Delegations & Decentralization
I have been trying to identify things that confused me about the Cosmos Ecosystem early on and the purpose of this post is to make it less confusing for someone new to the ecosystem
Background Info.
The Cosmos Ecosystem is unique in the sense that each project has their own sovigern blockchain. Other ecosystems like Ethereum or Binance Smart Chain behave differently. All dapps on those chains run through the same virtual machine.This has led to transaction fees going through the roof if those networks get busy.
Each project having their own chain means less congestion. We haven’t really seen a Cosmos run like Ethereum or Solana with a lot of transactions at once. Most transactions are between a fraction of a cent and a few cents.
These sovigern chains use the Tendermint Consensus and would be considered Proof of Stake chains. The chains must be able to talk to each other and use a protocol called IBC for that. More on that another time
What is a validator?
Cosmos SDK chains behave differently than networks like Bitcoin or Ethereum. Those networks are secured & decentralized through Proof of Work and achieve decentralization through a worldwide network of powerful workstations doing complex math to mine new coins and confirm transactions. Proof of Stake on Cosmos involves a set of anywhere from like 50 to 200+ validators. The transactions go through these workstations and use a whole lot less energy than Proof of Work
What are delegations?
Validators are ranked by voting power. An end user would delegate their coins to a validator and receive staking rewards anytime a block is mined. The validator also gets a portion of the staking rewards.
What is Governance?
Cosmos chains are more democratic than other networks. Any changes that happen to the base protocol & other unique attributes (LP’s on Osmosis for example) have to be voted on by the stakeholders of the ecosystem and approved.
If a delegator doesn’t vote on a proposal then the validator can vote with their delegated coins so you want to make sure who you are delegating to have similar morals & vision for ecosystem as you.
How does Delegating lead to Decentralization?
This is the most important part of this post. You want the delegations to be spread as evenly as possible with all validators. What ends up happening a lot is someone goes to stake and stake to a validator with a large voting power in the top 10. This leads to a few validators holding most of the voting power on a network and possibly could lead to bad actors working together to harm the network.
An analogy that sorta works involves politics. Citizens vote for politicans who then vote in a congress on different laws and regulations affecting the citizens. The citizens don’t get much of a say in how their politican votes once they are elected. Cosmos SDK chains allow for this example and also everyone to have a say on proposals.
Example Below: Osmosis Delegations. Text too long to read rest of way: Top 10 delegators hold 52% of voting power out of 118 total. They are all important and active in improving the ecosystem through projects of their own.
The 3 images above show the difference on Osmosis by voting power.
The Top 10 validators have ~41.5M $OSMO delegated to them as of right now. Looking at mintscan there is a total of 79mil delegated total. If math correct that means the top 10 validators have 52 percent of the power. They are also super active in improving the ecosystem outside of just running a validator.
It is understandable that they would get more delegations as people learn about a lot of these coins through the validators. Wallets, Blockchains, Building apps for blockchains, being helpful writing guides or threads on Twitter are all examples of services the top validators provide. Folks would naturally delegate to them over some validator they have never heard of or have to research. I didn’t really understand the importance of this at first.
I hope this made sense. I am thinking about making a video explaining this bc I just got a legit MXL V88 Microphone, GoPrro Hero 9 and setup a legit workstation where I can sit right in front of a large screen instead of on my bed lol
