Charles' Thoughts on the SPO vs. MPO contraversy (Twitter Space - 2/5/2021)
Fragment transcription: https://twitter.com/IOHK_Charles/status/1490155067856543747?t=bsG7KNUynariYWMbO8r-LQ&s=09
Credits to Anthony, member of Stakeboard team [...]
Yeah, you know Tim and Ben have been trying to work really closely with the community and, you know, my hope is that the community can also form guilds that represent the interests of state pool operators. And you know, it's difficult because this is social choice theory. I mean, people are making decisions and the question is, can you incentivize decisions at a particular direction that we would argue is is better. So let's say, well, our goal is lots of small pools, so that, OK, that's decentralization. Well, is that better than lots of large pools? Or is that better than a collection of federated pools? Well, you know, It depends on what network topology you're looking for: the quality of service, the transaction costs, the fee structure that you want – these kinds of things.
So what I can do is a protocol designer is I can give the community lots of parameters. The other thing is I can give them the ability to have different competitive structures, like for example, if your goal is a lot of pool operators, but you only have 100 slots, would you be okay with those hundred slots being owned by thousands of small pools who have collectively come together almost like a cooperative, and they're using some sort of Federated protocol to jointly own one of those slots.
You know we have a protocol for that. It's called Conclave and it doesn't require a hard fork to implement.
Another option is you could try to create a GUI that once it's discovered that somebody is a multiple operator, it compresses all of that down and randomly just picks a default choice and they're set. It doesn't let people delegate beyond that or disincentivizes the visualization of it. OK, well, that's another solution. That's a GUI driven solution. You also can adjust the pool parameters.
And you know, if you have a good protocol, you kind of allow all of the above. You can allow people just to kind of play around with things and try things, and there's only going to be a certain level of decentralisation that you can achieve for a generation of the system. And if you're moving in the direction where over time you get more [decentralization], you're probably doing it right. If you move from more to less, you're probably not in the right protocol mindset.
You know the other thing is there is a Pareto principle for most social systems, and that creative principle is that 20% -30% will probably do 80% - 90% of the work. And that's true for almost every human endeavor and great enterprises - you know there's a Pareto principle for how people make money, for if you look at high performing people like athletes and things like that – that principle tends to exist, and so it's pretty reasonable that in a control system, you're going to have those types of dynamics that occur, especially if you don't have a Gini coefficient that is conducive perfect egalitarian distribution of the underlying asset.
Now, this is the state of reality as it is today, and things are going to change in the next six months and go change again and then another six months. And I'm really curious to see what direction it's going to go in. We’ve also been looking a lot into multi-resource consensus, and we just published a paper, so if you guys Google Minotaur E-print Multi-Resource Consensus, the paper just came out, I don't know, like 2 weeks ago where we actually developed a model where you can layer proof of stake with proof of work or proof of other stuff and run the system as multi resource.
So it may be the case that you can subsidise small pool operators not by a single set of parameterisationS, but by actually introducing a second consensus control protocol. And that control protocol will enable basically the system to have different weightings for rewards other than just straight up delegation. But again, a super hard problem. There are a lot of moving pieces to it, and every time you accomplished something you always have to weigh out [the pros and cons]. You know, the enemy of good is better, because when you start changing these things, you may actually introduce regressions and decentralization, or in insecurity, or in quality.
Another thing is that stakepool operators are going to make multiple revenue streams. I don't think people are fully aware of that. When we talk about building side chains on Cardano, those side chains will likely have their own tokens, and that means when you're making blocks in those sidechains, there's a high probability you're going to get inflation for that. So, it's entirely possible in two or three years from now as a stateful operator, you make like 10 tokens of revenue instead of just ADA as your revenue. We’re already kind of seeing this with these ISPOs and these other things, but more of that is going to be happening.
So, the story is not completely written on the economics of what it takes to run as an operator - the competitive realities, especially when partial delegation comes. I know I keep talking about partial delegation, but I actually finally have a PRD and a spec. now for it, so I have high confidence that it's coming soon.
And, you know, protocols like Conclave, which will get done and then small operators can band together and they can own a Federated cooperative pool as opposed to just this Boolean decision. And then there's a lot of choice theory that exists, and wallet competition means you're going to have a lot of different