This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

SLASHABLE STAKE
A discussion on the Solana forums around the possibility of slashing penalties that amount to 100% of the staked tokens. Currently, most Proof-of-Stake protocols are designed so that only a fraction of the staked amount is actually at risk. As an example, in Tezos only the baker bond which amounts to 8.25% of a validator’s overall stake is slashable, while in Cosmos currently a maximum of 5% of funds staked with a validator can be slashed.

Higher slashing penalties may incentivize diversification, as well as a more secure and robust validator set. On the other hand, especially in the early phases of a network, the extra risk might not be worth the reward resulting in less participation in staking overall, which would make the system more vulnerable to attacks.

It seems likely that penalties will increase over time once hardware and software have matured and when audits and insurance products are commonplace. As there’s a large spread between current slashing rates and 100% slashing, it will be interesting to watch as networks experiment to see how validator and delegator participation are affected.

CELO PoS - Two posts on Celo’s Proof-of-Stake model: the first one serving as an intro to PoS highlighting Celo’s unique mobile-first light client model, and the second one diving deep into Celo’s consensus protocol, the staking process, as well as associated rewards and penalties.

Celo is innovating on quite a few fronts with respect to their economic design; some interesting factors are the introduction of validator groups, separating rewards for stakeholders voting for validator groups from those of elected validators, and finally an “uptime score” that impacts rewards to incentivize long-term validator availability.

NEAR ECONOMICS -  An insightful video explaining the economics behind NEAR’s Nightshade sharding design. Interesting features include a new concept NEAR calls “hidden validators”, an adaption of Ethereum’s proposed EIP-1559 fee model, expiring transactions, and dynamically adjusting issuance to have a minimum annual reward of 5% on the total supply. To illustrate this clever mechanism: if there is no income from usage through fees the token supply will be inflated by 5% to reward validators, while if an annual equivalent of 4% on the total market cap is earned through gas fees, newly issued tokens will only amount to 1%.

KAVA MAINNET (RE)LAUNCH - The Kava Network launch was scheduled to happen last week. Validators were prepared and started the launch process at the scheduled time. After achieving quorum on the first block, then failing to achieve quorum for over two hours on the second block, it became clear that a network fork had happened.

As a result, the launch was cancelled and rescheduled for Nov 12th, 2019 at 14:00 UTC.  The Kava team published both pre- and post-mortems. Their analysis pointed to the late release of an updated genesis file and only a small number of validators participating at launch as root causes of the failed launch attempt.

INCENTIVIZED TESTNETS

  • Celo Stake Off: The team at Celo announced their incentivized competition running on top of the Baklava testnet. In total, the top 50 teams by accumulated testnet tokens and various other criteria will be rewarded with up to 2 million mainnet staking tokens (Celo Gold, dollar-equivalent value unknown).
  • Cosmos Game of Zones: With the first version of the inter-blockchain communication protocol IBC going live, Cosmos just officially unveiled a testnet competition to battle-test communication between chains. Total price money amounts to 100,000 ATOM (~$370,000 at the time of writing). Also check out the new website to learn more about IBC.
  • Matic Counter Stake: Layer-2 scaling solution Matic announced the launch of their incentivized testnet to test their Plasma implementation. Matic node operators process transactions on their PoS sidechain while also checkpointing to Ethereum. Total price money will amount to more than 3 million MATIC (>$42,000 at the time of writing).

AION UNITY & OAN - Aion announced validator launch partners of their Unity mainnet, which is a hybrid PoW and PoS network, in advance of the upcoming launch. The team also announced a re-branding campaign. The network will now be called the Open Application Network (OAN), an “open source public infrastructure that creates a new design space for Open Applications”. The network will be “secured by AION, its digital asset”.

STAKERDAO - Jonas Lamis, founder of one of the earliest Tezos bakers Tezos.Capital, announced his plans to form the StakerDAO, a project making use of an adaption of the Tezos governance process to launch and manage decentralized financial products.

PRYSMATIC and CASPER REDDIT AMAs - Two Ethereum-relevant AMAs took place this week. The Prysmatic team went on the EthFinance Reddit to talk Eth 2.0 and Casper researchers updated the Ethereum community on their progress on the consensus algorithm. Some insights from these AMAs:

What needs to be finalized before the launch of Eth 2.0 Phase 0 (Prysmatic):

  • Multi-client public (incentivized) testnet
  • Client security: security audits of code and libraries used
  • Finalize economic parameters
  • UX improvements with real users around staking experience, monitoring, etc.
  • Implement and optimize slashing

The biggest bottlenecks in CBC Casper:

  • Load balancing across shards to optimize scale and performance
  • Designing architecture requirements for a production system without putting protocol guarantees at risk
  • Adapting the consensus protocol to a public Proof-of-Stake network

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Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.