FPoS – Federated Proof-of-Stake

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


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

  • Total voters
    16
  • Poll closed .
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?
These are excellent questions. My support for the idea is based on a general familiarity with blockchains that employed staking (or planned to) from the outset. I do not know of any blockchain that had no initial plan to switch to staking then opted to at a later date. In particular, I have no knowledge of any blockchain that has done so when they are so close to heat death. If market research exists, I can't find it.

Are the 5 proposing ANOs evolving this behind the scenes? What’s the next step?
Nothing is happening behind the scenes. I don't know about the others, but I have been waiting for more ANOs to give their opinion on which of the available options, if any, would be acceptable.

Thanks to all that have taken part so far. If others have been waiting to give their input, I encourage you to do so now. In particular, anything that helps us to refine the proposal into something we can actually vote on would be ideal.
 
I’m still struggling to see the objective this idea intends to be a solution to, and what staking intends to solve?

Also, staking by itself is a very different thing than what is being proposed/discussed here - hope all are tracking. Thanks
 
The overarching objective is to engage people who are not ANOs by offering them a financial incentive. By offering a financial incentive, we might be able to attract new people to the ecosystem and inject some life back into the project.

Right now, we spend a lot of time talking to each other and barely any time talking to anyone else. By incentivising outside participation, we attract new money, new ideas, and new people who are willing to evangelise the protocol.
 
The overarching objective is to engage people who are not ANOs by offering them a financial incentive. By offering a financial incentive, we might be able to attract new people to the ecosystem and inject some life back into the project.
So I sort of get what you are saying about incentive - but that could be done with just plain-old staking - what is the objective of the federated staking?
Also, paying/incentivizing people to be interested is a very short-term strategy - there will always be better yield somewhere else and if yield is what brought them it will be the same reason they leave – I don't think its reasonable to expect active participation in return from this strata of token-holders.

Remember this is not free, to the contrary - it will be very expensive if you factor both the cost of implementation, but also (and most importantly) the ever-growing opportunity cost of diverting-away community resources from ANOs and community grant recipients and instead to tokenholders who have no responsibility and likely no incentive to help/contribute to the community. IMO, it’s a very hefty price.

On a simpler note, as far as implementation what exactly would need to be done to incorporate staking into the proposal, wallets, etc.? What is an estimated timeline on implementing something like this, would are the estimated costs, and who would do the work?
 
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By incentivizing outside participation, we attract new money, new ideas, and new people who are willing to evangelise the protocol.
Again, this is what is hoped to happen, not cause and effect from staking - none of these things may occur as a result. Your statement is (possibly unfairly) expecting a lot from those we've attracted with staking reward. Note: it’s also very hard to decrease/turnoff stake size/reward without a high turnover of stakes, so please factor the possible supply/demand impact on “tokenomics” and market prices.

I can’t think of any expected benefits to actual/prospective users of the protocol? However, one possibility is it might incentivize crypto hobbyist or enthusiast to not burn FCT to EC, or at least think twice about it.

Introducing staking will increase the cost of EC since you will now need to factor opporuirnity cost: burning FCT to EC will now also need to include the cost the lost staking rewards that would have been earned if they would have chosen stake and not burn the token. This may decrease usage – but its hard to say on the amount. It may not impact users much since businesses don't need to own/touch FCT to gain EC, but I suspect much/nearly all of our current EC use is derived from burning FCT.

One impact almost surely to be felt by current/future users of the protocol in the medium-to-long term is a decrease in FCT invested in the protocol. What I mean is with a portion of community resources now being devoted to rewarding token holders, there will be fewer FCT aviable for ANOs and grant recipients, and therefore fewer community-provided FCT dedicated to investing in advancing the tech and community of Factom. We could increase inflation to "fill the hole" for ANO and the Grant Pool, but that would come with its own set of challenges and possibly undesired impacts.
 
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So I sort of get what you are saying about incentive - but that could be done with just plain-old staking - what is the objective of the federated staking?
The objective is to propose something that we can actually achieve in the context of the current protocol and the resources we have at our disposal. Plain old proof-of-stake would require huge changes to the codebase. We don't have the resources to do that.

Also, paying/incentivizing people to be interested is a very short-term strategy - there will always be better yield somewhere else and if yield is what brought them it will be the same reason they leave – I don't think its reasonable to expect active participation in return from this strata of token-holders.
It's an incentive, not a complete strategy. If we manage to woo people with yield but remain apathetic, unengaged, and uninspiring, then nothing will ultimately change. FPoS can act as a catalyst to help move us towards change, but we can't just implement it then sit back and expect our fortunes to miraculously improve. People will need to work.

Remember this is not free, to the contrary - it will be very expensive if you factor both the cost of implementation, but also (and most importantly) the ever-growing opportunity cost of diverting-away community resources from ANOs and community grant recipients and instead to tokenholders who have no responsibility and likely no incentive to help/contribute to the community. IMO, it’s a very hefty price.
I get that there is an opportunity cost, but I don't consider it to be particularly high. For more than 2 years we have diverted 100% of inflation to ANOs and the grant pool. Where did that get us? Look where we are now compared to where we were at the start of M3. Our current use of funds is quite obviously ineffective and I don't think it's something we should be concerned about losing.

On a simpler note, as far as implementation what exactly would need to be done to incorporate staking into the proposal, wallets, etc.? What is an estimated timeline on implementing something like this, would are the estimated costs, and who would do the work?
We would need ANOs to pull together to build this, so the people maintaining wallets, explorers, stats websites, core dev, etc would need to step up and get it done. If ANOs support a course of action but are not willing to work to see it realised then we are already beyond saving anyway. That is not only the case for FPoS, but for any of these recent proposals. People have to step up.
 
Again, this is what is hoped to happen, not cause and effect from staking - none of these things may occur as a result.
Correct. I don't have a crystal ball and can't predict the future. The whole thing could be completely ineffectual and we might end up in a worse position than where we started. We'd be taking a risk.

But there is no risk-free course of action available to us. Doing something radical has risks, but doing something not nearly radical enough also has risks. We are not defending a position of strength and we don't have the luxury of timidity.

I can’t think of any expected benefits to actual/prospective users of the protocol? However, one possibility is it might incentivize crypto hobbyist or enthusiast to not burn FCT to EC, or at least think twice about it.
What hobbyists/enthusiasts are burning FCT anyway? No one creates EC as an investment opportunity.

Introducing staking will increase the cost of EC since you will now need to factor opporuirnity cost: burning FCT to EC will now also need to include the cost the lost staking rewards that would have been earned if they would have chosen stake and not burn the token. This may decrease usage – but its hard to say on the amount. It may not impact users much since businesses don't need to own/touch FCT to gain EC, but I suspect much/nearly all of our current EC use is derived from burning FCT.
The people who need EC aren't looking for an investment opportunity. They need it to use the protocol. FCT is a gateway to that, it is not an alternative use for funds that would otherwise have been spent committing entries.

People making a decision to hold FCT is very much an intended consequence of this proposal, but expected gains from FCT - whether those gains be made via yield or directly via an expected capital gain - has never meant a higher price of EC.

One impact almost surely to be felt by current/future users of the protocol in the medium-to-long term is a decrease in FCT invested in the protocol. What I mean is with a portion of community resources now being devoted to rewarding token holders, there will be fewer FCT aviable for ANOs and grant recipients, and therefore fewer community-provided FCT dedicated to investing in advancing the tech and community of Factom. We could increase inflation to "fill the hole" for ANO and the Grant Pool, but that would come with its own set of challenges and possibly undesired impacts.
I covered this in my previous response to you: we trialled that model for more than two years and it has failed. Successful blockchains attract and maintain large communities that are not directly involved in making decisions or building products. There is substantial value in a bustling subreddit and an active FCT-market channel.

We can mutter aphorisms like "build it and they will come", but we have been building for years and no one is here.
 
I cannot see how staking would help sustain a higher price in the long term without significant improvement of other factors that drive price, that is more indications that businesses using Factom are getting succesulf and in the end much larger usage than we have today. Sure, we can make people lock up their fund for some time, but eventually people will have the option to take home their profit. We can also give people a larger share of the tokens that are awarded to stakers. But since there i a limit to how many tokens are awarded to stakers, that is just a zero sum game and soon enough stakers will realize.
Imagine this: Stakers reinvest their tokens into more tokens, because it has good returns. But since it is a good deal everyone does it. There is a limited amount of tokens that is awarded to stakers. So that means the return per staked token goes down. The deal is getting less sweet. So stakers begin to sell. You now have 30% of inflation hitting exchanges constantly. Price begin to slide and the value of the returns of staking goes down further. Stakers see the writing on the wall and leave in droves. Price crashes. Despair kick back in. Discord is filled with people complaining about their losses again. We are now sitting with a lower price than before and a fresh new level of animosity in the community.....

A few extra points to consider:
  • Price might go up for a while, but will it be enough to offset the 30% loss of funds that will go to stakers instead of being used for grants and ANO activities?
  • Some might say the bump in price will finance the activities that will bring usage, but where is the plan for that?
  • We might get a larger community, but how much will it help us if it mainly consists of people with a 2 year investment horizon and an expected ROI of 30%?

There are things to spend time on that would be much more valuable than building a staking scheme. Like building actual road maps for what has to happen with the protocol in the coming years, improving how grants are awarded, changing the governance model, etc.
 
I get that there is an opportunity cost, but I don't consider it to be particularly high. For more than 2 years we have diverted 100% of inflation to ANOs and the grant pool. Where did that get us? Look where we are now compared to where we were at the start of M3. Our current use of funds is quite obviously ineffective and I don't think it's something we should be concerned about losing.
By this logic should we then give 100% of the tokens to stakers? ;) If our use of funds is ineffective we should improve it, rather than just giving them away.
 
The objective is to propose something that we can actually achieve in the context of the current protocol and the resources we have at our disposal. Plain old proof-of-stake would require huge changes to the codebase. We don't have the resources to do that.
The Federated POS idea seems more potentially disruptive with additional possible consequences for the community than simple staking. While I don’t believe simple staking will provide a net positive outcome for the community, I do feel it would be possible without significant resources consumption if we thought creatively about it. I don’t advocate this, but it shouldn’t be written off entirely. EC staking might be a more productive line of thinking? Haven't given it much thought.

I get that there is an opportunity cost, but I don't consider it to be particularly high. For more than 2 years we have diverted 100% of inflation to ANOs and the grant pool. Where did that get us? Look where we are now compared to where we were at the start of M3. Our current use of funds is quite obviously ineffective and I don't think it's something we should be concerned about losing.
There are many things currently in-process that IMO that have and will dramatically change our trajectory over he next several months.

As described in the recent GWG proposal, there will be a systematic approach to better identify, define, and prioritize community objectives in a road map as well as a system to ensure community resources are dedicated towards to achieving those road map objectives. Additionally, with a revamped and more effective governance model, we will be more agile and able to effectively make decisions. Lastly, and maybe most importantly, there are efforts underway to redesign Factom, call it Factom 2.0, that will significantly improve our performance relative to other projects and I believe give us a chance to see greater exposure, investment, opportunity, and achieve market competitiveness. I believe there is much to be excited about. And now is not the time to decrease our ability to investment in our future.

We would need ANOs to pull together to build this, so the people maintaining wallets, explorers, stats websites, core dev, etc would need to step up and get it done. If ANOs support a course of action but are not willing to work to see it realised then we are already beyond saving anyway. That is not only the case for FPoS, but for any of these recent proposals. People have to step up.
Have any estimates been conducted for project cost, timelines, and scope of work?
 
What hobbyists/enthusiasts are burning FCT anyway? No one creates EC as an investment opportunity.
Sorry, I should have been clearer – by hobbyist and enthusiast I mean those who are responsible for nearly ALL our current usage – PegNet miners, the Factom community, etc. ~20,000 entries a day according to your website.

All I’m saying is it dis-incentivizes using the protocol, and incentives holding FCT tokens. I get FCT holders are not users. We’re trying to attract speculators by providing them FCT we could use to make a product that could enable greater market demand. IMO, we’d be far better off trying to think from a business software prospective and create value-adding market solutions instead of a typical cryptocurrency project looking for speculators to flip our token hopping someday businesses will use them to the point of scarcity.
 
Have any estimates been conducted for project cost, timelines, and scope of work?
No, it is not possible to estimate without knowing what FPoS would entail, which is the purpose of this thread. There are several options and implications to consider. However, what I can say is that it would require a lot of work from a lot of people, meaning that we'd need those people to be onboard and enthusiastic about potential of FPoS. The level of positive engagement from ANOs and the lack of participation from the people who endorsed the proposal makes me think that is unlikely.
 
If the proposers of this radical change can't be bothered to participate in the discussion, then I agree there is no chance of it actually happening even if voted through.

It is as simple as this:

FCT is declining because there is higher sell pressure than buy pressure.

Without direct investment, we cannot sustain 25 teams sitting around waiting for someone else to do something.
And no direct investment will happen when we have 25 teams being paid to sit around doing nothing.

The only focus of this community should be to attract investment. That can include governance, consensus and other changes - but the overarching goal is to attract investors.

Edit: And obtaining direct investment would not require 6-9 months of part-time technical changes, governance and document ratification.

Just the basics are needed. A value proposition, an NPO foundation, leadership, a roadmap, a business plan. That’s it. After 2 years we still have none of these.
 
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Now that we have the Governance proposal wrapped up, I want to chime in and verbalize my support of FPOS for the protocol. I agree that we need some change in order to move this forward. Without the incentive of token holders to see the value in the protocol, we are going to continue spiraling. We are a rudderless ship right now. If we cannot generate some appeal, we are toast. Whether that is in the form of FPOS or some injection of capital due to the formation of an NPO and some roadmap to give some idea of what is in store in the future, so be it, but we need to act.
 
FPOS is not necessarily right, just because it is easy. Why would you buy into Factom now? To get a 10% yield on a token that has already dropped 50% this year? If we do not have a roadmap that can be presented to the outside world, it will be difficult to attract anyone. We have mainnet, clients, etc. already today and it is not driving price. We need to say how the protocol will be built out and how it will eventually lead to usage.
 
Staking and federated staking as proposed still in my mind represent very different things. Trying to attract people to buy FCT with the idea we’ll give them a reward (staking) is very different than implementing a system where a stake provides community influence/power and buying a larger and larger stake allows greater and greater influence/power. My “danger meter” is pegged in the red in the latter scenario.
Is there a way to separate the two when discussing merits/preference?
 
Staking and federated staking as proposed still in my mind represent very different things. Trying to attract people to buy FCT with the idea we’ll give them a reward (staking) is very different than implementing a system where a stake provides community influence/power and buying a larger and larger stake allows greater and greater influence/power. My “danger meter” is pegged in the red in the latter scenario.
Is there a way to separate the two when discussing merits/preference?
This possible issue is solved in FPoS. That’s how the system is protected from large holders’ (e.g. exchanges) influence in governance decisions and block validation.
 
Hey @Anton Ilzheev, overall the proposal looks good to us and we think it may benefit the Factom ecosystem in the long-term. That being said, we don't believe that the short-term impacts will be enough to boost FCT's price or reinvigorate the ecosystem.

Let's say ANOs either stop selling their FCT distributions for the next 1-2 months to reach the FCT amount required for staking, or even market buy it - this may provide a short-term price boost, but then the selling pressure coming from ANOs will just resume as usual.

From the retail investors' side, will the staking rewards really be high enough to incentivize users to buy and stake FCT over some of the other lucrative PoS opportunities that currently exist in the market?

We think that some combination of liquidity mining and FPoS might be a good system to implement, as liquidity mining will provide a short-term boost to FCT while FPoS will help bolster its macro outlook. Do you have any thoughts on this? Maybe liquidity mining could be implemented in V2 or at some other time in the near future.

All-in-all, it's clear that major changes are needed to shift the direction that Factom is currently heading in, but we don't feel that FPoS alone will be enough to shift the ongoing investor exodus that is driving FCT's price (and utility) down.
 
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