CIP - Shelley’s Basho-Voltaire decentralization update

Yes, it was about Eternl’s Staking Vault:

Ahhh. Thanks.

I don’t know why I thought it was WingRiders now. No wonder I couldn’t find your post. My apology to WingRiders if I caused any offense.

Nevertheless my arguments around the centralising effect of this remain.

The numbers are on the screen, where is the spin? Stake pools generally charge between 0% and 5% margin, at k=1000 with a pledge of 500k you can significantly effect what fees delegators are paying through your pledge. Are you implying that 0.5% is not a significant amount relative to a 5% fee?

Perhaps, the system did not work out as designed.

This proposal for a new guide on how to delegate

also emphasises pledge, because that should have been the main incentive against pool splitting.

But that only really works if delegators have a lot of pools with 30 to 60 million pledge to choose from. Then, they would be used to the higher yields that these pledges offer and never be content with the ridiculously small pledges that are usual right now.

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According to the calculator which seems to be properly syncing with the blockchain now (so you no longer need to update the total Ada supply or total staked Ada):

  • If you pledge 0 Ada at full saturation of 67M your delegators earn 4.06% yield.

  • If you pledge 500K Ada at full saturation of 67M your delegators earn 4.07% yield.

  • If you then increase the variable fee from 0% to even just 0.5% then your delegators will earn only 4.05%

  • On the other hand a fully pledge saturated pool with 67M Ada (like Eternl Staking Vault is doing) will earn 5.26%.

So as I said, pledge at the low end makes little difference to the yield of your delegators whereas fully pledge saturating a pool provides a massive yield boost by comparison.

I don’t know how to explain it better than this.

I agree. It hasn’t.

What I was really trying to point out though was:

The Eternl Staking Vault yield boost contract is not encouraging decentralisation and this has resulted from the poorly designed pledge incentives.

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I’m not really sure what you’re trying to demonstrate with these numbers, I pointed out that at k=1000 and pledge=500k you could offset around 0.5% margin, a significant amount. In your numbers you seem to be assuming that 500k pledge should offset 0.5% margin at k=500 which of course it won’t. I used the calculator for k=1000, 500k pledge, 33.5M total stake, and 0.5% margin and it came out the same as if you had 0 pledge and 0% margin (4.02%), as expected since we already calculated these numbers earlier.

So as I said before, pledge is capable of offsetting a significant amount of the average margin fee SPOs charge, and therefore does have a meaningful effect.

I am not sure if it is so bad for decentralisation. They just fund a single pool and that one is still far from saturated. If it is successful, there will maybe be other staking vaults from other operators leading to another type of decentralisation – decentralisation of locked staking.

If the pledge mechanism had played out the way it seems to be intended to, no pool with less than tens of millions of pledge would be competitive. And the staking vault wouldn’t have such a large bonus compared to those kinds of pools.

So, I’m still inclined to like the proposal we are discussing in this thread. It would give pledge a meaning also on the lower end. (But it would probably also destroy the business model of staking vault.)

I think we should be thinking a step further along. What if the business model changes as follows:

Eternl begins to offer a more complete service similar to what Lido offers. You can get stAda in exchange for your real Ada and this can be traded and be used as collateral just like Ada since it is pegged 1 for 1.
Eternl keeps a pool of Ada in reserve which is normally staked so this provides liquidity for people to redeem their stAda if they want. This provides a more complete and seamless experience for people. They can have many pools that are pledge saturated for extra yield and just 1 or 2 pools staked normally for liquidity. There is now effectively zero lock-up time for users, so long as only, say less than 10%, wish to redeem in any 5 day epoch period.

Now we can see how this could get more centralising. Since the provider of such service, with the most liquidity, will tend to dominate. This is simply because as a user you will want to ensure your stAda will be easily redeemable for real Ada, with no slippage, so you will use the provider with the most liquidity.

I think we need to be thinking how things will play out when large institutional investors are involved. Look at what is happening in Ethereum with Lido. Lido is one provider and it now controls one third of all staked Eth.

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Wingriders is made by the group that made Adalite. They are the highest leveraged non custodial group. Despite raking in TONS of ADA they still have very little ‘skin in the game’ of their own. This is the danger of telling people to stake based on merit or the ‘work’ they’ve done or are doing on the network. Without any stake in the system there is no incentive to work in the best interest of the system; instead the incentive is to milk the system for all they can.


@Michael.Liesenfelt How have your thoughts changed over the last few months in relation to this CIP? I am specifically interested in what you think about the “Ada Link Paper” by twitter: @MahmoudNimer:

Thinking has evolved and per CIP-1 this discussion has moved to GitHub. Because many people were still learning by posting a Discord channel was created for chatty debate and banter on the CIP Editors Discord.

Read the official CIP-50 pull request 242 on GitHub for the current roll-up.

Yes, I have read all the discussion there. I thought the analysis and breakdown of the formula in the “Ada Link Paper” was enlightening. After seeing that breakdown, the current formula seems unnecessarily skewed.

In particular this remark:

“The effect of a0 is not as one would expect. While it does reduce ( )1 effect on the overall stake
rewards, it does not increase ( )2 term in same rate (mathematically this is due to the raised
powers on 𝑠’ ). Even at high a0 values, the amount of “depreciation” felt in ( )1 is orders of
magnitude larger than the increased influence of ( )2.”

I can’t understand why IOHK skewed the formula like this and the formula is more complex as a result.

Has this analysis influenced your proposal design?