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Delegrated proof of stake: Features and tradeoffs

by
Myles Snider, Tushar Jain, Kyle Samani
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A Way to Solve the Scalability Problem of Decentralized Finance

Delegated Proof of Stake (DPoS) is an on-chain form of governance that provides a liquid, representative democracy with token holder suffrage. It compromises on the decentralization of block production in order to achieve scalability. It still achieves the three goals of decentralization: censorship resistance, openness, and no single point of failure.

Motivation:

  • Distributed ledgers are difficult to scale
  • Most “decentralized” systems like Bitcoin and Ethereum aren’t truly decentralized; Big entities control large portions of producers in the network
  • Need a compromise to the scalability trilemma

The Scalability Trilemma:

Any blockchain system in which every node validates every transaction can have only two of three potential properties: 1. Decentralization of block production (DBP): ensures that any given party cannot alter the database 2. Safety: cost of mounting a Byzantine attack that affects liveness or transaction ordering 3. Scalability: number of transactions per unit of time that the system can process

How DPoS Works:

  • Concentrates block production in the hands of a few known and trusted entities
  • Those who hold the network token are able to cast votes to elect block producers. Votes are weighted by the voter’s stake.
  • Users can also proxy their voting power to someone else.

Self-Funding Through inflation:

  • For Bitcoin and Ethereum, miners receive block rewards as compensation for validating the blockchain. When these run out, they will be supported by fees alone.
  • For DPoS networks, inflation is used to pay block producers to provide infrastructure.
  • Token holders vote on a max annual inflation rate, how much of that is paid directly to block producers, and how much of it is put into smart contracts to fund projects.

Advantages:

  • DPoS is more scalable than proof of work or proof of stake blockchains
  • Users can fork if they disagree with the majority 
  • A much wider group of computers can participate in block production
  • Token voters can take into account more than one metric of decentralization
  • Fixed number of block producers means block producing power doesn’t concentrate
  • If validators start behaving badly the token holders can take their authority away

Disadvantages:

  • DPoS can be seen as a form of controlled semi-centralization
  • There has been no universally agreed upon number of block producers or level of decentralization
  • Places more requirements on token holders to monitor the health of the network
  • The standard host of blockchain problems: bribing attacks, attacks at scale, block producers colluding, and the nothing-at-stake problem
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