Initial Thoughts on Harmony's Staking and Incentive Design

harmony-protocol

#1

The Harmony team asked me to provide feedback on their staking and incentive design. Here are my initial thoughts. They’re based on reviewing this post and other background information.

Lot’s of Validators

Harmony is a sharded proof of stake blockchain. At mainnet launch, they’re hoping to launch with up to 400 validators on each shard. They’re hoping to have thousands of validators running across the shards.

That’s a lot of validators. It will be interesting to see how fast these spots get taken and how serious the validators are who run them.

One school of thought right now is that there are fewer than 100 serious validators in the world right now. At the same time, this does feel like a positive effort toward making staking slots more accessible to a larger population. How well that population performs is a big unknown and potential risk.

Random Selection

Harmony uses random selection to assign validators with bonded voting shares to shards. I like the idea of random selection. It could help mitigate the rich-get-richer problem inherent to proof of stake. Randomness feels to me like a fairer way to choose a validator set, rather than basing it on total stake, like many networks do today.

Voting Shares

A validator needs to have bonded voting shares to be assigned to a shard. This is where I began having some concerns.

Voting shares have a price. Validators bid to hold voting shares. The highest bidder wins the share and can bond to it for a period of time. This means the validator has to have the means available to win these bids.

This does represent a skin-in-the-game requirement. As I understand it, the share price depends on % of token supply staked. At the low-end, that number is in the single-digit thousands. It can increase 10x though.

My larger concern is that larger validators can outbid smaller ones. As the number of shares increases, it may be possible larger validators don’t suck up all the shares. However, because of the skin-in-the game paradox, I’m hesitant to believe these larger validators will leave money on the table by not trying to control all the voting shares.

At the same time, it appears that a validator is only allowed to control one share. So while it’s possible larger operators may be capable of spinning up hundreds of validators, this mechanism may result in a fairer allocation of the voting shares.

Thoughtful and Conscious

The Harmony team seems to be taking a thoughtful and conscious approach to their staking design. They now have a few case studies to review.

It feels hopeful they’re reviewing these case studies in an attempt to improve upon them, rather than following the same known path. Many of the steps they’re taking could reduce the risk of stake centralization. This feels hopeful too.

(Originally posted on the Chainflow blog here.)