The wheel - The steam engine - The internet - Blockchain. Disruptive technologies turn the page in our collective history book. Together, we decide what goes on each fresh page.
With blockchain technology, we now have an opportunity to be citizens of the world in a new way. Blockchain has the power to change our paradigms for secure personal identities, trustworthy voting, and equitable financial tools. It presents the opportunity to update how we think about sharing work and responsibility. It holds the promise of transparency and accountability, and a total change in our notion of the halls of power.
However, it can only do these things when we participate, and use it. Together we are creating the future. What do you want it to look like?
Lido Nation believes the future is for everyone. Our mission is to create good blockchain citizens. The website provides accessible and newcomer-friendly education and tools, in multiple languages, with the hope that everyone can participate in creating tomorrow’s world. Lido Nation also runs a staking pool on the Cardano network, which provides a great platform to act on our mission of creating good blockchain citizens.
Our latest initiative in support of this mission is called Phuffy Coin. With Phuffy Coin, we are using the Cardano blockchain as a tool to create something new. With it, we hope to help people participate, have fun, and learn about what it means to be a good blockchain citizen. Before I explain how Phuffy Coin works, I want to review a couple other concepts:
Purpose-Driven Pools
Many staking pools like ours give a portion of earnings to charity. So-called “purpose-driven pools” may attract delegators who are interested in a given cause, or who simply like knowing that their stake can help a good cause while earning passive rewards.
On the other hand, some people are skeptical of the Purpose-Driven Pool premise. It can seem like a marketing strategy that is little more than window dressing - especially when donation amounts are minimal, or when transparency is lacking.
Network Tokens
Another well-known concept in the blockchain space is the ability to mint and distribute network “Tokens” for various projects and purposes. Tokens might support governance within an organization, or be useful within a gaming world, or they may simply have monetary value. Others are created and never become useful at all.
Phuffy Coin
With Phuffy Coin project, we want to harness the power and potential of both of these concepts, to create good blockchain citizens who are empowered to use blockchain technology, and inspired to do good.
The premise is simple. When our pools receives network rewards, half of our pool’s margin is earmarked for giving. But the power to decide where and how that money is spent is in the hands of our delegators. They use Phuffy Coin to nominate and vote for causes they choose. Winning causes receive donations commensurate with the Phuffy Coin pegged to them by the voters. Participating and deciding how Lido Nation spends its charitable dollars is at no cost to our delegators.
Here’s a little more detail about how it works. When our pool receives rewards, half is held for charity giving. To drive the charity selection and voting process, we mint an equivalent amount of Phuffy Coin and distribute it to our registered delegators. The amount of Phuffy Coin that each delegator receives is based on a scoring algorithm that rewards delegators who have more stake, as well as those who are loyal to our pool. Delegators can then use Phuffy Coin to nominate a cause they care about, or to vote for a cause that has already been nominated. When a winning cause is decided, we will cash out the amount of ADA that is equivalent to the Phuffy Coin that was voted to that cause. In this way, delegators can have the experience that their Phuffy Coin is more than simply a vote - it is linked to an amount of real ADA currency, whose charitable destiny they control.
Solving interesting problems
Now a word about scoring and distribution of Phuffy Coin. As we imagined this system of nominating and voting for charitable causes, we needed to decide how the Phuffy Coin would be distributed. It would be possible to simply distribute an equal amount to each stake’s wallet - something like one person one vote. But unless and until we could establish true digital identities, this plan would not be fair; someone who wanted to game the system could move their ADA into multiple wallets, and claim an unfair number of votes. But beyond that, we actually do want to give more voting power to delegators who stake more ADA with us. People have choices about where they invest their money. Just because someone has a million dollars does not mean they will invest all or any of it in Cardano, or in our pool. People who choose to invest more in Cardano, and in our pool, have some right to have more of a say.
At the same time, creating good blockchain citizens can’t just mean handing out all the prizes to the wealthy. So we looked for another lever. We also care deeply about retaining our delegators. We want them to invest not just monetarily, but to become a part of our community long-term. We want them join us and contribute their skills, time, and ideas to building a better future together. So in addition to stake amount, we want to reward loyalty. We considered the idea that by sticking with our pool for a number of years, someone with a smaller stake could eventually earn a voting score equivalent to someone with 10x greater stake who just joined yesterday – and we liked that idea!
So we first played with some simple scoring formulas that gave different weightings to stake amount and loyalty. And we found that yes, with a fairly simple weighted score, a person with 5k ADA and 3 years loyalty could have the same score as someone who just entered the pool yesterday with 50k ADA. We liked this idea, that by sticking with our pool and participating long-term, a person with less monetary resources can still be equitably influential if they just stick around.
But even with this formula, the potential for great inequity remained. While the difference between 5K and 50K might seem like a lot, it’s nothing compared to 500K or 5M. Consider for a moment that 1 Million is 1 THOUSAND TIMES larger than 1 Thousand. With much larger stakes involved, there was just no way that a simple formula could diminish inequities to the extent that we wanted. Even with loyalty heavily weighted, a person with a smaller stake would have to be invested for lifetimes to approach the score of a Million-ADA delegator who entered the pool yesterday. To put it another way - a few whales would still control all the voting power.
Having reached the limit of our own math skills, we reached out to clever friends, who showed us how “log functions” could help us achieve what we wanted. Using a more sophisticated formula with a couple of log functions, we created a scoring formula that compresses the spread of scores to within about a 100 point range. Instead of a person with 1M ADA having ONE THOUSAND times the the voting power of a person with 1k ADA, with our formula they can only really have 10-15x the voting power. And with loyalty scores added in, what we see is that anyone who sticks with the pool for 5 years will have roughly the same voting power! A higher stake at that point might have a few points more influence, but no longer is the difference measured in multiples.
For you math whizzes and curious types, here is the formula:
((LOG(DelegatedAmount)+1)/(LOG(HighestDelegatedAmount)+1) * 100) + #EpochsLoyal * .1
We don’t know for sure how this formula will play out over time, and how different people might feel about it, but we are excited to give it a try. And we are open to the next iterations of it when those needs become clear. Hopefully by then we will have a few more math whizzes in our community to help with the fancy problems we are trying to solve!
Blockchain technology is a tool, like the internet. How it shapes the world is up to us, to participate and create the future we want to see.
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