The Reverse ISO Proposal: Promoting Cardano’s Decentralization
TL;DR: Decentralization is a core value of the Cardano community and of SundaeSwap Labs. Our ISO model — though it was designed to support the ideals of decentralized governance by not spinning up our own SPOs and by putting SPO selection to a vote — led to a small decrease in an important metric of blockchain decentralization. That said, Cardano is still less centralized than nearly all other top blockchains, and SundaeSwap is announcing further steps to support decentralization. These include a proposed Reverse ISO, in which participants are rewarded for delegating ADA to Single Pool Operators who received at least one vote in the original ISO/Scooper vote, and additional initiatives to be announced in the coming weeks and months, including more details on the formation of the SundaeSwap DAO. All RISO delegators are eligible for rewards.
Vote on the Reverse ISO proposal here: https://tinyurl.com/sundaevote
Proposal Edit 1: Duration of Reverse ISO changed from 5 epochs to 1 epoch to bootstrap re-distribution.
Proposal Edit 2: Since the duration of the Reverse ISO has decreased by 80%, 20 million SUNDAE tokens have been committed by the team to this initiative—equivalent to one epoch worth of rewards during the 5-epoch ISO, where a total of 100M SUNDAE is distributed.
ATTN: Since it was unclear in the initial article who would be eligible, all delegators who are staking to a pool on the RISO list are eligible for rewards.
The ISO concept as originally envisioned was an exciting way to promote new protocols, reward community members, and reinforce adoption of one of Cardano’s key features, all while lending a hand to many of the community’s Stake Pool Operators. And the idea worked. Too well. The community responded with such enthusiasm that we saw a massive concentration of ADA staking power in the SPOs elected by the community for the SundaeSwap ISO. As SPOs began to approach saturation, the community started to express concerns, and not just about the potential tapering of ADA staking rewards but also the concentration of staking for the SundaeSwap ISO. That concentration seemed to be running counter to one of the core values of the Cardano network: decentralization.
This is not the first time a DeFi protocol’s approach to achieving and improving decentralization have been challenged, and it won’t be the last. Maintaining the ideals of decentralized finance will require a constant balancing act with the preservation of transaction security, regulatory compliance, the practicalities of governing an early-stage but fast growing dApp, and no doubt many other areas. But decentralization is not just an ideal for the network: it is a core value to SundaeSwap Labs and our community.
SundaeSwap is committed to supporting genuine decentralization in all aspects of the DEX operation. Owning SUNDAE is not just a badge of membership in a community; it is the governance token for the SundaeSwap DAO that will launch this summer when the Cardano parameters allow. Decentralization represents the very ideals that helped build and grow the Cardano community.
But, given this is early days, there is far more we can do to uphold that ideal. We have appreciated the active and productive conversations going on in both the SundaeSwap and Cardano communities that have helped reinforce this priority. Given the size of our own community, the SundaeSwap ISO diverted a lot of delegation away from smaller pools with individual operators, and started a trend towards, rather than away from, centralization. While many have suggested we address this by putting our thumb on the scale of the SPO community vote, we didn’t feel that was the right approach either, and so we thought long and hard about the nature of decentralization, and how we might help reverse this trend. .
SundaeSwap and Decentralization
Decentralization is a word that our industry leans heavily on, It is at the core of what we do, and an idea that has ignited a fire in the minds of many.
When we conceived of the ISO, one of the key aspects was how decentralized it was: with such a low barrier to entry, anyone could participate, and anyone could secure some amount of voice in the DAO being formed around the SundaeSwap protocol.
At each step of the ISO process, we tried to let the ethos of decentralization guide our decision making process:
- Rather than run upwards of 100 stake pools ourselves, we turned to members of the community to run them.
- Rather than select those members ourselves, we ran one of the largest on-chain governance events in Cardano history to let our community choose them.
- As much as possible given Cardano’s current limitations, we avoided acting as a central authority and let the community decide which pools they valued
It is ironic, then, that one of the fair criticisms that people have leveled against the model is around the role it has played in centralizing Cardano itself. An unintended consequence, fueled by the intense and overwhelming excitement for our project, is that we have concentrated nearly 7 billion delegated ADA behind 40 different stake pool operators. In the epochs leading up to the launch of the ISO, this even reduced our Nakamoto Coefficient (the de-facto standard for measuring decentralization) from 25 to 22.
The above trend certainly doesn’t spell doom for Cardano; it’s still larger than many other chains, and this time last year the Cardano community was celebrating a Nakamoto coefficient of 18. The effort and coordination it would take to coerce 22 different entities to act against the stake they themselves have in the success of Cardano is staggering to comprehend.
Still, as a trend, it is concerning. As a highly visible project in the Cardano space, and one which often serves as an example for future projects, we’ve been thinking deeply about how we can contribute to reversing that trend.
More important than what we have done is what we do next. It is clear to us that the DEX should support small single pool operators and play an active role in increasing the ecosystem’s minimum attack vector (MAV), And the best place to do that is to empower the Single Pool Operators that currently receive a little more than 21% of the total ADA delegated on the blockchain.
Our Proposal: The Reverse ISO
Over the past few days we have noticed many community members (even some of our scoopers) encouraging delegators to move from ISO pools on February 14th. With the ISO soon coming to an end, we felt that some of the Cardano community, in the same way that frustration boiled initially, would not be enthusiastic about SundaeSwap intervening in the flow of staked ADA once again.
As such, we would like to propose the following program to the community to vote on. Although this vote is not a formal governance vote, it will allow us to see the general sentiment and if it’s something the Cardano community would like to see us act on. We would love to hear your opinions on our proposed incentive program above on Twitter and around social media in general.
We are incredibly excited to share our proposal of SundaeSwap’s Reverse ISO. You can think of it as “ISO 2.0,” or a “Single Stake Pool Offering” — but we’re just going to go with “Reverse ISO.”
How will it work, you ask? An extra 20 million (changed from 30 million since duration has decreased 80%) SUNDAE from the SundaeSwap Labs supply (Team) will be delivered to delegators who delegate to any single pool operator that received at least one vote in the initial ISO and Scooper selection vote. The Reverse ISO will commence after epoch’s start on February 19th and run for 1 epoch, until February 24th when the snapshot will be taken. (Changed from 5 full epochs). A list of qualifying stake pools will be made available on the SundaeSwap website in advance of the launch. Existing ISO pools (Top 40 are not eligible).
To be eligible to receive rewards from SundaeSwap’s Reverse ISO, simply delegate to an eligible single pool operator by the time the snapshot is taken (21:45 UTC) on the 24th.* SUNDAE tokens will be distributed via our own faucet, at the same time we distribute the SUNDAE ISO rewards outside of DripDropz for those who do not want to pay the DripDropz service fee.
We hope this proposal will help redistribute the delegation and bring the MAV back to where we all want it to be, as well as support smaller pools who are key to keeping Cardano decentralized.
Vote for or against this proposal here: https://tinyurl.com/sundaevote
Key Reverse SPO Dates (if proposal is accepted)
- February 14 — Final snapshot of the Sundae ISO
- February 19— Reverse ISO Begins
- February 24 — Reverse ISO Ends (Must stake within the 19th and 24th to be included in the snapshot on the 24th at Epoch’s End)
- March 1 — Sundae ISO Rewards Distributed via DripDropz
- Q2 — Reverse ISO Rewards Distributed via SundaeSwap Faucet
Future Decentralization Initiatives
As well as our Reverse ISO, we are also running some other programs to assist in the active decentralization of the network and support smaller pools.
Specifically, we are committed to delegating all ADA locked in the escrow contract on the SundaeSwap DEX to smaller single pool operators. We plan to share more information on this soon as we get closer to starting this initiative.
Our efforts to promote small SPOs don’t end here. We will continue to promote small and single stake pool operators through various programs and initiatives that we look forward to sharing with everyone in the future.
*This used to read that delegators needed to stay staked the entire epoch. This was incorrect and has been updated to reflect that.