FPoS – Federated Proof-of-Stake

Should we create workgroup to work through FPoS model both from technical and gov sides?


Have not voted

Authority Nodes DBGrow DBGrow Factom Inc Factom Inc Innovative Secured Connection (ISC) Luciap Luciap

  • Total voters
    16
  • Poll closed .
The group of Factom Authority Node Operators (including BIF, De Facto, Factoshi, Go Immutable, VBIF) proposes FPoS (Federated Proof-of-Stake) model. This thread is for open discussion of FPoS with ANOs and community holders. There are no timelines for discussion and no polls will follow it.

--
The Factom protocol is at a crossroads. We are in decline and without radical change we may not recover. Attached below is a proposal for a Federated Proof of Stake (FPoS) model that aims to reinvigorate the Factom ecosystem and to bring new stakeholders into the fold.

This proposal is not a governance proposal. It is broadly compatible with many achievable governance models, including our current governance, the GWG proposal, and a new system that is briefly touched upon in the attached document.

Moreover, the proposal outlined here has been designed to be realistically achievable within a relatively short timeframe. This initial version does not require any changes to Factom Protocol consensus; it likely would not require a hard fork.

Furthermore, the proposal is flexible. It outlines a framework, but there is a lot of room to maneuver in terms of the details. There are also several options that can be combined or morphed depending on the course of this discussion.

Briefly, version 1 of a FPoS system would have the following characteristics:
  1. FCT holders would be able to stake with an ANO to win a share of inflation. Stakers would not immediately have a say in governance, but the addition of stake would pave the way for that to happen in v2.
  2. ANOs would be required to stake a minimum amount of FCT with themselves in order to align incentives with FCT-holders.
  3. The grant pool would continue to receive funding.
The purpose of this discussion is to gather input and ideas from the Factom community. It is open to both ANOs and non-ANOs. We want this to be a collaborative effort where everyone feels a sense of ownership over the finished product. The contents of the proposal provide a starting point for discussion. The proposal has general comment permissions and is intended to be a living document.

If we are able to generally agree that the FPoS model is the correct way to go, we should convene a virtual conference to hammer out the details as we did when we launched M3.

Thanks!

https://docs.google.com/document/d/15F3NTjohOOoAIz99DugiCl9XEvRWRNMH_UvjFfBmz14/edit?usp=sharing
 
Thanks for putting this together.

With a new party receiving FCT (stakers) - that leaves less for both ANOs (compared to average efficiency at current lv of 25) and the Grant pool.

I'm concerned this is a squeeze of the most active ANOs whilst being a boost for the least active.

In this system we need to simultaneously move towards less ANOs, and we need it to have an immediate effect on FCT price to bolster the grant pool.

Is this eventuality something the proposing parties share or are willing to get behind?
 
Last edited:
Thanks for the question, Colin. It's something I am behind right now and I believe FPoS can help to deliver on that.

I expect that FPoS would have a pronounced impact on the price of FCT and that ANOs and the grant pool would therefore receive a smaller slice of a bigger pie. If we are unable to drive more interest in the protocol and, by proxy, an increased price of the token - either with this proposal or some other proposal - then I am not sure it will ultimately matter how much FCT ANOs receive. By my reckoning, the decisions we take now must get us out of this situation. Planning for a future in which we remain at these depressed levels in the long term does not factor into my thinking, because in that future Factom will be irrelevant anyway.

As for the ANO count, FPoS would require ANOs to stake a fairly substantial (though not unattainable) amount of FCT with their own identities. There are two possible consequences of that relevant to your question. The first is that we would likely see immediate demand for FCT from ANOs (or at least a decrease in supply finding its way to market). The second is that ANOs who are not committed would drop out, thereby whittling down the authority set.
 
I would prefer receiving twice less tokens at 2x+ valuation, rather than keep pushing FCT further down with our infinite inflation, that not shared with community and not covered by any sustainable demand.

If you read the proposal carefully and check spreadsheet with examples, it’s pretty clear that most part of stakers rewards will be sponsored by decreasing rewards of current low efficiency ANOs.

And even despite twice less FCT rewards for De Facto in this model, I am fully supporting the proposal. What the point of receiving more tokens if their valuation is close to nothing.
 
Last edited:
Thank you to everyone involved in the collective effort on the FPoS proposal. I like several aspects of this proposal, especially how it enables staking without changing the current Factom Protocol consensus model. However, I do have a concern around the lasting price impact of staking alone.

I have seen historically with several protocols in the past, that there will be a short term price increase leading up to the implementation of staking or validator nodes. This is due to the increased demand prior to activation height as many groups are buying tokens to reach their minimum stake. However, once the network inflation starts to set in, the price quickly declines again as there are now more tokens than ever being sold on the market, and buyer demand has greatly waned as most in the ecosystem who needed to obtain their minimum stake already have by now. The long term result has typically been a lower token price over time.

Now, there are the big PoS success stories like Tezos, and ChainLink, but I want the community to be realistic of what enabling PoS on Factom will actually do for the price long term, especially with the current state of affairs. To think that this alone will turn the FCT price around long term IMO would be naive. We need to build meaningful incentive for token holders/ANOs to not sell the inflation earned and enable them to use their tokens in a meaningful way. This approach could yield results, but only if coupled with substantially increased protocol usage.

That being said, I do think that enabling staking does bring an attractive feature to the protocol, and I believe the federation aspect will keep exchanges and bad actors from becoming our most powerful ANOs/validators. I do see using stake as a vote of standing inherently flawed when validators will not be able to set the validator fee for their services. This is because, I don't see a way to actually garner stake from the community under this system, other than meaningless campaigning/politics when that is the absolute last thing we need. Neither the ANO or the token holder will benefit from staking in one ANO over the other.

One of the biggest problems with this community is the emphasis on creating the perception of value rather than actually delivering it. All of our current governance systems are meaningless politics which does little to actually measure contribution value or motivate teams to innovate, or hold teams accountable when they fail and waste scarce community resources. Instead, it motivates ANOs to create perception of value, and to smear other teams as being inferior without forcing them to deliver anything to prove it. The stupid games we play and the time we waste just talking nonsense and judging other ANOs internally is one of the main things holding back progress, I certainly do not want to see this crap formalized into public campaigns aimed at token holders to earn their stake. The current standing system is already extremely toxic when you are able to have support spread across all teams, imagine how bad it will get when the only way to earn support (stake) is to take it from someone else? (Campaign token holder to unstake with current ANO, and stake in your team).

I greatly caution against accidentally creating an uglier, more public facing version of the current standing system, as that will waste valuable and limited ANO time focusing on creating the perception of value to the community rather than real innovation. Overall, I believe this proposal to be attractive, but there are certain considerations that will need to be taken into account before I can offer full support.
 
Last edited:
However, once the network inflation starts to set in, the price quickly declines again as there are now more tokens than ever being sold on the market
It's not our case, because there won't be more tokens to sell on open market — the opposite there will be people (holders, ANOs) who will keep staking tokens, adding staking rewards into stake and not selling them.
 
imagine how bad it will get when the only way to earn support (stake) is to take it from someone else?
Minimum ANO stake is tokens that staked by ANO itself. It's different from someone's tokens staked for you.
And until all ANOs votes are equal — in v.1 — and staked amounts don't give advantage for one ANO over another one, I don't think it's the problem right now.
 
The reliance of staking on solid governance is bigger than people might appreciate, so I’ll just expand on that here.

Introducing staking exclusively for sharing in inflation is not going to do FCT a whole lot of good in the long-term. If I want to yield farm, I have dozens of other coins available with greater liquidity and security. What I would be looking for is how that coin handles governance and if it has a clear vision for growth. Staking therefore needs to come with governance implications and a system in place that allows the protocol to grow.

So let’s explore the proposed governance options. To be honest, there’s only one feasible long-term option.
  • Maintain the current (standing) system.
This only mentions standing, but maintaining the status quo for all governance would be a terrible idea. The current system has prevented nearly all progress. It is incredibly important to get resources in alignment moving forward. I'm almost worried about a sudden spike in FCT price as it might lead to complacency. That’s the exact same mistake made after M3 and we would be repeating it by not changing the very nature of how we collaborate and use our resources.
  • Rely entirely on the ANO stake and create a class of serverless ANOs
I dislike this for the simple reason that we have a lot of parties currently sitting on great amounts of FCT. If being a serverless ANO is as simple as putting up the required FCT, and thereby getting a vote in governance, we would open ourselves up to ANOs lending out their FCT to create puppets, which is really no better than the cartels we see in other staking systems. It’s probably even worse.
  • Integrate this proposal with the current GWG proposal.
Staking systems benefit from having benevolent entities with clearly defined responsibilities and powers to offset some of the uncertainty. In itself having tokens doesn’t qualify you to vote on topics. We will always need entities whose vote weight is based on (the assumption of) merit and expertise. Ergo, the structure as defined in the GWG proposal with committees and an EC. This is a great balance that overcomes the limitations other PoS protocols have with governance.

The other significant advantage is that the GWG proposal aligns our resources against a clear roadmap. This is exactly the sort of management/ governance token holders will expect.
 
I’ve now read this document at least five separate times and I'd like to state—as you yourself admit in the document—that this is not a governance proposal. It’s a first draft of some brainstormed ideas that are primarily technology focused. More time, care, and research need to be invested to build this into an implementable proposal for debate and community consideration.

That being acknowledged, I intend to hold off submitting specific questions and comments regarding some of your ideas (of which I have many😊) until after the major-timed discussion and GWG proposal vote.

Given the critical importance and significant ramifications of the governance proposal under discussion and soon a vote, I strongly recommend we as a community return focus to the governance proposal over the next few days to ensure we all have read and understand the proposal.

We can come back to these other ideas afterwards, when hopefully we’ll have a better idea of how the community’s governance will be reorganized. A more effective, purposed, and organized community as made possible b the GWG proposal would be in a far better position to discuss and develop our strategy and community road map, which could include some of the ideas recently presented.
 
@Saul Schwartzbach

I resonate with some of your criticism. In particular, I agree that FPoS does need to be part of a much bigger picture when it comes to token utility and our overall strategy. I also appreciate your balanced and careful approach the subject. There is risk associated with any action we take and it is exactly this type of feedback that motivated us to release our thoughts early in the process so that we could refine the proposal and determine if it's truly workable and desirable.

I will need to think more about your comments regarding the validator fee. My immediate concern is that the ANOs with the most stake will simply be the ones who offer the most attractive fee, which in turn does not result in any value generation. In an ideal world, the ANOs with most stake will be the ANOs who are able to return the most value to the protocol. Finding the correct incentives to do that is not trivial.

The question of incentives is critical and I'd like to see how the discussion develops so that I can reflect further on this issue before forming a solid position on it. I have some ideas floating around but I'll chew these over for a while before airing them.
 
I’ve now read this document at least five separate times and I'd like to state—as you yourself admit in the document—that this is not a governance proposal. It’s a first draft of some brainstormed ideas that are primarily technology focused. More time, care, and research need to be invested to build this into an implementable proposal for debate and community consideration.
Giving the proposal time and care is why it has been introduced to the community as an open discussion while it is still a draft. There are critical design decisions and refinements that would need to be made before it could be offered up as a vote to be implemented.

Governance - strictly defined as the processes associated with, and the act of, making decisions - does not happen in isolation and will depend on the form the protocol takes. Considering the question of form alongside the question of how we make decisions is a valid approach, in my opinion. I don't think it is necessary to stifle ideas and discussion about that form in order to also discuss and vote on the GWG proposal.
 
I will need to think more about your comments regarding the validator fee. My immediate concern is that the ANOs with the most stake will simply be the ones who offer the most attractive fee, which in turn does not result in any value generation.
Yeah, this is actually what is happening in most PoS blockchains with float validation fees. Most tokens staked for the lowest fee validator and this validator usually does nothing rather than being the cheapest options among all validators.

I definitely don’t want this system for Factom.
 
Yeah, this is actually what is happening in most PoS blockchains with float validation fees. Most tokens staked for the lowest fee validator and this validator usually does nothing rather than being the cheapest options among all validators.

I definitely don’t want this system for Factom.
While this is not a desired outcome, there will need some to be incentive for both the ANO and the token holder to stake in a particular ANO. Floating validation fees are just one example.

Under v1.0 of this FPoS proposal, there is no incentive for an ANO to provide services or build infra to garner stake from the community. From my understanding, an ANO's reward is not affected at all by community stake, and vice versa, a token holder is not affected at all by choosing to stake in one ANO over another.

In this case why even ask the community to delegate stake to a particular ANO if there is no real effect? It may make sense to go with a single staking pool until there is real utility behind delegating stake to a single ANO.

A single staking pool may also have the side effect of greatly cutting back on the ANO politics while we get our act together.
 
I’d also suggest a single pool to avoid politics, ease of use and developer time.

Making ANOs stake is a one time boost to the price. We are essentially asking ANOs to bump up the price.

It is paramount to follow this up with an incentive for sustained market demand otherwise the price will inevitably fall back.

Perhaps e.g
1) locking in profits for a period of time, or;
2) allowing for increasing returns of FCT if rolled over rather than cashed out. Or;
3) disincentive to cash out. Take a haircut if you cash out within a year.

Also good to consider that 25 ANOs cannot simultaneously purchase staking FCT at equal prices.
 
It may make sense to go with a single staking pool until there is real utility behind delegating stake to a single ANO.
I would like to hear core developers here — is it worth developing staking for the pool, rather than developing staking for an identity, considering we will be moving to identity staking anyway in the foreseeable future.
 
considering we will be moving to identity staking anyway in the foreseeable future.
This doesn't necessarily have to be the case. If we choose to create a single pool that is entirely distinct from ANOs, then that paves the way for stakers to become a standing party in their own right, which is edging back towards our initial vision at the start of M3. The vision we had at the start of M3 was good. The problem was that we were unable to execute on that vision.

Briefly, while I'm on the topic of milestones, a change as big as FPoS would form an excellent basis for an M4 relaunch.
 
Making ANOs stake is a one time boost to the price. We are essentially asking ANOs to bump up the price.
This is the point I was making. We still have many problems left to solve, and that deals with better governance.

A bump in FCT price will just make us complacent and euphoric again, like at the start of M3. We have an opportunity to combine things here, and I'm seeing zero discussion about it.

If we choose to create a single pool that is entirely distinct from ANOs, then that paves the way for stakers to become a standing party in their own right,
32% EC (fixed weight based on four expert committees, benevolent entity to offset staking pool uncertainty)
48% ANOs (relative voting weight depending on ANO categories, based on committee scoring/metrics. Scoring could include stakers having a say. Should vie to serve on committees).
20% Stakers (relative voting weight per address depending on staked FCT in a single pool, this is the electoral component mentioned in the GWG proposal)

All illustrative numbers. But happy to hear why anyone would think a division like this wouldn't work.
 
How about tiered staking rewards?

Stake 5000 FCT and earn X FCT back.
Stake 10000 FCT and earn X+Y.

Or

Stake FCT and earn X FCT back.
If don’t sell X - Next 6 months it earns X+Y back.
If still don’t sell - Next 6 months earns X+Y+Z back.

Etc as an incentive to rollover your returns.
It already exists in less complicated way. ANOs also receive staking rewards proportionally to their stakes.
 
Not talking about ANOs.

To avoid this being a one time boost to price, we need sustained outside investors to buy and hold FCT.

That’s what pays for all development and progress.

I’d love to hear more detail about FCT-holders staking rewards, as maybe I’ve misunderstood the proposal.
An easier and perhaps even more simplistic way to help ensure it is not just a one time price boost, would be to set a minimum # of FCT to stake for token holders. This number could be anywhere from 100 FCT to 1000 FCT. We could enable staking only on the minimum "roll". Kind of like how I believe ETH 2.0 is going about it, where you can only stake in "rolls" of 32 ETH. This has token holders always chasing to complete their next "roll" and could help create sustained market demand long past the staking activation height for ANOs.
 
Glad to see this proposal. I believe staking is absolutely a must for Factom to survive. In terms of the worry about short term price boost then collapse, I believe this is a little misplaced. IMO, the reason for early price jumps and subsequent collapses has more to do with the ICO process than sell pressure from stakers/token holders. This is because all Staking protocols at this point have ICO'd as such, and a significant portion of those ICO funds were sold privately. As the protocol launches and the price goes up with demand, those private funds are dumping their funds to all the new buyers. We're not in that same scenario, so I see a massive pump and dump unlikely. As long as the inflation rate doesn't change, I don't see any wild price fluctuations in our future.
 
We could enable staking only on the minimum "roll". Kind of like how I believe ETH 2.0 is going about it, where you can only stake in "rolls" of 32 ETH.
Great idea Saul. Does ETH have multiple tiers? Or just minimum bar 32 ETH?
Having a minimum bar for Factom staking is worth to consider though. Not such high as ETH, of course, but something like 100 FCT could exist in theory.
 
Factom has such little reach that its more the case where only ANOs will stake to meet requirements and then it’s a slow reduction again to where we are.

So - what we should do is put ourselves in the shoes of a crypto investor with a spare $1000.

Why should I stake FCT over another? What are the financial benefits of our model that attract others in and make me want to keep my earned FCT rolling over?

Let’s make those incentives.
 
Why should I stake FCT over another? What are the financial benefits of our model that attract others in and make me want to keep my earned FCT rolling over?
Because Factom has actually working platform, mainnet, live customers and many companies working on it.
It's pretty good incentives already.
I would stake into Factom (considering low cap and potential growth) rather than Tezos.
 
There seems to be a lot of discussion around various staking strategies but I would like to see some data backing them up. Is there any market research to see what staking methods are the ones preferred by investors? Are there any crypto investors we can ask "what would it take for you to buy FCT?" and get some sort of idea of what would work and what wouldn't? Are there examples of protocols that changed to staking, how it impacted the token price, and how it turned out in the long run?

Also a note on this passage from the doc:
3. Rely entirely on the ANO stake and create a class of serverless ANOs. Factomd is not yet ready to handle unknown and potentially untrusted ANOs. In this option, we let anyone become an ANO for the purpose of governance and to receive rewards.
However, under version 1, newcomers would not be part of the authority set. Instead, they would operate serverless identities that behave like existing ANOs for the purpose of governance and to receive rewards
I've mentioned it before but part of what makes governance "work" is that ANOs have a "vote" in the consensus with their servers. The majority dictates what's written to the chain, so it's only possible to change/build on the blockchain if the majority agrees. A serverless ANO would not have the ability to impact this part of consensus at all and all their power comes only from governance with no way to "enforce" it (for lack of a better word). A minority of serverful ANOs could overrule a majority of serverless ANOs by implementing or refusing to implement particular code.

While it's certainly possible to have serverless payouts, incorporating them into governance might lead to some complications.
 
Are there any crypto investors we can ask "what would it take for you to buy FCT?" and get some sort of idea of what would work and what wouldn't? Are there examples of protocols that changed to staking, how it impacted the token price, and how it turned out in the long run?
Agree the way this is implemented will make all the difference, and we should use this deliberation time to better understand what the market wants before settling on a final spec.


Because Factom has actually working platform, mainnet, live customers and many companies working on it.
It's pretty good incentives already.
Nah, it's bankrupt. You'll lose everything. Don't you read Coindesk? Or the comments on our own Twitter? Or Reddit? That's the first place i'd look when researching a new crypto investment.

It is not reality to expect a rush of investors wanting to stake FCT over other protocols. We need to build in some very compelling incentives to attract new investment, to counter the mistaken but perceived risk of CH11.

We should be very open with investors. We have a great base here - but we need funds to push down our roadmap. It's going to take 3+ years before we see usage take over on the tokenomics.

3 years of reasonable funds will require ~$8m. After that, we should have enough usage to become self-sufficient under the burn and mint model.

What we need is a fundraising.
 
Last edited:
Top