Formation Charter

Wade

Feb 15, 2023 • 3 min read

Originally Published - May 3rd, 2022 - Mirror

1 - Introduction

Founded on May 2nd, 2022 , the Staking Defense League (SDL) is a blockchain agnostic collective of crypto infrastructure providers committed to decentralization in Proof of Stake (PoS) Networks. In collaboration with industry stakeholders, protocol developers, and the larger PoS community, the Staking Defense League will develop resources, open standards, and take action to address systemic issues of decentralization in PoS. This Charter lays the initial parameters of that mission.

2 - Context

Proof of Stake networks are centralizing fast. In November 2021, Coinbase claimed it had over 30 billion dollars secured in its PoS staking service, representing over 5% of the entire POS market. Since then, the largest staking providers continue to increase their market share, pursuing high-growth VC backed business models. Centralization of stake introduces systemic risk to the underlying protocols. Many are familiar with the “Nakamoto Coefficient”, a term coined to quantify the minimum percentage necessary to disrupt a network. For Proof of Stake systems, this number is 33%.

This doesn’t just mean greater risk of shutdown, hacks and other technical risks, but equally something those same centralizing forces would sell as innocuous, something hiding in plain sight. Censorship. Pick your flavor–“permissioned” defi, KYC, blacklisting–they are all made possible by this centralization. Outside of systemic risk, SDL recognizes that validation in Proof of Stake begins with a mis-alignment of incentives: The Validator Operator tries to maximize profit, which means amassing as much stake as possible. Beyond a certain threshold, however, this profit maximization threatens the health of the very blockchain they profit from. Smaller, independent validator operators are out-resourced by these larger, venture backed operators. As a result, independent operators struggle to acquire enough stake to create and maintain a sustainable position within the active validator set on many Proof of Stake networks.

While the current landscape can seem bleak, SDL is here to align those who are inspired by crypto’s initial promise–a more fair, transparent, and inclusive power structure.

3 - Mission

There are a number of stake centralization vectors in PoS that deserve attention: capital centralization, diversity in client software, diversity in location of servers and nodes, over-reliance on centralized cloud infrastructure, etc. SDL will make efforts to encourage best practices on all these fronts.

However, SDL intends to primarily concern itself with two outcomes:

3a. Increasing the Nakamoto Coefficient of PoS networks
3b. Increasing the number and diversity of independent validators

4 - SDL Action Plan

The League will serve as a rallying point for validators, node operators, and infrastructure providers of all stripes. SDL will be chain agnostic, focusing on advocacy and action to manifest further decentralization in Proof of Stake networks.

Our intention from the outset is for this platform to create real outcomes. As such, we have defined a set of concrete, actionable goals that will guide our efforts.

4a. OKRs

Develop an open standard for validator re-delegation
Develop tools to transparently monitor decentralization in PoS networks
Create programs to onboard and sustain new validators to the ecosystem
Measurably improve diversity of the validator ecosystem
Hold those organizations acting as centralization vectors to account and advocate for re-delegation
Hold Protocols accountable for promoting decentralization in their networks
Create meaningful ecosystem resources with a focus on:
Awareness of decentralization issues and actionable strategies to combat them
Validator technical resources & support
Validator business resources & support
A discussion forum to provide safe space to constructively address centralization indicators and behaviors that may be supporting them

5 - Structure

Today, no chain-agnostic forum exists for validators. In most cases we believe chain-specific forums have proven unsafe venues to recognize and discuss problems in earnest. We intend to change that. SDL will help elevate the collective voices of independent operators in an attempt to evenly balance the power dynamics in ecosystems dominated by large actors.

The Staking Defense League will be organized into three major pillars: Council, Advisors, and Community.

The terms, organization, and functions of these governing bodies will be outlined in a forthcoming Operational Charter ratified by the founding members.

6 - Staking Defense League Membership

At the outset, all validator operators interested in SDL membership will agree to taking tangible steps toward increasing decentralization among a network’s validator set, most concretely:

For any network a SDL member is an active validator, should their validator amass enough stake to be included in the “Nakamoto Coefficient” of a PoS network, the Validator operator will:
Actively discourage new delegations
Help identify and encourage delegation to smaller validators
Delegate a portion of their rewards to a smaller validator

Further terms, organization, and code of conduct will be outlined in a forthcoming Operational Charter ratified by the founding members.

7 - Conclusion

Decentralization is a thorny topic. It’s more difficult than it seems to quantify, and much easier than it seems to pay lip service. The SDL’s intent is not to be the fist-shaking social media curmudgeon, driveling on about false prophets and the corruption of the Holy Blockchain. We believe in the power of web3 and are fully committed to help it realize its true potential. We’ve built our lives and our businesses around this compelling new vision for the world, and we aim to defend it! At its highest aspiration, SDL will build and contribute to building tools and programs with measurable outcomes, and build as transparently and publicly as possible.

SDL would like to close with an open call to membership. If this Charter sounds like your brain, join us, we’ll be glad to have you!