Interview with Edouard Lavidalle of Stakin
We asked Edouard‘s opinion regarding several topics such as decentralization, incentivisation, challenges and upcoming protocols in context of our Staking Ecosystem Case Study.
Stakin is an infrastructure operator for Proof-of-Stake (PoS) public blockchains, offering public delegation services to Tezos (XTZ), Cosmos (ATOM), Irisnet (IRIS) and Terra (LUNA) Token Holders.
SR: In your opinion what is the best way to ensure and incentivize further decentralization within the staking ecosystem?
EL: Within the system ecosystem, we tend to notice that most of the delegations go towards the largest players. Our understanding is that staking is a trust business, and it is sometimes easier to trust somebody who is shown at the top of the list with the most delegates. That shouldn’t be how delegators choose their validators.
Ensuring and incentivizing further decentralization will mostly come via information and education. Delegators should conduct their own due diligence, understand the importance of decentralization, and figure out to who they are delegating: Where do they operate? How do they operate? What is their set-up? How big are they? What is their self-bond? What are their performances/fees?
As such, we’ve recently written a couple of articles covering the subject of decentralization, for example this overview of the Cosmos ecosystem.
Nonetheless, further incentives could be built within the protocols. Each protocol is different, and some have very interesting governance features. We can imagine that if the community were to believe that a protocol is too centralized, they will be able to vote on a decision that allows smaller delegators to offer slightly higher yields. Such an incentive would raise issues: not all validators have the same characteristics, and higher yields might biaise the decision of delegators.
SR: What are the biggest challenges for Proof of Stake and Staking, that we still have to overcome or may still face?
EL: We see the topics of custody and upcoming regulations as key challenges within the staking ecosystem.
First, custody: in some protocols, it is required to maintain staking ratios, which means that in order to scale a validator/baker, you need to consistently add further coins into your self-bond. You can whether choose to keep buying these coins yourself, which will come to be a lot of investment at some point), or invite somebody to finance this self-bond in exchange for a higher yield. While staking and delegation is, in most cases, non-custodial, in such a case it will generate extra risks and processes for validators and their clients. We might see further security issues arising from this in the future.
Second, regulations: the staking ecosystem is still mostly unregulated. It is normal, since it is a new niche business. We believe that in the future additional regulations will start to emerge, on subjects such as tax treatment, disclosures, and management of users’ fund if there is custody (Masternode staking cases or decentralized bonds). It will be the responsibility of communities and staking providers to come up with the relevant tools in order to remain compliant.
SR: What do you consider to be the most important aspects to attract delegators to your staking service?
EL: We consider the most important aspect to be the return on investment (ROI) for delegators. Having a good ROI means that we have to be performant (maximize uptime with a strong set-up), secure (avoid and defend against potential attacks) and charge reasonable fees. Nonetheless, other factors are important such as community contributions, education on governance issues, and ease-of-use for the customer.
SR: Which upcoming protocol projects are you most excited about and why? Is there a protocol no-one is paying attention to but should?
EL: We are very bullish on protocols such as Tezos (Liquid Proof-of-Stake) and Cosmos (Bonded Proof-of-Stake). These offer good scalability, interface for smart-contract development, and proven community governance features.
Other interesting protocols, which are currently in Testnet, include Polkadot and Algorand. Make sure to take a look at these.
SR: How can smaller Staking-as-a-Service companies differentiate themselves from large players like exchanges providing staking services (e.g. Coinbase)? Is there a danger of centralization? Binance Staking in 2019, yes or no?
EL: As discussed, decentralization is key. We believe that smaller staking-as-a-service companies have their place amongst larger players, and if the protocols were to become too centralized, we have trust in communities to set up better incentive mechanisms towards decentralization.
Smaller companies have the chance to be pure player, and as such, they can take the lead on educating the communities, taking part in governance, and ensuring their infrastructure is top-notch.
Binance Chain is Proof-of-Stake and built on top of Cosmos SDK / Tendermint. We are still unsure concerning whether they will open validation to external validators. Our understanding is that at the moment there are c.15 nodes controlled by Binance itself.
SR: Which value-added services or products are the main focus for you at the moment? (e.g. insurance, governance dashboards, staking mobile wallet, custodial services, open source contributions, community meetups etc)?
EL: We are working on a multi-asset delegator dashboard so that our delegators can:
- Keep track of their holdings, no matter the PoS coin
- Check their rewards in real-time
- Evaluate tax impacts (that’s for v2)
We are also working on other cool features and tools, but that’s for later!