Top 5 Delegated Proof-of-Stake Crypto Projects by marketcap
By Rafał - 2019-11-11
First implemented by Daniel Larimer, the Delegated Proof-of-Stake (DPoS) is an alternative consensus mechanism that requires coin holders to vote for “delegates”, who are then responsible for validating transactions and maintaining the blockchain. DPoS is an alternative to the more commonly known, Proof-of-Stake (PoS) model, which requires miners to put up a stake in the required cryptocurrency before they are able to process transactions and add them to the blockchain.
This system offers a great way to benefit from passive income without the inherent drawbacks of common POS systems such as the need to leave the wallet constantly open or the necessity to put the coins into a pool for a greater ROI. In DPoS, stakeholders elect what are known as witnesses which are responsible and rewarded for generating and adding blocks to the blockchain. Thus, only a defined number of actors validates the transactions and secure the network while distributing shares of rewards among all voters.
Since few years, numerous projects have introduced this mechanism in their ecosystem. In this document, we will introduce the top 5 DPoS projects ranked by current marketcap, namely EOS, Tron, Cardano, Cosmos and Tezos.
EOS - $3.26B
EOS is a protocol for creating decentralized applications using an improved blockchain. It is considered a crypto currency competing with the Ethereum currency because its technological process allows greater scale scalability: the EOS blockchain can adapt much more easily to high demand. The EOS cryptocurrency was launched following an Initial Coin Offering (ICO) against a contribution in ETH. The launch of EOS has caused a real earthquake in the world of cryptocurrency by its unprecedented scale. The ICO remained open to investors until June 2018.
By default, all EOS accounts have two sets of keys: owner and active. These two types of keys will be important for the rest of the introduction. The owner key controls root access to the account. This key should be kept in cold storage and should only be used in the case that another key is compromised and needs to be changed. Most users will use their active key to vote for block producers or to assign a proxy but can create specific permissions to vote.
How to participate in EOS DPOS?
The DPOS mechanism goes through a voting system within the EOS network accessible to everyone. In EOS, any user who has staked EOS tokens can vote. Each user can vote for up to 30 block producer candidates using the full weight of their stake. For example, if a user has 1000 EOS staked, he can cast 1000 votes each for up to 30 BPs. The top 21 block producer candidates by total number of votes received form the core set of validators. Additional block producers, ranked by total votes, are also compensated by the network to serve as standby block producers. EOS is a liquid, delegative democracy. Users have the option of voting directly for block producers, but they can also delegate their voting power to another account to vote on their behalf.
The delegate account, called a proxy, has no control over the original user’s account. Furthermore, any user can proxy her vote safely without handing over any keys. The proxy simply has the power to direct that user’s voting power towards certain block producers, but the user can revoke his voting power from the proxy at any time.
In order to vote for a producer, few ways are available including direct vote from desktop wallet interface, command line or even with some external tools developed by the community. The rewards from both type of candidates are allocated depending on the weight of the different votes.
Tron - $1.26B
Tron (TRX) is a blockchain platform launched as the foundation of a decentralized entertainment ecosystem. Created by the controversial character Justin Sun, Tron focuses on expanding the market for distributed applications by facilitating their creation and deployment. Tron's core network was launched in June 2018 and has since expanded to become a blockchain-based operating system. The TRX is the native token of the Tron blockchain. The adoption of blockchain technology is limited in part because of the difficulty many developers have in learning and building applications from entirely new protocols from scratch.
Tron is designed to facilitate the transition and accelerate the decentralization of existing platforms and the creation of new applications on top of the chain. Tron was originally created to work in the same way as other content networks: creators produce content and consumers buy it. Other applications can be built and exploit the same resources, and the value of the TRX depends in part on the execution of the code in the Tron network. Tron was inspired by another platform, EOS, for the choice of its consensus mechanism based on DPoS
How does Tron DPOS work?
Tron's mechanism, like EOS, also uses a voting system to elect delegates and share rewards. In total, 127 representatives are elected by all TRX holders. Among them, 27 super-representatives create the blocks, themselves also elected by the TRX holders. Votes take place every six hours and 1 staked TRX is considered as 1 valid vote. The elected representatives share a "rewards vote" of about TRX 16 per block, or 168,192,000 TRX per year, divided proportionally between representatives and super-representatives in proportion to the number of votes received. The super-representatives also share a block reward of 32 TRX per block, or 336,384,000 TRX per year. The Tron Foundation shares the awards until January 1, 2021, having escrowed 33 billion TRX for this purpose.
The Tron DPOS system requires to freeze a certain amount of TRX (corresponding to the chosen vote weight) for 3 days in order to participate. The vote can be done directly from TronScan with an easy integrated process.
Cardano - $1.1B
Cardano (ADA) is a blockchain project initiated by the developer Charles Hoskinson. Unveiled discretely in 2015 and funded in 2017 by an ICO raising $ 62M, this blockchain was publicly released on September 23, 2017.
Cardano’s goal is to maintain a Blockchain in Proof-Of-Stake with significant transaction processing capabilities with a limited inflation. For this purpose, Cardano uses a specific architecture in two levels. The first, named Cardano Settlement Layer (CSL), makes trading transactions possible with the ADA cryptocurrency. The second, named Cardano Computation Layer (CCL), is used to run Blockchain applications and work related to protocol development and evolutions.
This separation should make Cardano more "agile" and theoretically allow Proof-of-Stake operation while going much faster in the application of changes and possible "forks", compared to protocols like Ethereum which require a global consensus. Cardano is a direct competitor of Ethereum, through the development of smart-contracts and the ability to easily build decentralized applications running entirely on the Blockchain.
Introduction to Cardano DPOS system
The Delegated Proof-of-Stake algorithm (DPoS) used within Cardano’s network allows stakeholders to choose the consensus nodes. These nodes perform a special form of task, they confirm the correctness of transaction blocks that are integrated into the blockchain. Every stakeholder has the possibility to operate a consensus node himself if he is selected. In addition, each stakeholder can choose any other stakeholder. Both stakeholders, whether the voting stakeholder or the elected stakeholder, have an advantage. Stakeholders who choose another stakeholder will receive a reward if the chosen stakeholder can operate a consensus node.
Each consensus node receives a higher reward. This not only provides incentives to operate a consensus node but also to vote for consensus nodes. Cardano uses the delegated proof-of-stake algorithm Ouroboros.
Ouroboros works with so-called time epochs. In each epoch, there are different time intervals, so-called slots, which represent potential blocks. An algorithm randomly selects a consensus node that can select a slot and fill it with transaction information. After a block has been created, the block is forwarded to other nodes for verification. In each time period, all newly created tokens are collected in a pool and then distributed to individual nodes, depending on the participation. Slot leaders are elected from the group of all stakeholders. Please note that not all stakeholders participate in this election, but only ones who have enough stake (for example, 2% of the total stake). This group of stakeholders are known as “electors”.Electors elect slot leaders for the next epoch during the current epoch. You can think of this election as a “fair lottery” as anyone from the group of stakeholders can become a slot leader. However, an important idea of PoS is that the more stake stakeholder has, the more chances one has to be elected as a slot leader. As the complete ADA DPOS process is quite complex, we won’t explain all the system here. All the details for each technical aspect can be found in the official documentation at https://cardanodocs.com/technical/delegation/.
Cosmos - $815M
Cosmos is actually considered as the most customizable, scalable, powerful and interoperable ecosystem of connected blockchains in the current market. In short, Cosmos is a decentralized network of independent blockchains powered by Tendermint and other Byzantine Fault Tolerant algorithms. It is the Byzantine Fault Tolerance vision that allows a blockchain to achieve consensus even in an environment that potentially contains malicious nodes. The Cosmos Network has the potential to become the “Internet of all Blockchains” and is also more commonly called as the Cosmos Hub. Cosmos is the first blockchain to be launched on the Cosmos Network and its task is to link other different blockchains. Once these links are complete tokens can be quickly and securely transferred from one to another.
The Cosmos team first held an ICO in April 2017, raising $17.3 million in just 28 minutes as they sold 168 million tokens at $0.098 each. The team also withheld 50 million tokens for themselves to fund strategic partnerships and business development. The system of DPOS used within the Cosmos ecosystem is completely unique as it uses the known Practical Byzantine fault tolerance algorithm to function seamlessly.
Cosmos DPOS through Tendermint
Tendermint is the first Proof-of-Stake consensus algorithm created using the Practical Byzantine Fault Tolerant (PBFT) algorithm first proposed in 1999 by Castro and Liskov after 30 years of research. This BFT based PoS protocol assigns the right to propose new blocks in a pseudo-random fashion to validators in a multi-round voting process. Finalizing and committing those blocks requires a supermajority of validators signing off on the proposed block.
In the case of Cosmos, this is two-thirds of the quorum. Reaching consensus in this method may take several rounds to finalize blocks. A BFT system can only tolerate up to one-third failures, with failures including malicious and arbitrary behaviors. The different components of Tendermint allow the system to work flawlessly. It offers a safety threshold of 1/3 of validators while being compatible for both public and private blockchains. This system organizes the stakers into groups of validators and groups of delegators. The delegators decide which validators will participate in consensus and the validators work to validate transactions and add new blocks to the blockchain. In final, rewards are given to validators and delegators in the form of ATOM tokens, but the Cosmos Network is designed in such a way that a wrapped form of any cryptocurrency could theoretically be used as a reward token.
Tezos - $791MTezos is an innovative blockchain that improves on several aspects compared to more established blockchains. It offers an original proof-of-stake consensus algorithm and can be used as a decentralized smart contract platform. It has the capacity to amend its own economic protocol through a voting mechanism and focuses on formal methods to improve safety. The Tezos Foundation was created by Arthur Breitman and his wife Kathleen Breitman with a whitepaper published in 2014 to solve the existing problems of Bitcoin and other cryptocurrencies.
From March 2014 to July 2017, OCamlPro participated in the development of the Tezos prototype. The platform was therefore developed in the OCaml functional language mainly used in the field of research. Tezos had launched an ICO in July 2017 allowing the foundation to collect a record amount of $232 million. Since this ICO, the company Nomadic Labs, specialized in the research and development of distributed, decentralized and formally verified software, has joined the Tezos ecosystem and is now actively involved in its development.
The principles of Tezos DPOS
Tezos allocates block publishing rights based on stake, a mechanism known as proof-of-stake. Each block is produced (also called baked) by a random stakeholder and notarized (“endorsed”) by 32 other random stakeholders. Like Bitcoin, Tezos uses inflationary block rewards and transaction fees to incentivize validators/bakers to participate in consensus.
To incentivize honest behavior around the time of block creation, Tezos requires a baker to put up a safety deposit for several weeks. If a baker explicitly tries to double bake or double sign blocks, it forfeits this safety deposit. But unlike in Bitcoin, in which miners capture all inflationary block rewards, Tezos delegates compete by sharing their inflationary baking rewards with delegators.
All Tezos token holders, regardless of the staking power, can avoid being diluted by the targeted 5.5% annual inflation. Token holders not interested in baking themselves may delegate baking rights without transferring token ownership. Tezos is a special type of dPOS as it assigns baking rights proportionally to staking weight. Delegation is only an extra feature allowed within the ecosystem, thus, Tezos is more considered as a Liquid-proof-of stake system which has included a DPOS feature. The vote for a delegate can be done directly from any Tezos wallet.
In short, despite a strong model, the DPoS consensus has some limits. The redistribution of the prizes awarded to the voters encourages them to vote for candidates promising the best possible redistribution once elected delegates. However, this system consists of a great passive income for users wishing to delegate their voting rights and staking weight against regular rewards and allows anyone, regardless of their holdings or financial capabilities, to take part in the future and the governance of the projects.