[PROPOSAL][DRAFT] In search of direction

[common_spelling]

@Hush What is an off-chain validator?

@common_spelling

allocator incentivized LS leads to lower yield for delegators
→ leads to delegators unbonding native ATOM at much higher rate compared to LSDs because LS redemption always goes up and you have to pay more liquidity to print new LSDs so people wont redeem as much
→ because validators vote with aggregate of delegations and LSDs control oversized % of delegations (quickly if incentivized like described in 2.0, or more slowly if adoption is natural and based on LSD utility)
→ LSD providers soon control validators through “incentive alignment” (assuming there isnt some sudden change where all the delegators start overriding their validator)
→ given that many large validators also secure numerous LS chains high in their active sets, LSD providers would soon control gov of all chains sharing top validators with common LSD providers.

this scenario can be further exacerbated by validator cartels. if even a few validators conspire with LSD providers and begin “incentive aligning” each other through LSD delegations and/or awarding funds from the community pool or similar encouragement

the above scenario will happen if validators are allowed to keep voting with other peoples votes, its just a matter of it happening fast or slow. Fast if LSDs are incentivized at the scale and using the mechanisms described in 2.0

the current iterations of LS perpetually requires more liquidity sacrificed to mint new stAssets. put into LPs your native/stAsset ratio is designed to farm the native liquid assets and as pools rebalance toward less stAsset because the ratio to print new stAssets perpetually goes up. i dont understand the argument for LSDs being some useful or innovative product.

The LSM also seems dangerous and some of the ideas i have heard using the LSM (like comingling leveraged derivatives from a sovereign chain with native assets and/or separating voting rights from delegators and giving them to some council of dictators)