Every community has givers and takers. Some give. Some take.

Some give and take.

The takers usually outnumber the givers. Those that balance giving and taking are rare.

# All Take No Give

Validator communities on staking networks are no exception. 
Spend a little time in validator chat groups to see this imbalance in action.

You’ll see many people asking for help. You’ll see fewer people offering to help. Those you see help are usually the same people, helping again and again.

You might expect the larger, better resourced validators to be the ones helping. It makes sense to believe that the more resources a validator has, the larger the staff it might have too.

So it’s reasonable to believe that these validators have more time to spend in the chats. If that’s the case, you might expect to see them offering to help and even, maybe, contributing tools and resources back to the community.

They also tend to have some of the biggest stakes and are earning the most fees as a result. This means they're extracting a lot of value from the network and its community.

# And It's Not Who You Might Think

Yet spend some time in these communities and you’ll see that it’s often the smaller, independent validators who are answering the questions and making tangible contributions on a regular basis. 

In fact, it’s rare to see representatives from the big validator companies in the chats at all.

They do tend to pop up during network upgrades, for example. They’re usually asking the questions, not answering them.

The recent Cosmos Stargate upgrade brought this idea home for me. In the weeks leading up to the upgrade, very few, if any, reps from the big validator companies were in the testnet chats or the chats helping prepare for the upgrade. Yet they did appear once the upgrade was underway and they needed something.

Take, for example [this peers list I started](https://hackmd.io/_JcgQw5iTC66aspJWxhrxw). Early in the upgrade process there wasn’t a list of peers to use.

I started this document and left it open for anyone to edit. Take a look at who contributed. More importantly, notice who’s absent.

You’ll see that most of the contributions were made by smaller
operators. Yet the list was used by the largest exchanges and staking as a service infrastructure operators.

In fact, someone from the latter asked in the chat if there was a list of peers. I responded with a link to the list and suggested he add a node as well.

His response? 

Nada, nothing, zilch.

In another example, during a subsequent Cosmos emergency security upgrade, someone from one of the biggest exchanges emerged out of nowhere. He started asking quite a few questions, some of which indicated he might be somewhat new to Cosmos and hadn't done a lot of research on his own. He first turned to the community for help instead.

In addition, you don't see these companies sharing any tools with the validator communities. They guard their tools and keep them close to their vest. Maybe they see them as their competitive advantage.

# The Free Riding Imbalance

These examples illustrate the validator free riding problem. In a nutshell, those validators extracting the most value to the network contribute the least.

# Balancing the Scales

How can networks and their communities correct this imbalance? One way is to encourage delegators to not stake to these validators. 

This may be a lost cause though. Many token holders of these networks don't care about the issue. They'll stake to the lowest fee, most convenient validators. While not a completely hopeless endeavor, this approach needs to be supplemented by other actions.

Ideally, validators who don't contribute value wouldn't be able to extract value. This is difficult to implement.

So rather than punish those who don't contribute value, networks should find ways to reward those that create value. 

This includes those active in the chats who both take AND give. Foundation delegations are a start, yet aren't enough.

# At Least Start Talking About It

There are other creative ways to neutralize or at least diminish this problem too. Networks and their communities need to start taking action now, before these value extractors get an even bigger lead, taking staking even closer to a [decentralized doomsday scenario](https://thedefiant.io/rich-getting-richer-in-pos-chains-by-chainflows-chris-remus/).

Another easy way to stem the tide is to at least discuss the issue in public. Hopefully this post helps encourage this discussion.

#KeepStakeDecentralized 💪

Staking's Free Rider Problem

Coinbase announced it was acquiring staking as a service provider Bison Trails earlier this week. The usual congratulations and back patting went around on Twitter. 

To me, however, this wasn't good news. It represents an acceleration in staking centralization.

Staking in these early days is already more centralized than decentralized. A small number of large validator operators control a majority of the stake in most staking networks. Current staking economics compound the problem with [rich get richer economics](https://chainflow.io/early-proof-of-stake-systems-encourage-recentralization/).

I've been thinking about this problem for years. Over the past few months I also started thinking about exit strategies for these large validator operators.

Raising large investment rounds usually brings along the expectation of large exits. What does that look like for large validator operators that raised lots of money?

This week we saw the first example, in the form of acquisition. My sense is the Bison Trails acquisition is the first of more to come.

*It may initiate a decentralized staking doomsday scenario.*

Big exchanges already control a dominant stake in many staking networks. Their business model and economic structure allows them to operate low to no fee validators, squeezing out competition.

Now if they start acquiring other large operators, this dominance compounds. This brings me to the doomsday scenario that's been kicking around my consciousness. 

It looks something like this -

- Exchanges or other large crypto companies acquire large validator operators, which then sets off a string of...
- Larger validator operators acquiring smaller ones to become attractive acquisition targets, then...
- Ultimately the larger crypto companies either massively dominate the space by acquiring each other and/or...
- Legacy financial services companies acquire the larger crypto companies and/or the larger validator operators, resulting in...
- A small number of large and wealthy stakeholders controlling the formerly "decentralized" networks.

The result is a financial system that looks a lot like the legacy one, which is controlled by a small number of wealthy stakeholders. It looks much like the legacy financial services consolidation wave that happened in the late 1990's, once the [Gramm Leach Billey Act passed](https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act).

And if all we do with this entire crypto/blockchain revolution/experiment is rebuild an inequitable financial system and the power structure it enables, well, then what's the point?

*P.S. - Please consider supporting opinions like this by [delegating to Chainflow](https://chainflow.io/staking). Chainflow's the smaller, independent web3 infrastructure provider Chris founded a number of years ago. Supporting Chainflow and other smaller, independent operators helps #KeepStakeDecentralized 💪*

A Decentralized Staking Doomsday Scenario

This is my running list of crypto and blockchain governance resources here. I'll annotate them as well, as I find the time and attention to review them.

[[Proposal] SourceCred Engagement Incentives](https://forum.balancer.finance/t/proposal-sourcecred-engagement-incentives/684) by [Coopahtropa](https://twitter.com/Cooopahtroopa) on the Balancer forum

[Ten Theses on Decentralized Network Governance](https://www.placeholder.vc/blog/2020/9/30/ten-theses-on-decentralized-network-governance) by [Mario Laul](https://twitter.com/mlphresearch) on the Placeholder VC blog.

[We Need to Re-Think Decentralized Governance](https://thedefiant.io/we-need-to-re-think-decentralized-governance/) by [Blake West](https://twitter.com/_blakewest) on The Defiant

*P.S. - [Contact me](https://chainflow.io/staking) if you'd like to talk governance strategy for your staking project. I have real world experience building DAO tools and living the governance process as a core team member and validator with projects and on networks that have significant user bases.*



Crypto and Blockchain Governance Resources

**Intro**

This is Part 1 of a two part series titled "The Rise of the Activist Validator". Part 1 describes the current situation as I see it. It explains why I see a need for activist validators. Part 2 will describe why I feel the current situation could prevent staking networks from maximizing their longevity and value creation.

**The Blissful Honeymoon**

These early staking days are characterized by a blissful harmony. Projects get along with their validators. Validators get along well with the projects. There's an optimism that permeates early testnets. It continues into the early mainnet days.

Hard questions might arise here and there. Compromises are made in the name of progress. No need to be a troublemaker by rocking the boat. Can't we all just get along?

The answers may not be totally satisfactory but "no worries", the unwanted consequences of these decisions will probably not happen. People are generally good and will do the right thing.

Validators still jump when asked to jump, provide input when asked for input and keep the testnets running. Networks reward the validators for their efforts to varying degrees. The currency is often unissued, illiquid tokens whose value, it's assumed, will only appreciate.

**March Toward Mainnet**

The blissful march toward mainnet moves forward. Then, after a usually successful launch, the optimism continues. The token remains illiquid.

The idling mainnets idle along. The community at large, including validators, waits patiently for token liquidity, usually in the form of exchange listings.

Delegators stake to the validators. This usually results in a high stake concentration among a small number of well known, larger validator operators. Everyone sees this happening. Nobody makes too much noise about it.

That's simply how it goes these days. What can we do about it? Don't worry, things will even out, eventually.

Who wants to be seen as rocking the boat so early? Nobody want's to be seen as the naysayer or the one who's being negative, in the midst of all this post-launch and pre-exchange listing bliss and congratulatory back-slapping.

**The Foundation Delegations**

Then there are those foundation delegations.

In these early days, these foundation delegations can make or break a validator, especially the smaller- to mid-size operators. The larger operators already have the large institutional fund delegations locked-up. Those large delegations cement the larger validators' spots in the active validator set.

Smaller- to mid-size operators need the foundation delegations to stay in the active set and hopefully at least break even. They're at the mercy of the foundations to delegate enough tokens to them, for a long enough period of them, to keep them in the game.

This makes it even more unlikely for any validator who hopes for a foundation grant to rock the boat. This could hurt their chances of operating on the network, period. And who wants to look back on all that time and attention invested, only to see it get wiped away, by not having enough delegation to operate?

And what about the larger operators? Well, they don't want to rock the boat, either. Many of them have invested large amounts of money in early token sales. Many of their biggest customers are large funds who invested in the token pre-sale.

Investors in token sales want to see the token price go up, not down. Rocking the boat by pointing out concerns with the network, will probably cause the price to go down, at least in the short term.

Everything's great then! Isn't it?
This sounds fantastic, doesn't it? Everyone wins?

Or do they?

Is this really the best route to creating long-term, sustainable value for these networks and their supports?

Over the past couple years, I'm beginning to sense that this lack of dissenting opinion is preventing the networks from realizing their true potential. Not having a well-rounded set of opinions can make these networks more vulnerable to the known or unknown unknown.

Activist validators are needed to balance out the opinion set. These are validators who aren't afraid to rock the boat a little. They don't hesitate to point out vulnerabilities when they see them. They push back when the core team asks them to do something they feel is too risky.

More on this in Part 2. I'll publish it first on The Crypto Mirror (this publication).

*(Part 1 was first published on the [Chainflow blog](https://chainflow.io/the-rise-of-the-activist-validator/). You can support ideas and writing like this by [delegating to Chainflow](https://chainflow.io/staking).)*