I entered the broader crypto community through Ethereum. I was the project manager at ENS for three years, led the Aragon product team to their mainnet launch and helped other projects here and there too. Proof of stake caught my attention in mid-2016. Joining the Cosmos validator working group in October 2017 was my “official” […]
I entered the broader crypto community through Ethereum. I was the project manager at ENS for three years, led the Aragon product team to their mainnet launch and helped other projects here and there too.
Proof of stake caught my attention in mid-2016. Joining the Cosmos validator working group in October 2017 was my “official” entry point into the staking economy.
This led to me founding Chainflow. Through Chainflow I’ve been fortunate to advise and support many staking networks.
Through Ethereum, I was fortunate to work with people like Nick Johnson, Alex Van de Sande, as well as many of the team members that left Aragon One earlier this year. Working on Ethereum projects also provided me with a broader network within the Ethereum community. I was able to attend and experience a couple Devcons too, to experience the community in real life.
Earlier this year I spoke to Abbey Titcomb of Radicle, a project built on Ethereum. Radicle is a project I’ve liked since learning about it a few years ago.
Speaking with Abbey reminded me how much I enjoyed interacting with the Ethereum community. I realized the experience was different from most of the day-to-day interactions I had working in the staking economy.
Values as Competitive Advantage
Ethereum supporters often see their community as a competitive advantage. I started taking this perspective more seriously after that conversation with Abbey.
Then I started asking myself why this conversation felt different than those I was having daily. This line of inquiry reminded me of attending NYC blockchain week 2019. Proof-of-stake was a popular topic that week, as Cosmos launched a couple months before it.
Many, if not most, of the people I met at the staking events were from the legacy financial industry. The suits and business casuals seemed to outnumber the jeans and t-shirts.
This wasn’t surprising, as the conference was happening in the belly of the legacy financial industry beast. The events also had an invite-only, exclusive feel to them.
I began contrasting this experience with my Ethereum tenure. Doing so helped me realize that the majority of people within the Ethereum community entered it from a set of crypto-first values. These values understood and still understand the importance of decentralization.
In contrast, many that I met during blockchain week were entering the staking economy from a finance-first perspective. They saw the staking economy as another market to conquer, control, and extract an inequitable share of value from.
Two years later, these contrasting experiences help me understand where the staking economy is today. Stake is centralizing and many would rather not call attention to the problem.
Validators are looking to maximize profitability by capturing as much stake, early, as possible. They know that early leads compound and are very difficult to surpass. They employ the usual venture-funded, customer acquisition and high-growth strategies revered in the startup world and often required by venture capitalists.
Delegators often choose validators based on greatest total stake and lowest fees. They’re looking to maximize their returns. They want to “set-it-and-forget-it” to earn passive income.
What’s missing is an appreciation of values other than those in service of financial gain. And what loses out is decentralization, the value that underpins the goals that drive the crypto-first builders.
The staking economy needs a more balanced view and appreciation of a well-rounded value set. This is essential in order for it to thrive and continue competing (or more hopefully, complementing) networks with strong crypto-first values like Ethereum.
That’s not to say Ethereum is immune from the centralization problems that early staking networks are experiencing. This chart shows that 33% of network stake is controlled by about only 7 entities.
Otherwise, the staking economy will continued trending toward centralization. This won’t result in an alternative to the current inequitable and unfair legacy financial system.
It will simply build a replica of it, but I’m guessing that’s OK, with many of the 2019 blockchain NYC attendees. This scenario makes it easy to maintain control and maximize profits.
Is Stake Doomed to Centralize?
Yet those of us who believe in the staking economy and are in this to build a fairer, more equitable and inclusive alternative to the legacy economy, can’t stand by and let this happen. We need to speak up and give voice to the importance of values other than the financial ones driving the staking economy today.
My earlier posts about the rich getting richer and a doomsday scenario may leave you thinking I believe centralization is inevitable. This isn’t the case. There are actions that can be taken to slow and even reverse stake centralization.
The first step toward changing anything is to bring awareness to what needs to be changed. The first thing we can do in service of this goal is to call attention to the centralization trends as they’re happening or when we believe certain decisions may strengthen the trends toward centralization. Make your crypto-first values known to the staking network communities you participate in.
Silicon Valley Model
This is what I’ve been trying to do since even before the Cosmos launch. It’s what I hope these posts and the Staking Defense podcast accomplish. Yet we need more voices to amplify these messages, lend them credibility and increase their urgency.
So when you see a trend toward centralization happening, speak up, call it out, bring attention to it. When you see others do the same, investigate the points and if you agree, support the observation. This goes for decisions, e.g. network proposals, that may increase, rather than decrease the trend toward centralization, too.
Secondly, we need to further educate delegators, particularly new entrants to the crypto community. We need to explain the importance of decentralization to them and help them understand how their choices play an important role in preventing stake centralization.
Delegators do at least a little research. Get to know your chosen validator operator. Or better yet, choose two to three to delegate to. This helps reduce your risk and decentralizes stake. Choose validators whose values align with your own. Hold them accountable for their actions and contributions, or lack thereof, to the communities of the networks they’re operating on. Understand their business model.
Are they pursuing a high-growth, Silicon Valley model that relies on them capturing as much market share as possible? These types of business models are directly at odds with the concept of decentralization in the first place. Instead, choose validators who don’t see the staking economy as a zero-sum game.
Finally, from a more tactical perspective, those building networks block explorers can help too. They can do this by highlighting validator performance, rather than total stake. The single biggest and probably the simplest thing you can do to counter stake centralization is default sort your validator list by performance or even alphabetically. DON’T default sort by stake, with the highest stake at the top of the list. Provide background information on the valiator and an area for delegators to review validators.
The Time is Now
As I wrote above, I’ve experienced a heavier presence of crypto-first values in the Ethereum community than in most of the early staking networks. However, I know there are people in these communities who also hold strongly to these values.
These crypto-first voices need to become louder in these communities. And for Ethereum, it’s important that these values continue to remain front-and-center as the progression to Eth2 continues, in order to prevent centralization trends from taking root.
The time is now to take these actions. The longer a network runs with these centralization tendencies unchecked, the longer it will take for them to be reversed. And left unchecked for too long, they may become irreversible.