innovative financial instrument that can defray risk and governance participation can be a viable method to protect an investment – but, those two things, in themselves, are not sufficient to form an investment philosophy.
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?
A: Axelar, since it is a gateway network to connect all other networks; eg. doing contract calls or simply making a trade within 2 different chains, all directly from Axelar.
Q: Which network or protocol in the market do you think has the most future-proof token economics? And why?
A: There are a few protocols with deflationary tokenomics and a few that get there later on with higher usage of their network. There is no one perfect tokenomics model. Steady and small inflation might, also, not be bad for mass adoption.
Q: Which network or protocol in the market has so far proven to have the best “product-market-fit”? And why?
A: Chainlink and The Graph. They both serve data to all other projects and these projects need this data to operate. One is a price oracle and the other uses GraphQL to index and serve data queries. Both should be here to stay for a long time. Both are also chain agnostic which is a great way to offset layer 1 risks.
Q: What could be done to increase overall awareness and participation in protocol governance?
A: Unify the governance and staking platforms. Right now, to fully participate in protocol governance, it is necessary to visit one location for information and debate about an upcoming vote, visit a separate one to verify that my validator (if I delegate) will vote for my position, visit a third to either vote or see the results of the vote and maybe even a fourth location to acquire governance tokens and/or sign my transaction. This fracturing of vital components in protocol governance makes it difficult to participate and onerous to remain up to speed.