Feedback wanted: Stake-drop Desmos/Forbole

Context

Forbole, which was founded by @kwunyeung and me in 2017, has had the goal to create decentralized social networks. We then have gradually (and a bit accidentally) become a known validator and the creator of Big Dipper in the community. We have halted the social network project until July 2019 when we built a prototype and earned an award in HackAtom Seoul.

A few months later, we rebranded the project as Desmos with its native token called Desmos Tokens, or DSM.

Stake-drop idea

Balancing between fundraising and decentralization is challenging and interesting. We think our exposure as validator may give some help.

We have considered “stake-drop”: rewarding our delegators with DSM based on some rules (eg. time and duration of delegation, the exchange rate between the staked tokens and DSM).

Two ways to do so

  1. Creating a new Desmos Validators

We will set it to 100% commission and most (eg. 90%) of it will be taken into account for the stake-drop (eg. 1 Atom net commission will be converted to 60 DSM).

Downside:

  • May not be fair to existing Forbole’s delegators
  • May create unwanted competition to smaller validators
  1. Using the existing Forbole’s Validators

If we use Forbole’s validators, this is easier in terms of operations. We will raise our current commission rates to the upper bound of the industry’s current standard (eg. 20%).

The obvious downside to us is this may negatively affect our current validators’ business.

Feedback wanted

We would love to hear your feedback! Thank you for your time in advance!

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This concept is called Initial Delegator Offering, coined by Kira in 2018 and later published by us under AGPL+ license here in our whitepaper. So as long as you guys comply with the license terms and explicitly give credits to the inventors, the idea of deploying it on Cosmos Hub has our thumbs-up’s and support.

Back in 2019 we had a conversation with Jae Kwon regarding the idea and came up with multiple security issues that cosmos hub might face due to such concept being implemented and ever since are building a stack to make this possible, viable and available to everyone both in trustless (on-chain) and trusted (off-chain) form.

One of the issues is security leaks, which cause decrease security of the PoS networks that have voting power proportional to the number of tokens staked. However this issue is also caused by people trading on centralized exchanges etc.

This is pretty much how the idea of the Multi-Bonded PoS came to life - to mitigate nothing at stake while keeping PoS secure in case of security leaks.

Finally crowdfunding through staking requires a lot of marketing to happen first, and large amount of overcollateralization over long period of time to be effective, however besides that it will require PoS to grow a bit more to get proper attention. For this concept to be fully effective CosmWasm and staking derivatives are one of the most important tools that must be implemented on the Cosmos Hub.

If you guys want to go forward, we already have tools and backend compatible with all Cosmos SDK networks to execute IDO’s (and Substrate support on its way)

Also to be precise I would keep a proper terminology as coined by Kira Core because stake drops are not the same thing as IDO’s

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Sounds good. But to give proper feedback (at least from my side), I would like to clarify one thing. I take it as the main problem that you’re trying to solve is Balancing between fundraising and decentralization, am I reading this correctly?

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Great! Thanks for this fruitful reply! This will save us a lot of effort!

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If you guys are interested, you can PM me on telegram @asmodat, and we can run our backend for you, so that you have easier way to query info, how to distribute tokens.

I would suggest cooperation in helping us gradually raise the attention of the idea and moving it into full scope so that this can one day indeed become a viable crowdfunding mechanism for anyone in the Cosmos Ecosystem and beyond.

We have seen many projects trying to fund their operations in the bear market and that does not ended up well for any of them. There is a huge barrier in people not fully understanding what staking is not to mention entire concept of the IDO.

As of right now IDO’s are not viable to reach full potential (although, with our assistance already taking place on some of the networks), because audience is not there to grasp, relate and commit to the idea for it to work, and a really big intelectual, technological and medial push has to be made first.

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Yup. I forgot to explain more.

One of my observations of the early centralization of some projects is because they have to raise a lot of capital before tractions (or sometimes even before proof of concept).

The result is that they can only rely on the biggest whales to invest. As they have a big appetite, a few largest investors may already hold 30% of stakes. Furthermore, the projects also tend to provide a larger (30%+) stake to their foundation entities. Result is that maybe a handful of 10 entities (and most of them are acting in concert) may already own over 67% of stakes at genesis.

Through the above mechanism, projects can be funded by stages. This may not be large when compared with the traditional way of fundraising, but in some cases may help to keep the team afloat to work out more tractions before asking for direct investment by institutions.

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Yes that is definitely an issue, however it is an issue of the consensus design / implementation not necessarily the issue of the token distribution. Tokens will always centralize it is just a matter of time. If the consensus you are using can’t handle a native token becoming centralized and/or manage to decentralize in other way over time, that is a network vulnerability and this issue that has to be solved first, so you do not end up with security leaks.

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Yes. Indeed. We tried to approach the issue in our own way. Alas, nothing new, just a combination of different techniques. One big problem that did come out from this, is the following: the over complexity of the economic model.

The question that one has to ask is whether or not an economy has to be complex. And this is a different discussion. But still…

What we did was (a) use gifting mechanisms with and without quadratic equations for the drops. (b) an initial distribution to seed donors. ( c ) use an incentivized long-term mechanism for the distribution. The latter is rather complicated. It includes: (1) 7 gamified mechanisms and (2) an 888 day auction with bonding curves. I am leaving out the fact that we have 2 tokens. And that to get one, you need to vest the other at a certain point, etc…

We also dropped another mechanism that we had. That was meant to be a purely speculative round, where we wanted to target greed.

I guess what I’m trying to get across is that, personally, I do not see a way for the perfect initial allocation. No way, its possible to this without having complex practices and just use a normal fundraiser. At least I do not see it.

Did our complexity achieve a good distribution? Well. I can let you know in roughly 1000 days =)

Do I think that mixing mechanisms to balance out decentralization and fundraising should be used? IMO… I am not sure =)

We went the fully decentralized way. We will only know for sure after its all done.

I guess the best thing here is to have a matrix of risks, the projects tasks, the projects abilities, resources, etc. And I doubt there is a perfect recipe. Because whenever one designs an economy, there is the other side - social force-major. Which is impossible to predict.

I personally started a paper on how to achieve the best initial allocation. Its been 2 years. I still don’t know how to finish it or even how to make it readable. Currently, after 2 years, its still not ready and completely undone =)

Just in case: the above message might not share views of other members of cyber~Congress, just my 2 cents =)

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