Interview with Gavin Birch of Figment Networks

      We asked Gavin’s opinion regarding several topics such as decentralization, incentivisation, challenges and governance frameworks in context of our Staking Ecosystem Case Study.

      Figment Networks is a security and compliance focused staking service provider. Drawing on years of data center, software, and security experience, they offer industry leading best practices to keep your tokens safe and optimized for maximum network awards. Based in Canada, they provide transparency, legal stability, and regulatory clarity.

      SR: How do we ensure and incentivize further decentralization within the staking ecosystem?

      GB: Regarding systemic changes, there are some great discussions happening, particularly on the Cosmos forum. One interesting suggestion is to have variable bond and unbond times, depending on the size of the validator. That could mean that it takes longer for me to start receiving rewards if I delegate to the biggest validator, and it may take longer for my delegated ATOMs to become liquid again. Perhaps another option could be an algorithmic reward reduction that’s proportional to the growth of a validator’s voting power (ie. total delegation).

      As a single entity in the Cosmos ecosystem, Figment Networks has committed to supporting validator decentralization by delegating our validator fee rewards to smaller validators in order to help encourage broader participation. It’s also an opportunity to highlight the value that these validators are bringing to the ecosystem. We’re also active in the recently-formed Decentralized Staking Defenders group, and we hope to inspire other validators to follow suit.

      SR: What are the biggest challenges for Proof of Stake and Staking that we still have to overcome or may still face?

      GB: It may seem strange coming from us, but right now we don’t even know how well proof of stake will hold up in the wild. We should remain skeptical about its viability until it proves itself, so the primary challenge will be to survive black swan events, and for the network to be resilient to different kinds of individual (and sometimes multiple) validator failures. Incentivizing decentralization is a challenge and important to maintaining a healthy network.

      Likely the greatest challenge of all is the broader adoption of these staking mechanisms in real-world applications. Most of the current use-cases are experimental, but it will be a big win when reliable staking mechanisms are part of securing day-to-day applications, and when they’re being used by people that don’t know or care that they are using proof of stake infrastructure.

      SR: What do you consider to be the most important aspects to attract delegators to your staking service?

      GB: We see two parts to our business.  

      First, it’s to grow the utility, value and adoption of staking networks. Our primary method for doing this is to build open source software and tools that make our networks more valuable. Our block & validator explorer, Hubble, is an open source tool that has been quite popular in the Tendermint communities–we’re supporting Cosmos, IRISnet, and Terra.

      The second part involves serving the needs of long-term token holders.  The team has 20+ years of experience successfully running scaled, secure Internet infrastructure. We provide a set of off-chain services that include tax reporting, compliance tools, SLAs, contracts, 24/7 support, and access to unique research and data. We are also very active in our communities, and particularly in governance.

      We hope that delegators will see the value of 1) working with someone who is working to grow their long-term token value while 2) being the best technical and business operators in the industry.

      SR: What do you consider sustainable incentives models for proof-of-stake blockchains? At which point gets a high inflation harmful for the blockchain ecosystem? What is the best trade-off to reward blockchain keepers sufficient, but don’t dilute holders too much? Is there a magic formula to this?

      GB: I think that there must be a careful balance between incentivizing participation (ie. paying for security) via ‘token-holder dilution rate,’ and maintaining network efficiency by the token-holder dilution rate. I like Doug Petkanics’ (Livepeer) take, which is that we should target a participation rate, rather than a token issuance rate, that aligns better with ensuring a high-quality network. I think that a well-considered algorithm could ensure a target participation rate (ie. a “magic formula), and that formula could also be fine-tuned with a reliable governance mechanism. We want to see lots of incentive model experiments, and we’d like to see these experiments maintained with effective governance mechanisms.

      SR: Do you see the necessity to educate Delegators on Protocol Governance? Grassroots Democracy or parliamentary democracy?

      GB: I do see the necessity for education, but I think that should be done at a high overview level. I don’t know which kind of democracy I prefer, but I think if we carefully consider how changes (or defaults) in our systems impact on different stakeholders (and to what extent), we can provide the expertise necessary for the stakeholders to make decisions in keeping with their values. I’m a strong proponent of informed consent.

      SR: Do you believe Staking will play a role in enabling traditional governance decision apart from protocol governance? And if yes how? Do you see staking as a basis for governance being applied in the traditional world (nation states, political decisions, etc.)?

      GB: We see staking as a means for enabling experiments in governance that may, one day, be useful for experiments in traditional governance. This is our thinking: messing with traditional governance is likely to impact most heavily upon those most vulnerable in societies, for better or worse, and it may be unethical to experiment with so much at stake. Typically (we think–or at least hopefully) the money in cryptocurrencies is more acceptable to risk on things like governance experiments, simply because it’s arguably risky to be invested in cryptocurrency in the first place. Nobody wants to lose their money, so it’s a good way to have risk and rewards, incentives and disincentives, and to learn more about how we can better coordinate together–all without putting vulnerable lives at risk in the way that we would if we tried these things out with experiments in traditional governance.

      We also suspect that the possibilities and constraints for governance in distributed systems are different from those in traditional nation state governance and economics. One problem with plutocracy (ie. government by the wealthy), for example, is that it’s harder for citizens to exit such a nation state than it is to exit such a PoS-based network when backed or run via highly liquid cryptocurrency. Since the problem space is potentially very different, we’ll likely need to test our existing assumptions with new incentive mechanisms and governance experiments.

      About The Author

      Staking Rewards Research

      is a team of analysts dedicated to analyzing the economics, profitability, risks, and yield potential of various cryptocurrencies.