So as far as I understand the immediate issue inherent in Proof of Stake. I know Cardano probably figured it out but I want someone to explain it to me. If a token holders can obtain a higher yield by providing collateral than they can from staking, then as economic rationalists, they will likely do so. This diverts tokens away from staking and harms the safety of the network. Example: Think of how people can over leverage in tradfi and keep on leveraging that leverage, a large institution with deep pockets. This institution could easily buy 15 billion dollars worth of ADA (ADA current market cap~13b) and accumulate in a sophisticated manner. Say they decide to leverage this ADA and buy even more ADA and/or buy the largest stack pool operators operations at twice their evaluation and also run their own pools. Would it be pretty easy to just take over the network? They could also just offer their own financial products that beats delegated ADA rewards and gain control of the network that way. Just wanted to hear out a rational counter point.
Higher yields always means higher risk. People will decide. An important reason for staking is it secures the Cardano network. The more staked the more decentralized it becomes, the harder to hack. For my part I want to participate in that. If people want to gamble, let it be. They can soon gamble in Hydra Heads!
Edit: Staking in the network is risk-free
There will always be those products that offer a better return but in some cases it may be more risky to do so, you also want to think about stable coins as well, as they willbe used to hedge against downturns, used as a way to secure gains from a native token swap. Added to liquidity pools as the principal side of the pair allowing for less volatility, insuring less chance of any meaningful IL. In the end peeps will always use ada to stake just simply because they are hodlârs and arent interested in trying to time the market. Hope this helps:-)
Why do you think that the ADAâs price wonât go up to the sky? To buy ADA somebody need to sell them, how do you think that everybody would be convinced to sell their ADA? Market dynamics are much more complicated than your naive assumption. It would cost them even several trillion to buy that 15bn ADA if it would possible at all.
Having your ada in a defi doesnât exclude it from regular staking. See wingriders for details for instance.
Do you know how easy it is to spoof crypto markets? I said a âsophisticated mannerâ not a single market order spot buy. If your not familiar of the strategies institutions use to deploy capital this conversation is not for you. Large institutions have already made money in crypto going up and down well into the hundreds of billions it is the easiest market by far to manipulate.
Yes thank you, I think this design is what separates Cardano from other proof of stake protocols.
Yes thank you the key here is say someone uses the Djed protocol and mints stable coin. Will the Djed protocol in turn stake the Ada they have received? Then the rewards be given to a DOA. The security of Cardano relies on the native token being staked. A longer term issue is that as a Proof of Stake network gains usage and the value built on top of it increases, the value of the staking token must increase or the network will become unsafe. Say Djed becomes very successful and new applications arise which allows people to stake Djed, if the djed stacking is better than the ADA stacking Cardano loses security and scalability.
Say someone uses the Djed protocol and mints stable coin. Will the Djed protocol in turn stake the Ada they have received? Then the rewards be given to a DOA? The security of Cardano relies on the native token being staked. A longer term issue is that as a Proof of Stake network gains usage and the value built on top of it increases, the value of the staking token must increase or the network will become unsafe. Say Djed becomes very successful and popular and new applications arise which allows people to stake Djed, if the djed stacking is better than the ADA stacking there will be no reason to stake ADA. If people act in their best economic interest. Cardano loses security and scalability.
You canât compare Djed to ADA - a stablecoin to a proper cryptocurrency. You might earn more from Djed but Djed remains pegged to the dollar so you earn from those the dollar pegged even when the FED prints more dollar to dilute them. ADA on the other hand has maximum 45 billion ADA built in the protocol that will ever exist - a point you have to consider and since ADA is deflationary it is more likely to increase in value. Wouldnât you want to keep some of that 45 billion particularly if, hopefully, it turns out to be the best blockchain there is? Wouldnât that be an excellent reason to keep ADA? And what more staking gets you rewarded without risk!?
As I mentioned in previous post people will decide on the risk. It doesnât always mean offering higher yields will throw everyone to it. Risk and return is the name of the game.
Okay I understand what you are saying and I agree what you said is a likely scenario. But say the other scenario plays out, letâs call it scenario #2 and the majority choose an alternative stacking method to gain more rewards because a protocol built on Cardano is now more valuable than itâs underlying network. Cardano now loses security because a significant portion of Ada holders now choose to stake in an alternative avenue and the network becomes vulnerable. My core question is what design feature does Cardano inheritely posses to avoid scenario #2 playing out or is it just relying on the game theory that a majority will choose the native stacking feature because it is safer and less vulnerable to hacks.
Again it boils down to risk. If it network staking is zero risk, that must be the point basis. Anything that goes higher involves more risk because offering a yield lower than the zero-risk basis is just silly. But to increase the yield from the basis point involves more risk since you can already get the point basis without any risk.
The core question has been answered already. Staking is zero risk and ADA is deflationary. Risk will be decided by oneâs tolerance to it. And if any token gets more popular, why then there will be more demand for ADA as you need ADA to mint the token and demand will increase the price of ADA and as deflationary as it is, then it becomes more valuable.
Edit: Smart money will always ask âhow is the extra yield being generated?â. Greedy money says a bit like âhey Curve is offering 20% on USDT, letâs buy a lot of thatâ - without knowing how Curve produces 20%. And you already know what happened.
Please reconsider how you treat others on this forum. It has in my experience so far been very open and inclusive place to share knowledge and discuss opinions. Not excluding people in quite a humiliative way.
@Wonderer WEF is a economic rationalist?
As what happened with the latest FTX saga, I hope you understand the meaning of risk. What you have proposed as an example is not healthy for the whole ecosystem and affects everyone, as what happened with FTX including others like ADA, who has nothing to do with it. I hope youâre now clear on the answer to your original question, the title, of this post.
So right now we have around 3200 SPOâs that have approximately 73% of the current supply. If for some reason a large amount of ADA was removed from the delegation pools say 24% we would still have the 3200 SPOâs just less participation 49%.
To have a vote you must be delegated through an SPO. Unless some group bought all 24% of previously staked ADA along with most all of the available float they would still need to create 3201 new SPOâs in order to achieve control.
I dont know about any of you but i think we have a better chance of BTC going to $1.00 than this scenario happening.