How is the staking rate set, is it somehow more or less discretionary also?
In my case, if the staking rewards decline, I will naturally adapt and that change will incentivize me to stake less and trade more. Put differently, bluntly, I would be less loyal and chase the 50x more.
As to adoption, yes having interest paid to all stable holders would be a great hook.
That’s not the big problem with adoption though, truly easy on and off ramps are. As seen with supercharge at Valora, reward rates aren’t a magic bullet that fixes the platform access problem.
My thought here is that if Celo wants to replace banks, it needs to act more like people expect banks to act.
Another option for providing interest to stable holders is using the Celo reserves to generate income that allows interest to be paid. That’s the essence of how banks make money.
It not as easy as a software change but with real world assets creating income in the reserve it adds to the strength of the reserve and disconnects Celo more and more from the crypto crash risk.
This more conventional fix could be implemented with infinitesimal risk by comparison.
In the new approach, validators will decide what rate to pay on locked Celo that votes for them. Of course, they are limited in what they can pay by the amount of block rewards.
The equilibrium rate paid to locked Celo would be market determined. It may be higher, lower or the same as at present.
So staking should rise and fall based on how well it pays.
For me this adds yet another wildcard to the mix and this one could significantly impact the security of the whole system.
The lack of data provides me great pause too.
Given the intent described in the other thread, where the hope is to prove that interest can be generate in this manner to develop a product to serve as a CBDC I worry the deeper I get here that the Celo main net could be being used as an acedemic test bed.
The other thing that bothers me is the rush to get this done.
I am unconvinced that Proof of deposit is the Best choice going forward.I think there’s a fair amount of work that needs to be done before that decision gets made.
This is a really interesting and well thought out proposal. What I agree with the most is the identification of the hurdles in the way of cUSD mass adoption. An approach to offer the conventional risks/rewards as present in the FIAT world could potentially bring more adoption. I think it could be an interesting experiment at the least.
Also as attractive as the yield offered on Anchor is, I too agree it is unsustainable and investors will be looking for alternatives in the near future. That would be a large chunk of potential users to be targeted.
hey Proof-of-Deposit team, great to see your proposal on the forum 
as you know at cLabs we are also working on new primitives to enable the use of yield on Celo - I will give a talk on that at celo connect next week. if you’re around would love to catch up there! @ying_chan @John.Fletcher
@edlovecrypto at cLabs we are actually working on a new product primitive to enable something similar to what you describe! stay tuned for a first insight at celo connect
Great! Looking forward to hearing all about it!
…and to catching up!
For the initial implementation, is it really necessary to include all cStables? If a single validator decided they wanted to reduce rewards for other validators by minting and staking a less popular cStable like cREAL, they could do so and then other validators (or users) would have to mint cREAL as well to equalize on rewards. At a steady state, wouldn’t this incentivize the outstanding balances of cStables to equalize (33.3% cUSD, 33.3% cEUR, 33.3% cREAL as of now).
I worry that this sort of equal weighting among cStables will create a non-natural distribution (as certain fiat currencies are more popular that others).
Hey Andrew, it’s not that the balances of each locked/deposited token will equalize, it’s that validators are incentivized to hold the same % of each token’s outstanding supply.
For example, if a validator has 2M Celo voting for them (about 1% of total locked supply), they will be incentivized to incentivize deposits of 1% of outstanding cUSD supply (about $1M cUSD) with them and 1% of cREAL supply etc.
So yes, they could mint cREAL (although that would be more expensive that incentivizing deposits) but once they have 1% of outstanding cREAL there isn’t an incentive to mint (or incentivize) more.
If a validator was to hold 100% of outstanding cREAL, wouldn’t that 0 out rewards for all other validators unless they minted more cREAL? I’m not assuming that every validator will only seek for their gain. They could also seek to lower the rewards of others.
Hi Andrew! Great question. The 100% scenario can be easily mitigated by requiring each validator to deposit a small amount of the cStables themselves.
This will not happen under normal circumstances even if a validator offers to share 100% of their epoch rewards with a certain cStable. This is because the use of the min function followed by a normalisation has the following effects:
As such, the natural equilbria from depositors assigning their deposits to maximise their APY will result in validators having %CELO = %cUSD = %cEUR = … I go through the reasoning here
I agree that it’s likely we’ll approach (%CELO = %cUSD = %cEUR = … ), but it’s not clear to me that the absolute amount of cEUR, cREAL, and any future cStable wouldn’t be printed somewhat unnaturally just to account for this mechanism.
I understand the importance of building the system with inclusivity in mind, but this just seems like an overly complex system that could lead to people printing alt stables for rewards and not because that’s the currency they want to hold.
In practice, engagement between validator groups and avg. users who want to stake their tokens has been somewhat low (outside of sCELO and rCELO in the past).
I’d guess that the majority of stables that will be deposited will be by the validators/validator groups themselves in an effort to maximize rewards. Is there a plan to engage with holders of each respective currency to ensure they’re aware of the reward opportunity? And when a new cStable launches, will there be similar communications?
I really like the clear distinction you’ve made.
I’m curious what percentage of locked Celo is owned by the validators themselves (e.g. self voting)? Tactically, I see your distinction, but if a validator is already voting with a significant amount of locked Celo to get their validators into the active set, wouldn’t the ~6% yield going to locked Celo already be going to the validator?
Howdy @Andrew , appreciate all of the questions and engagement. A few new notes from me:
1. Celo voting for itself in validator elections
I don’t know exactly but, at present, I’m guessing more than 50% of validators own enough CELO to elect themselves. You can look at TheCelo - Celo data statistics provider and probably assume that most validator groups with more than two validators are not relying on foundation votes to get elected. [btw, this isn’t necessary an issue inherently.]
The percentage of locked CELO owned by validators is probably quite significant too . I guess a lot of founders/early employees aren’t validators, but quite a few of the investors run validators. Many of them probably have far more CELO than is needed to get the handful of validators they run elected. I would say these investors are running the validators out of a broader interest to support the network, not for the current 65k income OR for the locked Celo rewards (which they can get regardless of whether they validate or not).
Regardless, the broader point I see here is that CELO spends a lot of epoch rewards on locked CELO, and it’s not clear to me this spending is necessary to have the level of locking that we have. I think a similar percentage of CELO would remain locked even if the rewards rate were 1%. Given the unlock period is so short (3 days), I also think that if Celo owners got scared and wanted to liquidate, it wouldn’t be possible to discourage this by increasing the locked Celo rewards, say from 5% to 10% either [btw, I see a similar problem for Ethereum 2.0 - but maybe I’m missing something]. So, it seems a better use of epoch rewards (for the network as a whole, which helps CELO price) would be to direct them a bit more towards cStables. Maybe we should also have a longer locking period on CELO to provide better security to the network - if indeed that’s what we think the security of the network comes from (making CELO expensive, so it’s expensive to vote a large amount of validators).
2. Regarding the proposal’s influence on relative supplies of each token
It seems to me that the approach of min (% of supply…) approach is the most neutral approach I can think of with respect to avoid biasing the relative supply of one token over another. Certainly seems a lot more neutral than just allocating X absolute amount of rewards (what DeFi for the people does) or Y % interest to each token (what Valora Supercharge does).
3. Patent
I further point I need to mention - new to me this week - is that there are patents/patent applications in play here around Proof of Deposit, filed by @ying_chan and @John.Fletcher’s company. To me, the presence of these patents makes it harder to interpret the long term motivations, alignments and risks of doing Proof of Deposit as currently formulated.
4. A comment on Mento
If something like Proof of Deposit were to increase demand for cStables, it’s possible that growth is slowed by Mento quite a bit (and maybe that’s a good thing?).
The bucket sizes for Mento are still quite small (despite the recent size increase). As I understand, it’s probably not possible to expand cStable supply by more than a few million USD per week without significant slippage. Again, maybe this is good.
5. My current overall thinking
I think it’s great we have Proof of Deposit as a proposal to force us to think about this stuff. Whether the exact implementation is right I’m not sure.
Thank you so much for your continued engagement here. I’ll be rereading this proposal + conversation over the coming days and loop back.
I do have one immediate follow-up question:
This seems like something that should’ve been disclosed upfront (if implementing this proposal would warrant use of the patent). Now that you know, do you think this proposal should still move forward to a formal CGP? Also, could you provide context on how you discovered this (as it seems relevant)?
Howdy again Andrew.
The existence of a patent was raised as a concern by some of clabs, when I spoke to clabs at CeloConnect about this forum post. I hadn’t been aware of a patent being involved, so that surprised me too that it hadn’t been disclosed [EDIT: on the forum].
With respect to the proposal moving ahead as a formal CGP, that’s up to the proposers. From the community’s standpoint, I think our goal at this stage is to provide feedback for improvements and highlight concerns. More broadly, I think it’s good that we have this external proposal. We need more of these, and we want to encourage proposals that are creative and that also lay out clearly the interests of the players involved, which hasn’t been the case here [EDIT: on the forum].
I also think this proposal provides important points of reflection with respect to protocol stability and how we best make use of epoch rewards. I’ve learned quite a bit from it and also from discussions at Celo Connect. I’ll post separately on that.
Hi @Pinotio.com , @Andrew
Re patents IP:
Above is the original PoD proposal (which was for the hackathon). As well as being referenced as the original proposal in the first sentence of the first post here [EDIT: on the forum], it was also hyperlinked (for readers convenience) [EDIT: on the forum], before we were forced to remove the hyperlink because of restrictions as to the number of links imposed by this forum.
[EDIT: As of today (7/4/2022) we are still unable to add hyperlinks back in to the original/first post here. What is the purpose of these restrictions? They make it very difficult to share relevant and important information.]
Let us know if you have any questions / concerns.