A Proposal: The Tezos Foundation Delegation Strategy

On November 13, the Solana Foundation announced its foundation delegation strategy with the result of allocating 100 million SOL to improve the network’s censorship resistance and encourage growth in the number of validators. The original article can be found here. The Solana Foundation has almost the same goals as the Tezos Foundation, namely the promotion, adoption, support, and community growth of the corresponding protocol through grants. Both are based in Switzerland.

Tezos is an open-source platform for assets and applications backed by a global community of validators, researchers, and builders. It has a unique Self-Amendment and On-Chain Governance process in place — last week, for example, Tezos upgraded to Delphi which results in a dramatic reduction of gas fees by up to 4x! Tezos can adapt useful technology features from other protocols through this process. A good overview of what already happened can be found here. With the next update, we will probably see sapling integration (implemented by ZCash) and stateful baking accounts (similarly implemented in Polkadot). Yes, Tezos is a monster when it comes to technology!

We thought that if you can integrate technology from others, then you can do that with strategies as well! We just took the delegation strategy of the Solona Foundation and have adapted them for the Tezos Foundation:

“The Solana [Tezos] Foundation is committed to growing the Solana [Tezos] network to become the most decentralized and censorship-resistant blockchain in the world. The Foundation continues to spend a significant amount of resources innovating on how to meet these goals today and over the long-term.

In accordance with its charter [where can the charter of the Tezos Foundation be found btw?], the Foundation is committing to delegate 100,000,000 [73,500,000*] SOL [XTZ] (over 80% of the Foundation’s [XTZ] treasury) through an auto-delegation strategy that targets the following goals:

  • Improve the network’s censorship resistance and security by incentivizing an even stake distribution to avoid a small number of nodes [bakers] accumulating a large majority of delegations
  • Encourage growth in the number of validators by providing a baseline delegation, the size of which is inversely related to the size of the number of nodes [bakers] on the network, to lower-staked nodes [bakers] to help make running a well-performing validator a financially feasible operation for new entrants to the network.

To these ends, the Foundation will deploy an autonomous script that dynamically and uniformly divides and delegates a pool of 100,000,000 [73,500,000*] SOL [XTZ] in such a way to maximize the minimum number of unique nodes [bakers] that constitute 33% of the global stake. [].

The Solana [Tezos] Foundation plans to implement this delegation strategy on the Tour de SOL testnet during the week of November 16th and Mainnet Beta on or around 1 December 2020 [after a successful update to Edo, the next Tezos protocol upgrade]. [].

Nodes [bakers] must meet specific eligibility criteria before receiving any delegation from the Foundation. Nodes [bakers] that fail to maintain certain performance metrics will have the Foundation delegation removed until they have met the initial delegation requirements again. [].

The Foundation will regularly re-balance its distribution of delegations to account for a changing number of nodes on the network as well as any changes in non-Foundation stake delegations across the network. [].

The Foundation will also automatically re-delegate all staking yields that are accumulated from the distributed stake. Thus the increase in circulating supply as a result of this delegation strategy will be limited only to the validator commissions, which are capped at 10% for eligibility. [].

The delegation strategy described here may change depending on various factors. This post covers the overall design and objectives while noting that there may be modifications to the strategy before implementation.

The technical requirements could also be taken over almost 1:1 by the Solana Foundation. We are grateful for this fundamental strategy and are happy to share it with the Tezos Foundation as a proposal. A discussion in the Tezos Agora Forum would be the next necessary step.”

*According to the latest TF biannual update from September with a VWAP of $2.85 per XTZ as of July 31, 2020.

Building Stuff on Tezos, Member of StakeNow and Managing Director of vDL Digital Ventures GmbH