EOS DETROIT Response to Block.one Stake-based Voting and Rewards Proposal

KEY TAKEAWAYS

INTRODUCTION

As a Founding EOS Block Producer, EOS DETROIT is excited to see Block.One’s proactive approach in making the EOS ecosystem more attractive to both current and potential participants. EOS DETROIT believes Block.one’s continued participation will increase the competitive landscape for Block Producers and in return raise the quality of the network in terms of security and efficiency. In the past year, EOS DETROIT spent over $35,000 on hardware alone transitioning its block producer and API nodes across 5 networks to bare metal infrastructure. EOS DETROIT views the staking rewards proposal as a way to increase economic alignments between participants — a tide that could raise all ships.

Despite the Block.one’s proposal being a step in the right direction, modifications to the Prysm Group’s recommendations should take place to further improve the alignment of the various network actors. Firstly, the fairly loose increase of inflation to the EOS token from 1.2% to 3.8% annually seems fairly drastic and EOS DETROIT will propose additional models to get to that 3.8% inflation rate in a programmatic step-function method via a community/network dot plot. Secondly, decrease of inflationary rewards distributed based on network performance should ideally affect only the entities that are voting for poorly performing Block Producers (those missing blocks).

IMPROVEMENT #1: TOKEN INFLATIONARY INCREASE

The target max inflation rate of 3.8% set forth by B1 is satisfactory to EOS DETROIT. However, the method in which reaching this rate could be modified to increase alignment of network actors. Increasing the inflation rate immediately by almost 3x seems detrimental to the token holders without additional deflationary mechanisms, especially when it is hard to truly estimate economic growth activity on the increases over time. The Prysm Group uses economic growth activity projections of between 2.4% and 5% as a justification for increasing the inflation to a maximum of 3.8%. EOS DETROIT suggests looking at more dynamic and alignment-focused models of obtaining an inflation rate. EOS DETROIT is proposing that this reference point be achieve in one of two ways:

Consensus-based Dot Plot Reference Point

Dot plots are well known as the method that the Federal Reserve uses to convey its benchmark federal funds interest rate outlook at certain Federal Open Market Committee (FOMC) meetings. FOMC members place dots on the dot plot denoting their projections for future interest rates in subsequent years and in the longer run. Usually, the overall FOMC outlook for interest rates in any given year is reported as the median of the dots that show up on the dot plot.

EOS DETROIT is proposing as one of two options; implementing a consensus-based dot plot system that will dynamically increase or decrease the inflation rate of the EOS token based on an EOS dot-plot voting portal. This portal could be created for all active and standby Block Producers to vote through. In this portal, EOS DETROIT envisions the ability for BPs to submit their proposed inflation target for the EOS token every X amount of blocks (possibly a quarterly number of blocks). These BP submitted inflation targets can then be plotted on a chart (See Figure 1) where consensus could be determined in a programmatic manner. EOS DETROIT also suggests exploring the idea of having the votes be weighted in some fashion, where the higher-ranking BPs have a slightly higher weighted vote in the dot plot portal/system.

FIGURE 1

For more information on how this system of consensus works within the US Federal Reserve’s FOMC, please visit this link.

A Price-Based Reference Point

The second method in which the EOS community could gradually increase the inflation rate could be tied to the token price of EOS. By determining specific price levels where inflation would increase or decrease, EOS DETROIT believes the community could keep a healthy rate of inflation. This method is a better fit for the ecosystem as a whole because it doesn’t force us to increase the inflation rate by almost 3x at the beginning of these proposed updates to the blockchain.

EOS DETROIT proposes that the inflation/price step-function be non-linear, slowing down as the price of the EOS token increases. As for the lower end of the inflation curve, there should be a lower-bound for this number (possibly the currently proposed inflation rate of 1.2%). The particulars of this upper and lower bounds should be discussed within the community. One possibility is to take some inspiration from the concept of the Phillips Curve, where instead of tracking the inflation of the token against unemployment — in the case of the Phillips Curve — managing the inflation based off of the token price of EOS.

IMPROVEMENT #2: Reward Individual Voters for Selecting High Performing Block Producers

EOS DETROIT believes that using Block Producer performance (% of blocks missed) is a great lever to include in the revised tokenomics proposal. However, the logic should be taken a step further and the reduction of rewards through decreased inflation should only affect those accounts staking and voting for block producers who are missing blocks.

Voter Performance Pay

Worded in a more positive light, this system could be coined “Voter Performance Pay,” gamifying the voting process by encouraging and rewarding token holders when they choose the best network operators based on objective criteria that can be measured on-chain.

Additional metrics could be included in the future. For example, block producer response rate to referendums. Rewarding token holders for governance participation has proven to be beneficial in additional implementations on eosio on networks like Telos and WAX (voting for at least 21 block producers and lease to REX). Further incentivization of token holder participation in network functions will create an engine for gradually raising the bar for block production, improving network efficiency, and increasing the value of EOS.

EOS is often criticized for centralization of voting power under exchanges and other custodians. Voter Performance Pay could help align interests and lessen the existing perception of EOS within the greater blockchain ecosystem. If a significant portion of staking rewards are also tied to performance, a block producer that is also a custodian over a large amount of tokens would be incentivized to vote for others rather than themselves if they experience performance issues (scripts could be written by block producers to automate the fail over).

While EOS DETROIT respects the opinion of the EOS Argentina team, EOS DETROIT disagrees that it is impossible/hard to distinguish between good and bad votes. Off-chain implementations like the OIG program on WAX have seen some success, but EOS DETROIT acknowledges it is not perfect. The examples that this response outlines above, as well as the initial suggestion of decreasing the network-wide inflation rate based on missed blocks of active producers, reflect examples of Code is Law philosophy, which seeks to enforce only code based, objective performance measures to align incentives.

CONCLUSION

While EOS DETROIT is in alignment with the B1 Stake-Based Voting proposal regarding the following changes:

EOS DETROIT wishes for the community to consider the following improvements:

One complication of the proposed improvements is that they would require complicated development solutions or funding for someone to maintain and make improvements to code, such as front-ends for data visualization or heartbeat monitors, that aggregate and measure on-chain data.

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