Visibilities of the Pareto Principle are seen in EOS Governance. What's next for EOS?
In DPOS chains, regular checks and balances with regards to governance are of utmost importance. The distribution of EOS’ voting power is currently falling in line to the Pareto Principle.
Pareto’s principle in brief means that 80% of the output comes from 20% of the people or things responsible for creating that 80% output. Some examples of the Pareto Principle include 80% of the global wealth is owned by 20% of the population, 80% of power is held by 20% of the population, within a political party itself 20% or less of the people within that party have 80% or more of the power and of course in Bitcoin and Ethereum, 20% of the miners/mining pools have 80% or more of the hash rate.
Dan Larimer recently wrote an article about how the Pareto Principle and democracies have caused massive wealth inequality and centralization of how countries operate. You can read it here.
The above image shows the distribution of wealth across the globe. 20% of the population owns about 80% of the wealth confirming with Pareto’s Principle.
Looking at the Bitcoin hashrate distribution, the top 5 mining pools produce around 80% of the hashrate, confirming the Pareto Principle.
Likewise, we can see the same similarities in Ethereum, where about 80% of the top miners are only 4–5 mining pools.
So how does the Pareto Principle fall in line with EOS? If we have a look at EOS governance currently, it's based on staking the EOS token and whoever holds more tokens has more voting power to vote on Block Producers of their choice but little did people realize that the system being used is already covered by the Pareto Principle. Money not being evenly distributed and basing a governance system among a monetary system that uses the Pareto principle and expecting the output or the result of that governance to not be based on the Pareto principle sounds ludicrous.
The big whales or the top 20% hold around 80% of the voting power on EOS. They can vote for anyone they like to be a top 21 Block Producer and vote any BP out if they wish.
Dan Larimer states in his article that electing Block Producers should be based on multiple Pareto distributions. So there’s not just 1 requirement for voting but multiple aspects and not just staking EOS tokens. Various other aspects like RAM, time-weighted staking, etc..
Having RAM as one of the Pareto distributions in my opinion is a great idea because of the fact that since 1kb of RAM is generated every block and there is no fixed supply of RAM, that makes it a depreciating asset and would make it infeasible for whales and exchanges to stock up on RAM as they know that the value of RAM would depreciate over a period of time, therefore, making vote buying a strenuous effort. If you haven’t read my article regarding vote buying you can read it here.
Time-weighted staking refers to having more voting power when a person stakes their tokens for a longer period of time compared to someone staking for a short period of time. For example, a user staking for 30 days would have more voting power compared to a user whose staked for 5 days. There can be a cap for that so that 1 person who stakes for a long time can’t just dominate the governance process.
By combining and adding more distributions to the Pareto framework, no single entity can be the master of all those distributions i.e jack of all trades master of none making the blockchain more decentralized.
The time is now for EOS to upgrade their governance. EOS 1.8, a contentious hard work is underway soon and it is the perfect opportunity to add new governance features in this 1.8 hard fork.
If we look at the current BP rankings, they are dominated by whales/exchanges who participate in vote buying and Asian Block Producers not that its a bad thing but it’s better to have the top 21 BP’s to be geographically distributed or more deserving ones.
In theory, its a Block Producers job to be creating tools, services and innovating apart from just running nodes. Most of the current top 21 BP’s do not bring much value and can enjoy inflation rewards for doing nothing because of the vote-buying happening. This leaves other BP’s who bring tremendous value out of the top 21 BP’s even though they bring value because whales like to vote for their friends. Incentives here are misaligned as BP’s bringing value are not voted in the top 21 resulting in a lower pay compared to the top 21 who bring no value and are enjoying more rewards because of this current governance issue. The last thing anyone wants is the top talent leaving the EOS ecosystem and therefore resulting in stagnant growth and innovation let alone nefarious activities carried out by BP’s on the mainnet.
As always guys, stay safe and don't get rekt.
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DISCLAIMER: This is not to be taken as financial advice. My views in this article are personal opinions based on my research and should not be considered as financial advice. Always do your own research.