The importance of selecting a strong group of P-Reps

iiss
staking

#1

The main purpose of this post is to educate the ICON Community about the upcoming P-REP elections and to explain the available options. For a better understanding, it makes sense to focus first on core DPoS fundamentals.

Why it is important to actively participate in DPoS and PoS based Consensus

Delegated Proof of Stake (DPoS) as well as Proof of Stake (PoS) consensus algorithms come with a much more efficient way to generate blocks and validate transactions than the well known Proof of Work (PoW) consensus we see in networks like Bitcoin.

Currently, there are many variations of PoS and DPoS consensus with slashing options or double signing protection implemented at protocol level.

ICON came with a new proposal and called their consensus Delegated Proof-of-Contribution (DPoC). The main idea behind it is to evaluate one’s contribution to the network based on several factors instead of simply evaluating their delegated stake like in traditional DPoS networks.

Those who have seen the evolution of other DPoS networks know that governance can get tricky as some nodes share a lot of rewards back with the community as an incentive to get voted without contributing much to the ecosystem or even worse, end up forming cartels.

The idea of decentralization and that everyone can take part in the process still stands straight in many network concepts, but this requires a lot of education and understanding from everyone involved about how the system works. Otherwise, uninformed decisions can be easily taken and can turn out to be harming the network rather than contributing to it.

As this somehow reflects the nature of humankind because nobody likes or has time for things that seem complicated at first glance with not much return of investment, we deeply understand the situation. But when it comes to your own finances or own investments, we strongly recommend to be aware and well informed about what is happening and how things are developing. In the case of ICX it is not only important that a certain reward is received but even more important is that the intrinsic value of ICX will increase over time. Therefore it is crucial that the decisions being taken are towards this direction.

Demystifying the penalty system from Yellow Paper IISS 2.0

Another topic intensely discussed these days are the updates of the Yellow Paper IISS 2.0 and especially the newly introduced penalty system, as it can be read in the following article:

The penalty part says the following: “There are 3 types of penalties outlined in the IISS paper: Validation Penalty, Low Productivity Penalty, and Disqualification Penalty. If a P-Rep suffers a Low Productivity Penalty or a Disqualification Penalty, 6% of the delegation toward such a P-Rep will be burned. This makes it extremely important for ICONists to delegate towards reliable and quality P-Reps. We encourage ICONists to delegate across multiple P-Reps to diversify the risk of having their tokens burned.”

Regarding this, it is very important to understand that in case a P-REP gets penalized, 6% from the amount voters staked with that P-REP will get burned. If a voter chooses to trust his vote with a single P-REP, in case of a penalty he will lose 6% of his ICX. But a voter won’t lose 6% of the total amount he will stake on ICON if he chooses to distribute his vote to multiple P-REPs and one P-REP from these will get penalized.

A loss of 6% from the total amount staked on ICON will happen only in one case: if a voter will stake with only one P-REP and that P-REP will get a penalty.

Clear example of how penalty can be substantially reduced and decentralization can be strong supported

In order to have a deeper understanding, let’s take the following example:

Scenario 1: Alice has 10,000 ICX she wants to stake on ICON. She chooses only one P-REP to stake with and that P-REP gets a penalty for a certain reason. Alice will lose 6% from those 10,000 ICX (equally to 600 ICX).

Scenario 2: Alice informs herself about the P-REPs and she decides to split her stake equally among all 22 P-REPs resulting in 454,5454 ICX per P-REP. In case a P-REP will get penalized she will only lose 6% from 454,5454 ICX (equally to 27,2727 ICX).

As you can see, the amount of tokens that got burned in the second scenario is much less than in the first scenario. One idea to take out of this, is that it doesn’t have to be an equal split or even a split with all the 22 P-REPs, but it is very important to divide the stake with multiple P-REPs that are doing great things for the ICON Ecosystem. This will help mitigate the risk of two big potential threats:

  • Amount of tokens burned in case of penalty;
  • Centralization of power by having an unbalance between super large P-REPs and small players;

Final thoughts

As a final conclusion, we strongly suggest to delegate across multiple valuable P-Reps in order to diversify the risk of having your tokens burned and at the same time to reduce the centralization of power within the ICON Network.

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