There’s been lots of talk recently regarding ICON’s move to become a P-Rep, a move which they have stated “ICON will be using up to 3% of the total supply to vote for its own node upon the decentralization of the network”. In this post, we will expand on several topics related to the matter and lastly, enumerate why delegating simply to the ICON Foundation on the basis the foundation is more “secure” and “safe” is not necessarily the case.
ICON as a P-Rep
As initially announced on ICON’s medium publication, ICON will be using “up to 3% of the total supply” to essentially vote for their own P-Rep node. On a general scope, I see this as a positive move as it will ensure a 3% baseline for staking; conversely setting a baseline for network security. However, some community members are timorous about this sentiment.
Q. RadioFriendly123 of ICONation -
I’m not quite understanding this part of the Medium article. “Over the course of time, this will result in the dilution of ICON’s ownership percentage, leading to greater decentralization as the network matures.” If ICON is a block producer and they are earning ICX, doesn’t this add to the pool of ICX they own rather than decrease/dilute it? Can anyone educate me a bit on this part?
A. Scott Smiley (Benny Options) of ICX_Station -
So right now, ICON has ~38% of total supply (Circulating supply is 490,271,394 compared to total supply of 800,460,000). If ICON staked that entire 38%, then ICON would likely maintain that 38% ownership (maybe even grow it) into the future because they would be getting staking rewards for the entire 38%.
Since ICON is only staking up to 3%, the other 35% will not be earning any staking rewards. Another way to think of staking rewards is that it is not actually a reward, but rather, NOT staking would be a penalty in the form of dilution. So in this sense, ICON is purposely and knowingly diluting itself, and over time, that 38% ownership of the network will continue to dwindle as others receive staking rewards and ICON does not.
Is ICON More “Secure”?
There lies a concern in the community that they will only be voting for the ICON Foundation as it is “more secure” or the “safest” option. This concern was brought up and expressed by a telegram user by the name of John Smith.
John Smith stated:
“If you walk into a grocery store to buy Pepsi, you might find yourself faced with 30 different knockoff versions of Pepsi. Now -you- might immediately turn to the internet to determine the backgrounds of those knockoffs, their price to nutrient ratios, historical reputations, manufacturing/sustainability initiatives, etc. Most people who walk into a store wanting Pepsi will walk out of that store with Pepsi. Most shoppers identify with things like brand first, and that will often trump many other considerations. Especially since no one yet knows who’s “safest” vis-a-vis the ICON ecosystem, it is completely logical to assume that many voters will simply default to what appears to be the “official” P-Rep team”.
This idea of “brand name” association is existent everywhere, and its implications should not be overlooked. In terms of strictly deciding to vote for the ICON Foundation, as it appears to be the “safest”, this is not necessarily the case as other P-Rep teams also boast more experience in running nodes, securing and maintaining high-level infrastructure for other blockchain-based networks.
However, this all boils down to evidence. There is no evidence that suggests ICON would be any more “safe” or “secure” to delegate to because, there is also no evidence that suggests a P-Rep will breach the 85% threshold. Furthermore, this idea of simply just voting for the foundation as it is “the safest”, underlies the democratic principles which govern the network. Ricky Dodds of ICX_Station, had a few words to say about the matter.
Ricky Dodds stated:
“The foundation will use up to 3% of the network to vote for its own node. As stated, this amount will be carefully controlled in order to assure proper decentralization. In the instance of the community voting for the ICON node, from my understaning the foundation will either: 1) lower its own staked amount to stay below (or around) the 3% threshold or 2) discourage additional voting by either not allowing it or using some other means. In general, this wasnt designed as a hedge tfor the community to avoid the burn mechanism. On that point, its highly unlikely that any of the top 22 candidates will ever come close to the 85% productivity level for the burn. If Reps do start to slip, you’ll be able to recast your vote in real time”.
So, based on Ricky’s comments we can glean a few concrete things. Firstly, the ICON Foundation aims to maintain a 3% threshold as its maximum allowance and will ensure that it does not go above said threshold. Secondly, its highly unlikely a P-Rep will breach the 85% productivity ratio threshold for a penalization to occur.
Recently, ICON has announced there will be a penalty fee for P-Reps who, once elected, fail to maintain a 85% productivity ratio. While this penalty fee has sparked countless debate, it’s important to keep in mind that it’s possible to passively monitor the process via the ICON tracker and furthermore; it’s unlikely that it will be breached in the first place as per Ricky Dodds comment prior. However, it’s important to retain some kind of penalty system within the protocol to maintain the health of the network and keep it secure. No enterprise will want to transact and utilize a protocol which cannot maintain consistent network up-time.
A further inducement to adhere to regarding the penalty fee, is that delegated ICX can be re-delegated were there to be any prior fear a P-Rep may fall below the 85% productivity ratio threshold. In a podcast, which I attended with and specifically asked Scott Smiley and Daeki Lee of ICX_Station about, they ascertained that this is indeed true.
Scott Smiley stated:
“One point of clarification is the difference between staking and delegation. Staking is simply the act of converting your ICX to staked ICX - which is blocked, you can’t transfer it anywhere - and then what you do with the staked ICX is delegate it to different representatives, different P-Reps. As long as your ICX is staked, you have the freedom to delegate from one P-Rep to another and as many different P-Reps as you choose. When you’re in the unstaking period, you’re not delegating to anyone …From my understanding, once you unstake, your delegations are removed and you have this period of time where you are waiting to get liquidity for your ICX as it converts from the locked state to the unlocked state”.
Thus, in plain english, moving your delegated ICX from one P-Rep to another won’t require the 5-20 day lockup period. Only when you choose to unstake entirely will the lockup period apply.
In terms of aiding decentralization, it’s heavily encouraged to vote for multiple P-Reps so, were a penalization to occur with the P-Rep of your choice, this would ensure that one would not suffer the full effect of the penalty fee. Bong An Ha, the Cryptoeconomics Architect of ICON, whom we have interviewed in the past had a few statements on the matter as well.
Bong An Ha stated:
“We would request that the community not vote for the ICON node for the sake of decentralization. We are very confident in the quality of the P-Reps candidates to help to secure our network. The ICON Foundation has a vision to build a community of people who want to be part of the token based economy on the ICON network.”_
Hopefully, this post helps alleviate some uneasiness and dissension around the ICON Foundation becoming a P-Rep and the penalty fee.