[Proposal] How to Enhance the Health of EOS Network with Interest
1. Purpose
This proposal suggests a method of using worker proposal funds to pay interest to holders who support the EOS ecosystem. It aims to encourage more holders to act to help the ecosystem, thereby enhancing the health and vitality of the network.
2. Background
We believe 5% annual inflation is used to maintain 1) the network and 2) its health in EOS. Of these, 1% is offered as rewards to BP for maintaining and managing the network, and the remaining 4% is supposed to be for WP(worker proposal)s, which is reserved as funds to reward proposals that are helpful to the network. Basically, we recognize that the WP fund is designed to achieve the health of the network. link The related issues are as follows.
2.1 Dispute over WP (Worker Proposal) Funds
However, Block.one proposed to eliminate the 4% WP fund by offering compensation to voters on July 28, 2018. link1 link2 link3 As a result, lively discussions are taking place in the EOS community.
To understand this dispute, let's calculate the WP funds that will accumulate for one year. After the launch of the Mainnet, 40 million EOS, 4% of 1 billion EOS, will accumulate as WP funds for one year. Thus, assuming the EOS price is $ 6, the total will be equivalent to about 240M dollars.
The Mainnet of EOS was launched without deciding where to use this much funds, and there are many discussions on how to use them in the WPS(Worker Proposal System) group chat. However, there are opinions in the community that the WP funds are not only too much but also causing excessive inflation. Thus, there are ongoing discussions about burning the WP funds or paying the universal basic income, link.
2.2 Declining Number of Staked Coins
As the usage of EOS coins is increased by dApp and such active usages of the EOS platform, the proportion of EOS coins staked on the network has to be reduced gradually. For example, as for the Mainnet, in June 2018, about 99% of EOS coins were staked and launched on the network, but as of Sept 3, 2018, the ratio of EOS coins staked on CPU / Net is about 52% as of Sept. 3, 2018. These include 10% owned by Block.one, so the actual quantity of staked EOS coins is fewer than this.
However, the problem is that if the holders do not get any economic benefit from staking, there is no need to stake and limit to the network to prevent from transferring their EOS coins. For this reason, the percentage of staked coins may continue to decrease. This reduction in staked EOS can have a negative impact on the EOS price as it increases the volume of coins in circulation that can be traded. Thus, as more EOS coins get staked, the EOS price can become more stabilized.
2.3 dApp Activation Issues
Figure 2 shows the number and ranking of daily users of the dApp operating on the EOS network. What is noteworthy in this figure is that there are very few dApp users per day on the network. Especially, EOSBet, which is the dApp with the highest TPS, holds 586 users per day.
Why does this happen? We believe one reason is that many EOS coins are kept on the exchange, not on the Mainnet. In other words, the dApp has not been activated because users of the exchange cannot use EOS dApps. Therefore, we need some incentive to transfer the EOS coins being kept on the exchange to the network. As of now, Airdrop is the only incentive option, but it is not a powerful way to move the EOS holders from the exchange to the Mainnet yet.
3. Our Suggestion: How to Ensure the Health of the Network with Interest
To improve this situation, we suggest a method of paying interest with WP funds to holders who support the EOS network. Its purpose is to 1) help responsible holders, who are sensitive to the EOS price changes, participate more on the Mainnet, thereby 2) not only restoring the health of the network but also vitalizing the dApp.
Let's take a look at an example of paying EOS holders with 3% inflation as interest, which is an incentive plan for their actions.
- [Stake]: The holders receive interest corresponding to the number of staked coins because it provides computing resources for the network and helps reduce the circulation amount on the network.
- [BP Vote]: The holders receive interest corresponding to the number of voted coins, for example, if they vote for five or more BPs or any proxy. It is a reward for participation. Please refer to Further Discussion 2 below for information on rewards criteria.
Now, let's find out the annual interest rate the holders receive. Assuming that about 50% of the total EOS community participate and receive interest, the annual interest rate to be paid will be equal to 6% on average. If 1/3 of the total EOS coins get interest, an annual interest rate of 9% will be paid. To be more specific, the interest for both Stake and BP Vote can be paid at 1:1 ratio. For example, if 3% of the WP funds is paid as interest, 1.5% : 1.5% can be paid for staking and BP voting respectively. Since it is important to make sure that the holders feel they are being paid right away, it may be a good idea to pay interest once or twice a day. Please refer to Further Discussion 1 for information on rewards for participation in the referendum.
All of the above figures are just examples, so we hope there will be lively discussions in the community.
4. Expected Effects
We define the healthy network as that 'the holders interested in the value of EOS participate and contribute more in the network' in terms of accountability. ‘Responsible Holders' are generously willing to contribute to the EOS community and its ecosystem and feel responsible and feel responsible for the network and take actions. Thus, the more responsible holders are, the healthier the network becomes. The interest we propose can be a very effective means of increasing the number of these responsible holders.
The health of the network can depend on that 1) more holders actively participate in staking, BP voting and WP and that 2) more EOS coins are circulated on the EOS network. In this regard, the interest we propose can improve the health of the network by promoting participation in the network.
The specific effects of interest we propose on the network are as follows:
- It may increase the ratio of staking and BP voting.
- It may increase the number of coins staked on the network to reduce the amount of circulation and stabilize the EOS price.
- It may increase the number of EOS coins stored on the network, which can further vitalize the dApp as computing resources
- It may be the incentive for the holders to transfer coins from the exchange to the network to receive interest directly.
5. Conclusion
We proposed a way to enhance the health of the network by paying interest to the holders who support the EOS ecosystem with some of the worker proposal fund. This can increase the number of staked EOS coins and the participation of BP voting, and also stabilizes the EOS price by reducing the circulation of EOS coins through staking.
6. Further Discussions
Discussion 1. Compensation Method for Participation in the Referendum
It may be necessary to reward the holders to encourage them to participate in the referendum. However, it can be a little difficult to compensate because a referendum can be held at any time, and the vote turnout is unpredictable.
For this reason, we propose rewarding them for participating in the referendum by using a 1:1 compensation method for 1) staking and 2) BP voting. In detail, rewards for participation in the referendum are offered for two weeks after the referendum is finished. The method rewards at 1:1 ratio for participation both 1) staking and 2) BP voting. If only one of the BP voting and the referendum applies, no rewards will be provided.
Discussion 2. What is healthy BP voting?
For most holders, it takes too long to decide five or more BP teams. Thus, if the holders are forced to vote for too many BPs, there may be a side effect of voting for well-known BPs just to receive interest without following any standards. This method is more advantageous to the active BPs heavily exposed to the community and can bring the potential risk of fixing the main BPs to remain unchanged.
Therefore, for healthy BP voting, it may be reasonable to pay the same interest for staked coins to an account that voted for more than five teams. Of course, it may be three to four teams, and we hope that there will be active discussions in the community.
In this regard, please refer to our proposed compensation method for BP voting.
Moreover, we believe interest should be paid to the accounts that voted for any proxy. It is because a number of proxies can vote on behalf of general voters, just like lawmakers, and they can also continue to play a role in providing the holders with brief and good information about BPs.
Note 1. Contribution-based Airdrop Method
Since our team has been focused on the health of the network, we already proposed the contribution-based airdrop method as soon as we joined the EOS community as a BP. This is a way to give more airdrops to the accounts that support the ecosystem. In other words, it provides airdrops to 1) the coins staked on CPU/Net, 2) the coins of long-term holders, and 3) the accounts that suggestions.
Note 2. Consensus Algorithm and Accountability
In cryptography, the consensus algorithm distributes block generation rights primarily based on the accountability of the nodes (or BPs) that generate blocks. As for the block generation authority, PoS is distributed in proportion to the share, whereas PoW is distributed in proportion to the hash rate. This is a way to give more opportunities for block creation to the nodes that make more investment or suffer more losses when the network breaks down. Thus, the consensus algorithm of blockchain operates based on the accountability of the node.