Incentives Against Power Grabs or How to Engineer the Revolution in a Pooled Proof of Stake System (2111.08562v1)

Abstract: Proof-of-Stake (PoS) blockchain systems, especially those that allow stakeholders to organize themselves in stake-pools'', have emerged as a compelling paradigm for the deployment of large scale distributed ledgers. A stake-pool operates a node that engages in the PoS protocol and potentially represents a large number of smaller stakeholders. While such pooled PoS operation is attractive from various angles, it also exhibits a significant shortcoming that, so far and to the best of our knowledge, has not been sufficiently understood or investigated. Pooled PoS operation, to be effective and not lead to sub-optimal dictatorial or cartel-like configurations, should enable the stakeholders to revoke and re-delegate their stake in a way that is aligned with their incentives. However, given that stake-pool operators are exactly those entities who determine what transactions are to be recorded in the ledger, they are quite likely to form a cartel and censor any transaction they want, such as those that attempt to adjust the current stake-pool lineup. In this way, a power grab takes place, where the stake-pool cartel perpetuates its control over the PoS system. We first model and observe formally the emergence of the above problem in pooled PoS systems, and then we describe an anti-censorship mechanism that takes advantage of the underlying cryptographic functions of the ledger and the nature of peer-to-peer networks to diffuse information without suppression. We provide a thorough game-theoretic analysis of this mechanism discovering various types of Nash equilibria which demonstrate that therevolution'', i.e., the strategic decision of pool members to withdraw support from a censoring cartel as well as the pool operators to step down, can be incentivized, under suitable and plausible conditions in the utility functions of the involved participants.

• The paper presents a game-theoretic approach that identifies equilibrium conditions preventing stake-pool operators from forming censorial cartels.
• It introduces a randomized pool dissolution mechanism that forces periodic re-evaluation of stake delegations, disrupting centralized control.
• Additionally, the study proposes compounding incentive-consistent transactions to bind stake delegations and facilitate signaled shifts in pool support.

Incentives Against Power Grabs in Pooled Proof of Stake Systems

The paper "Incentives Against Power Grabs" addresses a significant issue in Pooled Proof of Stake (PoS) blockchain systems: the potential for centralized control by stake-pool operators. This problem arises when stakeholders, who are supposed to benefit from collective PoS protocols through stake-pools, instead face a stifling cartel of pool operators that might engage in censorship and prevent the evolution of the system. The authors tackle this by proposing a mechanism designed to align stakeholder incentives with the decentralized ethos of blockchain technology, reinforced by rigorous game-theoretic analysis.

Problem Formulation

In pooled PoS systems, stakeholders can delegate their stake to a pool, which participates in the block-producing consensus. This delegation aims to ensure practical decentralization, but it can lead to a centralized structure where a small number of stake-pool operators control significant portions of the network. These operators might collude to form cartels, censoring any transactions that threaten their dominance—particularly those related to revoking delegations or registering new pools. The resulting power imbalance not only limits stakeholder influence but also compromises the decentralization and fairness of the blockchain system.

Proposed Solution

To counteract these power grabs, the authors propose a two-pronged anti-censorship mechanism:

1. Randomized Pool Dissolution: The mechanism leverages the blockchain's intrinsic randomness to periodically dissolve selected stake-pools. This unintended expiration mechanism compels stakeholders to reconsider their delegation decisions and enables them to support new pool registrations that might otherwise be censored.
2. Compounding Incentive-Consistent Transactions: Stake delegation transactions are allowed to contain endorsements for non-incentive-consistent transactions, such as stake re-delegations or new pool registrations. By cryptographically binding these actions together, stakeholders are given a chance to express their intent to shift pool support without immediate risk of censorship.

Game-theoretic analysis underpins this approach, where the rational behavior of stakeholders and pool operators is examined to determine equilibrium states. The paper identifies conditions under which a transition from current pool configurations to more competitive alternatives can be strategically incentivized.

Game-Theoretic Analysis

Through a comprehensive game-theoretic framework, the authors identify several Nash equilibria and strategic behaviors among pool operators and stakeholders. The presence of multiple equilibria suggests that under plausible assumptions of stakeholder utility functions, both resistance and acceptance of system evolution coexist. Importantly, the findings illustrate that stakeholders have the potential to coordinate effectively and execute a "revolution", wherein they collectively withdraw support from censorial pools.

The authors extend their analysis to multiple rounds, demonstrating how stakeholder strategies can evolve adaptively. By introducing the concept of "cheap talk" and the strategic signaling of intent, stakeholders could overcome coordination barriers, thereby reinforcing the mechanisms that resist centralization.

Implications and Future Directions

This research contributes to the ongoing discourse on decentralization in blockchain protocols. By introducing a rigorous paradigm to combat the risks of cartel formation and transaction censorship, it aligns stakeholder incentives with the theoretical ideals of decentralized systems. These insights have practical implications for designing more robust PoS systems that maintain the integrity and fairness of their operations.

Future work could explore integrating these anti-censorship mechanisms into existing blockchain protocols, assessing their impact on network behavior and performance. Additionally, further investigation into adaptive strategies and long-term equilibria in dynamic environments will strengthen the theoretical foundation and practical applicability of these findings.

Through such exploration, the decentralized identity of PoS systems can be preserved, ensuring stakeholder values drive the ongoing evolution of blockchain technology.