(image by forex.academy)

Since most DAOs are based on the PoS (Proof of Stake) consensus, @photochamber's excellent post on Torum.com (https://www.torum.com/post/627a69d3dfbd4d00142552a7), prompted me to write this submission.

From the beginning, PoS (Proof of Stake) consensus was touted as the cure for all the ailments of PoW (Proof of Work) - the consensus mechanism for Bitcoin and it's many forked clones.

PoS was supposed to make the array of highly publicized (and IMHO, highly exaggerated) negative attributes of PoW; that is, wasteful energy consumption, mining pool mafias, slow TPS and limited scalability, etc., all things of the past.

But time has proven that you can't have speed, scalability AND security.

PoW has bulletproof security because it is slow!

The time was engineered into it to safeguard transactions.

Yes, PoS can be fast and highly scalable, but possesses several inherent security vulnerabilities.

With more projects starting as PoS or migrating to it, we also see more of them getting hacked too.

There are many reasons for the uptick in hacks and explanations can get rather technical (aka geeky), so I'll reserve that for future posts.

Now that we've already touched upon one of the well known, but rarely discussed dirty little secrets of PoS: Compared to PoW, PoS security is a big challenge, let's move onto the other "Elephant in the Room", shall we?

I'm talking about the issue of stakeholder rewards vs. stakeholder leverage.

Early on, all the "smart people" agreed that higher rewards should rightfully go to those who've invested the most into a project.

Rewards commensurate to the amount of tokens held was seen as a sound business practice, a privilege awarded for "putting your money where your mouth is" and a clear incentive for others to invest more in the project.

On a permissionless, public Blockchain that allows anyone to participate, commensurate rewards or "stakeholder preference" provides a strong deterrent against malicious behavior from bad actors.

The logic goes like this:

Those with the highest stakes at risk will logically be motivated to behave appropriately; simply out of self-preservation.

Stated differently, by virtue of them being large stakeholders, they also have the most to lose.

For them, it's "Behave or Lose Big Time!"

However, the stakeholder preference within the PoS consensus, remains vulnerable to various forms of stakeholder monopolies.

And whether openly sanctioned or manipulated indirectly through proxy, every stakeholder monopoly is a form of centralization and wields a suspiciously disproportionate amount of influence on a project's current operations, future plans and overall governance.

There isn't a simple panacea for these PoS ailments. Suffice it to say that every project must be scrutinized individually.

DYOR.

In the end, it's all up to the project's leaders, decision makers and community to come to a "consensus".

Submitted FYI.

May you and yours be well and loving life today.

In Lak'ech, JaiChai

(JaiChai 11 May 2022. Simultaneous multi-site submissions posted. All rights reserved.)