Summary

A previous blogpost explained how crypto systems can be viewed as ‘confidence machines’: we are confident that the protocol will function reliably and behave predictably according to its rules in part because we trust that the interests of the people and organisations, who are responsible for deciding the protocol’s rules, align with our own. So how can this ‘social layer’ be governed to ensure it remains trustworthy to maintain confidence in the protocol?

To answer this question, the last blogpost unpacked some of the key groups that constitute the social layer, and explored how to apply principles of trustworthiness into their decision making processes. This included some examples related to Mina’s core development processes. 

This blogpost continues this exploration. It focuses on the relationship between validators and their delegators and how to encourage validator participation in governance. It also considers some emerging staking risks in DeFi.

Less trust in the social layer would undermine confidence in the protocol; the less likely that people would use or engage with it; and its community would eventually dissolve. Consequently, Mina could have a competitive advantage if it can demonstrate its trustworthiness.

Aligning interests in the social layer 

The last blogpost introduced principles for trustworthiness, including transparency, comprehensibility and verifiability. These support our proposals that for Mina Protocol’s decentralized governance to be effective and aligned, it should be transparent and accessible amongst other attributes (see Table 1). 

While these principles can illuminate fundamental interests, aligning them on common interests and acceptable outcomes requires shared values and visions. Mina’s CORE values provide a starting point. 

The following sections explore how these principles can be applied in parts of Mina’s social layer, namely the people and organisations who provide validator services (‘validators’ or ‘block producers’).

Aligning interests of validators and their delegators

Validators play a technical, infrastructural role, earning rewards for ensuring consensus and securing the network. The barriers to entry can be high so individual account holders can delegate their stake to an existing validator and participate in the consensus process indirectly, receiving a share of the rewards in return. Validators also have rights to vote on proposals so they can exercise their delegators’ voting rights in virtue of the stake delegated to them. 

Since validators are rewarded in proportion to the amount of stake that’s delegated to them, they have ‘skin in the game’- the more stake (‘skin’) they have in the network, the less likely they are to manipulate it. However, if market dynamics concentrate stake and voting power in a small number of validators, there are concerns that they could collude or be coerced to manipulate the network. These concerns relate to our proposals that effective and aligned governance should also be distributed so that power is shared across participants, and stable so it is resistant to corruption, exploitation and capture by a misaligned faction (see Table 1).

Motivated by these concerns, the Validator Commons was set up in 2021, involving validators and foundations, as well as Metagov researchers, who participated as independent observers. A Declaration was published afterward that states that ‘token holders are the fundamental source of power in these protocols, and they vest that power in validators. With power comes responsibility. Validators are responsible to both their delegators and to the network as a whole.’ The Declaration also states that ‘delegators deserve to be informed of decisions taken on their behalf. Validators should be able to articulate their values to token holders, to foundations and core teams and to themselves.’

Applying principles of transparency and comprehensibility

Validators could publish newsletters, discussion lists or dashboards to communicate their views on proposals and rationales for voting intentions. Validators could use deliberative methods and participatory methods to seek out the views from their delegators and agree on shared values and visions. In fact, many Mina staking pools provide public contact details and some have websites. Some pools have email newsletters. At least one staking pool polled the members of its Discord server on how the pool should vote.

Applying principles of verifiability

This transparency could empower token holders to hold validators to account by verifying that their interests and preferences have not been ignored. Mina’s on-chain voting further empowers token holders, who have delegated to another account, to vote directly without first needing to re-delegate to another validator.

What is the demand for transparency?

Researchers raise questions about the demand from token holders for these levels of transparency. Plus, what are the common values and visions to align interests if token holders are more interested in shorter term gains and validators are more interested in longer term goals (although validators can always decide to sell their tokens for short term gain, too)? Moreover, to what extent do delegators choose a validator based on its governance participation rather than providing them with the highest financial returns? 

Encouraging validator participation in governance

Different types of validators have different interests that affect their participation in governance (Table 2).

One concern is that liability, contractual or capacity limitations could disincentivise large validators to participate in governance or voice contrarian or dissenting views. ‘Activist validators’ may be more likely to participate; however, if they find it difficult to attract stake then they might also become less likely to voice contrarian or dissenting views. Together, these would not only undermine the effectiveness of decision making; for example, if voting thresholds are not met because large validators do not vote. They would also undermine cognitive diversity that is necessary for collective intelligence.

Options for increasing validator participation

An academic report coauthored with industry experts proposed further options for increasing validator participation.

Foundation delegation policies 

Foundations that delegate their tokens to validators often make governance participation a condition of their delegations. Through its Delegation Policy, the Mina Foundation relinquishes its ability to participate in on-chain governance by delegating its voting power to validators participating in the Mina Foundation Delegation Program that stipulates Eligibility Scoring requirements based on their total uptime, community engagement, contributions to Mina Protocol and participation in some Mina programs. The Mina Foundation reviews the list of delegated validators to determine whether un-/re-delegation is appropriate based on factors, including their Eligibility Score and whether they have participated or not in on-chain voting.

Another factor is whether a particular validator exercises more than a certain percentage (currently set at 5%) of voting power. If so, they would be removed from the eligible delegatee list for that delegation program cycle and not receive a delegation from the Mina Foundation. This supports the proposals that effective and aligned governance should be distributed and stable (see Table 2).

The scale and maturity of chains

For newer, smaller chains, frequent on-chain voting by validators on all types of decisions could be necessary. But could the frequency of voting and type of decision be reduced for more mature chains?

Randomly selecting validators 

Previously we introduced sortition– a civic lottery that randomly selects people participating in decision-making similar to the selection of jurors in the legal systems of various countries. Could this method be applied to randomly select validators to participate in governance?

Separate validation from governance 

Protocol rules could be designed so different types of validators have different governance responsibilities.

Validation could even be separated from governance. Validators would participate in ‘consensus votes’ about software updates but they could defer responsibilities for voting on other proposals to individuals or organisations (‘governators’) who have the capacity, interest and competence or expertise to participate. 

If validators can choose their governators, they could be captured by validator interests. One solution would be to send governance rewards to a pool that are then allocated to governators based on the quality of their contributions.  If these assessments are made transparent, a reputation system could be established where governators are selected based on their prior contributions. Smart contracts could also automatically remove validators if there are conflicts of interest or issue penalties if they fail to declare them. 

Emerging staking risks in DeFi

When participating in the consensus process to secure proof of stake networks, validators lock their stake for a certain period of time, during which this stake cannot be used for other purposes, such as lending, borrowing or trading. Liquid staking protocols allow validators to carry out these other purposes by issuing them a derivative token that represents their staked assets. They even allow validators to restake their liquid staking tokens to earn further rewards. 

The Ethereum ecosystem has been debating about whether the same stake used to secure the Ethereum network could be used to secure so-called Actively Validated Services (AVSs)- other networks, such as Layer 2 chains and dApps, that would usually secure themselves by issuing a native token and bootstrap their own validator set. Validators could restake directly or indirectly by delegating to dedicated operators.

There are concerns about concentrating power and collusion risks if a single operator manages multiple AVSs or a few operators control a significant portion of an AVS’ stake. An immediate option to mitigate these risks is for restaking protocols to allow individuals to select different risk profiles so that they can assess risks and decide which AVS to restake to.

Mina as a leader in trust

This is the third in a series of blogposts that have proposed ways to frame trust and build trustworthy and trusted communities. We are keen to stimulate debate so we welcome any responses to the suggestions in this blog post:

• What do you think are the best ways to ensure that the interests of validators and their delegators remain aligned?
• What do you think are the best ways to encourage validator participation in governance?
• What do you think about emerging staking risks in DeFi and how they might relate to Mina?

Please connect with us on Discord at the following channels:

#governance-discussion

#governance-announcements

Alternatively, connect with us on Mina Research.