Although this is a rough set of guidelines, no two projects are the same.
At Figment we take every project into consideration seriously and value it for its own specific merits.
Staking is Opening New Doors
We believe that PoS represents a significant evolution in blockchain usability. With exciting projects like Cosmos, Livepeer, Tezos, and Terra gaining traction, PoS is proving a viable alternative to Proof of Work (PoW).
Over 80 PoS projects plan to launch in the next 12 months
We’re not the only ones betting on staking. PoS is the primary leader-selection incentive mechanism for consensus in new, protocol-layer projects. It’s not surprising that staking is burgeoning in blockchain, because staking can be unbundled from consensus.
More than consensus
Staking can be used to add novel security measures to networks, and it’s popular for open marketplaces that provide services. Livepeer’s video transcoders involve staking, and Keep Network will use staking to create a market for verifiable randomness and privacy. Polkadot will rely on staking to incentivize good governance practices and additional network security.
To Support or Not to Support?
With so many staking-based networks launching, and so much to learn, we have difficult questions to ask each day. Will we support a network? If so, to what depth should our involvement be?
From design to adoption
At Figment, we support Proof-of-Stake (PoS) projects from the earliest stages of pre-testnet system design to end-user adoption. And everything in between: running testnets, the mainnet launch, governance leadership, community contributions, feedback and education. We build software and tooling (Hubble).
Figment’s goal is to make long-term, high-value contributions and engagements with the projects we select. Since providing secure enterprise grade validator infrastructure is just one of the ways we work to ensure network success, opportunities to contribute in deeper ways are always attractive to us.
As such, it is necessary that we focus only on networks and projects that meet a set of criteria that we believe are positive signals for long term success, user-adoption and growth.
These are some of the most important things that we consider.
THE BUSINESS CASE
What is the market size? Do the token model and incentive mechanisms work within this type of market?
We like to support projects that dream big and have a good product-market fit. If the platform is able to get usage and sell its solution, would the market size be large enough to sustain platform usage? We answer this question by looking at the mechanics of how a network pays fees/rewards to delegators. For example, you might be able to create a decentralized mechanism to perform a task at some cost - but if the cost is higher than it would be in the centralized version, the feasibility doesn’t look good.
How is the token distribution among the team, investors, and greater community?
Does the team hold a majority of the tokens between themselves and their friends and family? What did the token distribution mechanism look like? Is the network making efforts to maintain a fair distribution that sets the project up for long term success? These questions need to be answered on a case by case basis, but typically it’s pretty easy to spot a team that is trying to deliver real world value. Luckily, after the ICO craze of 2017, we’ve increased market maturity and are now seeing a greater number of high conviction projects. This shift has opened up the space for new and more serious networks to focus on value delivery without so much noise.
How much money did the team raise? Is it a fair distribution that keeps all members incentivized to deliver?
Did the team raise enough money to hire the resources it needs to deliver a real product in a timely manner? Did they raise so much capital that there is a low incentive to deliver? We look for teams that have struck the balance between raising capital to grow quickly, but have not raised so much to discourage efficiency.
Can we build tools for the network?
Since we support projects we believe in, we love to build tools to help those projects succeed by solving pain points for their users. We’ve done this in a big way with Hubble implementations for Cosmos, Terra, IRISnet, Kava, and a payment system for Tezos rewards. We love to see when a project has a dedicated grant program for community members to build tools and support the network, and if that program has a clear and open participation process, even better!
Is the founding team experienced? What is their reputation? Technical background? Do they have the funding required for a successful launch? Is there a track record of successful and on time execution?
There are several things that make a strong team - all qualities are not required, but possessing a few is a positive signal. We look for seasoned entrepreneurs, well known and technically tested development teams, and backing (either monetary or endorsement) by other highly regarded groups or individuals in the space. It’s important that the team is active in the community - especially if they have been involved in other blockchain companies/projects in the past.
We also value teams who prove their ability to ship product updates, move quickly through iterations and challenges, and exhibit a high level of organization and communication with various stakeholders. Good documentation is an absolute must when organizing a globally distributed validator community to run nodes on a network.
We consider that basic start-up execution capabilities to be table-stakes: Hitting targets & deadlines, having high quality team members, effective structured meetings, clear and regular communications….and all the other organizational basic required to successfully launch and grow a technology start-up.
Does it have the potential to solve a real problem? Is there a real use case?
A great example here is Livepeer. The transcoding process for live video is cost prohibitive and Livepeer has developed and launched a feasible alternative that is significantly cheaper. It’s also worth mentioning that moving from AWS or other cloud transcoding services to Livepeer is not a stretch, given the technical nature of the activity.
Can the product feasibly address the target market it claims to?
We’ll look at how suited the product is for solving the problem at hand, considering its token mechanics, market size, and the potential users’ willingness to adopt this new solution, if any (are they technologically adept?).
How does the product compare to other solutions?
Is it similar to other solutions in the market? An interesting example would be to look at the history of smart contracting platforms. How does Cosmos compare to Polkadot? Are these solutions different enough to merit two players in the market, and how strong is each project’s network effects? How capable is each team?
Although it is important for projects to solve different problems, innovation within the problem space is also valuable. Given how far reaching smart contracting could be, it’s not hard to believe that there may be several major platforms that become mainstays.
Is the project building relationships to promote the adoption and lasting success of the platform?
What we look for depends largely on the phase of the project (pre-testnet, testnet, or mainnet), but here are some things to consider at each stage.
When a project is pre-testnet we focus most on the existing community being built around the network. Given that the project is largely in an early building mode and is pre-release of any tech, we’ll assess team’s on their vision, use case, and ability to gain traction in their community and among investors.
When a project moves to testnet we’ll start assessing the technology by becoming early users and contributors. This helps us get a sense of how well the network operates, software stability, and also allows us to contribute to bug fixes when they occur. This stage is also key for learning how teams deal with timeline delivery and issue management. Delivery delays in blockchain are commonplace, so we find the more important question to be “how transparent is the team? And how well are they communicating with the community?” If we feel a team has good communication and is earnestly pushing a project forward, we’ll be happy to continue participating despite some delays.
If we’ve launched on mainnet it means we’ve chosen to support a project! By this point we’ll have established a relationship with the key contributors in the community, and we’re invested in the future of the network.
Some additional questions that we’ll ask at each stage along the way are:
Is there a staking community excited to join the project? Has the project launched any official partnerships to promote growth and usage? Are there contributors outside of the company’s employees working on it? Has the token been listed on any exchanges?
We also look to see how the project is managing “insiders” and overall network value concentration.
Security as a validator: What are the slashing conditions? Is there a custodial component? Key management?
Operational security and safety of customer funds is of utmost importance to us. Our job is to safeguard customer funds and guarantee reward payouts in all of the networks we support. If a network’s rules for slashing, uptime, and hot-wallet delegation requirements make it difficult to reduce the risk of losing funds, it makes supporting the network difficult. This is not to say that slashing should always be low, instead we look for slashing parameters to be well aligned with the level of risk and complexity of running the node operation.
We really love it when a network releases a comprehensive cold storage key solution for storing tokens and managing signing keys. Ideally, we would see networks offering 2 of 3 multi-sig hardware/cloud key management available for all validators.
Is the technology new? Is it built on top of an existing framework we are familiar with?
One of the reasons we were so excited to be validating on the genesis block of Cosmos is because of its interoperability: the expandable nature of the Hub and Zone feature. It’s natural for us to support networks that are offshoots from existing blockchain tech stacks, like Tendermint. We currently support four Tendermint projects with Hubble, including testnet support for Kava and mainnet support upon launch.
We find it valuable if a project is using a tech stack that has proven to be robust, allowing the market to adopt it more quickly. If a project is forked off of a blockchain with surrounding controversy, this is also something we’ll take into consideration.
Where does governance fit into the mix?
One of the novel things about PoS over PoW is often token holder participation may be enabled through staking-based voting and governance. As anybody who follows politics knows, gaining consensus around important decisions for a large group is no easy task. When you introduce a system in which every token-holder has a vote, you have the responsibility to 1) inform token-holders about the issues and 2) make it easy for token holders to engage with the platform (ie. assess and cast their vote).
When considering a network, we like to understand what their vision and plan is for governance. How will token holders interact with the platform? Will it be easy for them to vote? Can they delegate their voting rights to someone else? Can they vote independently from their validator? What are the ways in which the network may be susceptible to capture by governance?
From a governance perspective, these are the types of questions that will dictate the long term success of the network.
Although this is a rough set of guidelines, no two projects are the same. At Figment we take every project into consideration seriously and value it for its own specific merits.
This is by no means an exhaustive list. If there is something major we’ve missed, don’t hesitate to reach out by commenting here, on Twitter, or by emailing us at email@example.com - -we’d love to hear your feedback.
Based in Canada, serving token holders worldwide and venture-funded, Figment is the country’s largest blockchain infrastructure and staking provider. Figment is trusted by over 300 customers and partners worldwide with more than 35 million tokens under management across 10 PoS networks.
At Figment our mission is to support the wider adoption and long term success of stake-based networks. This is Figment’s unique approach: providing not just enterprise-grade delegation services to token holders but also valuable open-source software tools (e.g. Hubble), compliance & reporting solutions, active community participation & governance leadership.