Dear Cardano community,
In the last couple of days, I have been thinking about a way to minimize the centralization issues caused by the ISPOs in Cardano.
Recently Charles Hoskinson published a video with a possible solution for future regulatory concerns in the USA, but in my opinion, holding small SPO accountable for KYC and AML would create an even higher barrier for entering this market.
In my view, the following sketched proposal can be a good way to tackle both of these issues.
Your feedback would be appreciated.
Simple Summary
Create a way to delegate a percentage of staking rewards, within the protocol, to projects (ISPOs, charities, Etc.) in exchange for tokens.
Abstract
ISPOs are an innovative way to fund projects on Cardano, but, unfortunately, recent ISPOs proved to be a source of centralization.
There are benefits to ISPO owners to create their stake pools or delegate the rights to token distribution to a small number of SPOs.
While the education of stake delegators is fundamental, it is an enormous challenge to convince them not to participate in ISPOs, because of centralization concerns.
“Reward delegation” would allow stake delegators to delegate a percentage of their staking rewards to one or multiple projects, within the protocol, without the need to switch pools. The tokens would be distributed directly in the rewards address according to pre-established rules created by the ISPO owner, publicly available on the blockchain.
Motivation
Centralization and future regulatory concerns are the focus of this proposal.
“Reward delegation” would tackle both problems:
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Centralization: Allowing stake delegators to participate in ISPOs without switching stake pools.
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Regulatory concerns: Keeping SPOs away from both stake and stake rewards (as ouroboros intended) while holding ISPOs owners responsible for potential future KYC and AML responsibilities.
Specification
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ISPOs tokens would have to be minted or sent to a new type of address.
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An initial reward delegation TX would have to be signed by both stake delegators and ISPO owners to enable rejection in case of failed KYC/AML. This ISPO signature could potentially be delegated to others - an app acting as a central Hub for multiple ISPOs, offering KYC and AML services.
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Rewarded tokens should be distributed by the protocol (as Ada is at the moment) directly in the delegator’s rewards address for future withdraw.
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Rules for token distribution would be written on Cardano’s blockchain and could not be changed nor canceled.
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Reward delegation could be changed unilaterally by the staking delegator at each epoch.
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Reward delegation would be automatically canceled for future epochs as soon as the ISPO address was empty.
Rationale
TO DO
Backward Compatibility
TO DO
Test Cases
TO DO