Interview with Alex Bond of P2P Validator
We asked Alex’s opinion regarding several topics such as decentralization, incentivisation, challenges and staking awareness in context of our Staking Ecosystem Case Study.
P2P Validator was established in 2018 after the same team of chaincode developers and crypto enthusiasts delivered some highly successful projects. From testnets to mainnets, their mission is to promote the value of the blockchain assets and give people access to the new emerging economy in compliance with the Validators Manifest.
SR: How do we ensure and incentivize further decentralization within the staking ecosystem?
AB: Current value locked in staking is around 8 billion USD. It is still relatively small compared with total crypto market capitalization which is also tiny compared to other asset classes. This area is evolving really quickly. Promising projects like Cosmos, Polkadot, Terra have emerged and people’s awareness about staking and opportunities to earn rewards by supporting the network have risen gradually. Economic incentives make participation in staking attractive but the real value comes from the network utility. If ecosystem projects are able to add value and generate or even expect more transactions in the future then well-designed economic incentives work well. Another idea lies in understanding about why decentralization matters? If the community believes in the project and understands that decentralization provides a healthier and more secure network then the motivation to achieve proper levels of decentralization is high. People should be actively involved in the governance process and in development as well. Validators also understand the importance of decentralization and in collaboration with active community participants re-distribute their holdings across smaller ones.
SR: What are the biggest challenges for Proof of Stake and Staking, that we still have to overcome or may still face?
AB: In the case of proof of stake networks there still exists a huge lack of empirical data and real world use cases realized in practice. Lots of experiments are happening right now including economic and governance aspects. Another challenge lies in building a healthy community, educating and raising awareness of people across the world. Previous hype of crypto and lots of scam projects scared even hardened investors and one of the goals is to show sustainable value propositions and continuous development of existing projects even in difficult times.
SR: What do you consider to be the most important aspects to attract delegators to your staking service?
AB: We work a lot to make staking simple and user-friendly. We develop various tools for reward monitoring and help with the delegation process. The success of the project is highly correlated with the community around it. And our goal here is to be the most active members of it and our intention is also to educate people by writing useful guides and articles which help them participate and understand better the most promising projects in proof of stake field. We came into the blockchain space in early 2014 when it had not been recognized as mainstream yet. We were able to see the potential value and nowadays we provide staking facilities for Iris, Tezos, Terra and Cosmos networks. Closely watching for Polkadot, NuCypher, Dfinity, and other projects contributing in this big experimentation.
SR: What do you consider sustainable incentive models for proof-of-stake blockchains? At which point is a high inflation rate harmful for the blockchain ecosystem? What is the best trade-off to reward blockchain keepers sufficiently, but don’t dilute holders too much? Is there a magic formula to this?
AB: Sustainable models should make desire to stake and participate in the network higher than desire to speculate. This can be achieved by a combination of a reasonable risk/reward model for stakers, project long term development focus as well as the potential for tokens to achieve the initial value proposition. If the inflation is too high while the demand for the token is low it can lead to fast centralization making possible various manipulations and result in depreciation of the project. The right balance and smart design of the token model and economic incentives are the keys to avoid that. There is no magic formula, everything is experimental and such models were never tested before in real business. Time will show what has to be changed in order to reach a balanced and efficient ecosystem.
SR: How can smaller Staking-as-a-Service companies differentiate themselves from large players like exchanges providing staking services (e.g. Coinbase)? Is there a danger of centralization? Binance Staking in 2019, yes or no?
AB: Staking on exchanges have some trade-offs. First of all you need to trust the exchange. If you store tokens there, even if the larger amount is staking from cold wallet, there will be part which will be available for immediate selling. To unlock staked ATOMs, for example, there is an unbonding period of 21 days and exchanges will have to make some reserves available making them at risk in case of hacking attack. If they provide lock-up as other providers then it is much safer to stake from your own wallet where you are the only person who controls the keys. Well-known exchanges may become huge aggregators for various users but not everyone is willing to take such risks especially if they have large holdings. This activity will never be the main direction as their key revenue stream comes from exchange fees. Robust staking-as-a-service providers focus especially in this area and have more motivation to actively participate in the project activities and development.
SR: What do you suggest will increase awareness amongst people about staking and earning interest on cryptoassets?
AB: It is already happening but this process is just not so obvious. When people see the value for themselves and the benefit of a particular project with ongoing development there will be a higher desire to actively participate. For this to happen we need to focus on the end users who should be able to utilize the benefits of the network without tech knowledge. Ideally, people would not recognise they are interacting with blockchains. Clarification of regulatory compliance is also important. It might release enormous capital from institutional investors, pension funds etc.Total market capitalisation is still too small and can be easily manipulated. Cryptocurrency space is still full of scam projects and fraudulent activities which make it less attractive for the broader community. Nevertheless, a new generation of blockchain technology is becoming more established and entrenched. It is constantly evolving bringing new exciting opportunities for free independent communication and cooperation.