Author Topic: Proposed Future DAC Delegate Pay Model  (Read 24739 times)

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Offline Empirical1.1

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Do you really think that BTSX can fund 10 years of development on a couple million dollars?   Here is what BTSX needs to grow to the Multi-Billion dollar network we all want to see:

1) A web development team of 10 people producing and maintain a web wallet.
2) A backend development team of 10 c++ developers producing countless tests, enhancing performance, and improving security.
3) A mobile app development team of 10 people focusing only on maximizing ease of use on mobile apps.
4) A legal team working around the clock to lay the ground work for companies like Overstock and help guide the development team
5) A massive referral network / marketing campaign similar to how PayPal got bootstrapped.
6) A dozen exchanges / gateways facilitating bringing money into/out of BTSX while following all regulatory issues. 
       - each of these exchanges/gateways needs a team of people to integrate their systems with BTSX

Total cost of maintaining that kind of infrastructure?  At least $10 million per year for 10 years or $100 million dollars.

Do you really think a project can raise enough funding prior to having a proven / working base system and expect that funding to last for 10 years?
Do you really want a foundation to be sitting on 10 years worth of funding in advance?
Do you really want it to be forever centralized in the original developers / foundation with the initial funding?
Do you really want developers to be developing at a slower pace despite having funds today so they don't run out of funds in the future?

These are all the issues people must grapple with.   

I am working on a plan to keep BTSX up to date with the best possible software for 10+ years without adding dilution to BTSX.   But for new systems AGS/PTS holders benefit greatly from a larger initial allocation + dilution under their control rather than a smaller initial allocation with no control over how the 80% dilution they could face would be allocated.

First off, all of that sounds awesome and I appreciate the hard work and plan you are putting in place to avoid adding dilution to BTSX.

However to me, it seems DAC's can achieve it by setting aside as little as 10% of the initial shares.

Using BTSX CAP as an example. If 10% of shares were set aside (200 Million BTSX) and 25% are made available to spend the following year.

Then at the end of this year if BTSX was worth $200 million, there would be $5 million worth of shares (10%*0.25 = 50 million BTSX) available to spend in 2015 in addition to revenue.

At the end of 2015 if BTSX is $500 million. Then (7.5%*0.25=1.875%) there would be $9 million + revenue available to spend in 2016.

At the end of 2016 BTSX is $1 Billion. Now (5.6*0.25=1.4%) $14 million is available for year 3.

So to me it seems setting aside a small % of shares can achieve a similar result without having dilution.
(Even if that is kind of like pre-dilution, it's a big difference shareholders knowing it in advance and having a fixed initial share amount vs. constant dilution/inflation. Even though their may be occasional separate situations such as the one Stan described.)   

What I meant was that delegate's pay shouldn't dilute the DAC. Delegates should get percentage of fees. (An option is instead of burning the remainder of the fees to go to a fund controlled by shareholders).

Yeah I don't think delegates pay should dilute the DAC.

« Last Edit: September 29, 2014, 03:41:48 pm by Empirical1.1 »

Offline emski

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What I meant was that delegate's pay shouldn't dilute the DAC

A delegate with HIGH PAY doesn't just get to "keep it"... they are spending it on the DAC and only keeping a small part necessary to compensate them for their time.

So shareholders vote on delegates that in their turn dilute and "promise" to do something to increase the value of the DAC.

How is this better than "normal" delegates with the following addition:
Shareholders (or delegates) vote on dilution "offers" by 3rd parties.

EDIT: I like the proposal in the post above mine. I think it is sane approach. Delegates support the network by signing blocks. Other functions should be taken care of someone else.
« Last Edit: September 29, 2014, 03:29:25 pm by emski »

Offline arhag

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1) Delegates are already a trusted source and continually competing for the approval of "shareholders". 

The purpose of my proposal is to separate out the roles. The delegates are elected only for a specific role: keep the DAC functioning, include all valid transactions, and maintain consensus in the blockchain. They also have to maintain price feeds but that role can even be delegated to others if necessary in the future. With my proposal they would have one more role: publish and approve proposals to become available for shareholder ratification if the proposal seems to be a reasonable one that shareholders might approve. Every other role can be delegated to other entities who are specialized to handle that role.

2) Asking shareholders to consider 1001 individual proposals AND vote for 101 delegates would increase transaction sizes 10x because at a technical level, voting for a proposal and voting for a delegate are tied to shares not people and thus every transaction affects the votes / accounting. 

I am not sure what you are envisioning the implementation to be, but let me tell you how I envision it. There would be at most 4 active delegate proposals at any given time (Slot 0 to Slot 3). Any delegate could suggest a proposal for a given slot. If at least 51 delegates approve of the proposal, that proposal becomes up for consideration at the given slot (replacing any proposal already in that slot). If 51 delegates agree, they can also remove a proposal from a slot at any time.

Every transaction with BTSX stake as an output balance would have just 5 extra bytes attached to it. Four of those bytes would designate a block number N in the past. The signatures of the transaction would be modified to not sign the hash of the transaction but rather hash((transaction hash) concatenated with (block N hash)). For the transaction to be valid for inclusion in a block, the block N would have to be far enough in the past in the blockchain such that 51 unique active delegates have signed blocks adding on to the designated block (meaning the block can be as early as 8.5 minutes in the past). This is basically TaPOS. The fifth byte attached to the transaction consists of a sequence of four 2-bit flags. These flags refer to the respective proposals up for consideration in each of the four slots (if they existed) by the time of the block N. One of the bits of the 2-bit flag designates whether the transaction acknowledges the existence of the proposal in that slot. If it does, then the second bit of the 2-bit flag designates whether the stake is voting in approval or disapproval of the proposal.

This way, with just 5 extra bytes, it is possible for shareholders to vote yea or nay on any of the up to 4 active proposals. Having four proposals simultaneously can be useful, because some of the proposals may require a longer period of time to get the necessary votes before ratification. For example, a proposal changing the inflation caps may require majority approval. That proposal can sit in slot 0, even as other more urgent proposals get added in and ratified earlier (because they require less shareholder participation to get ratified).

3) If proposals should require X% of voter turn out and  X% is higher than the minimum delegate can achieve then that is a problem.  Delegates should be campaigning for high approval and increasing their pay when they are elected is a major way to do this.
4) It has already been pointed out that apathy is the default mode when "everything is ok".... but as soon as there is a threat suddenly everyone cares.  This will drive voter turnout for delegates and improve security.

I agree that low minimum delegate approval ratings are a problem. And maybe your proposal is a clever way to reduce voter apathy and scare shareholders into increasing the minimum delegate approval rating which in turn increases blockchain security. But what if it doesn't? Then like I already pointed out, we risk inflation even when only a relatively small percentage of the stake wants it. I think inflation rates are a very big deal that it should only be adjusted with majority shareholder agreement. And even if we got the minimum delegate approval above 50%, it still doesn't change the fact that this method is less agile than the proposal system. For example, there is no way to print a lump sum of inflated stake to pay for large unexpected expenses (for example legal expenses). And even for continuous slow inflation, it still requires the (in my opinion) inelegant hack of a delegate registering a new account to be voted in to replace the old delegate every time they want to adjust the inflation.

5) Allowing the delegates to approve spending bills like a congress is the "delegated approach", but this approach doesn't give shareholders a chance to review and grants many low-trust delegates (those only trusted to sign blocks) a blank check.   

I am not sure which system you are comparing to here. But it is certainly not the proposal I am making, since it requires shareholders to directly ratify any of the delegate's proposals with their votes before they become active. And what you are saying here actually supports my argument. People are voting for and trusting delegates for a very specific job. Why unnecessarily entangle another very important role (managing funds for development, marketing, legal, etc.) to their job requirements? Separate roles out to entities who are specialized to handle it.

Offline bytemaster

Quote
What I meant was that delegate's pay shouldn't dilute the DAC

A delegate with HIGH PAY doesn't just get to "keep it"... they are spending it on the DAC and only keeping a small part necessary to compensate them for their time. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline emski

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I agree with the examples. However the OP discussed delegate registration fees and not DAC dilution by shareholder voting.

DAC is a company, If shareholders vote on dilution => obviously it should be done.

What I meant was that delegate's pay shouldn't dilute the DAC. Delegates should get percentage of fees. (An option is instead of burning the remainder of the fees to go to a fund controlled by shareholders).

Offline Empirical1.1

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It certainly isn't merely about Delegate Pay Models but a rather sweeping proposal effecting the entire ecosystem structure.
*agreed* .. it's currently a little difficult for me to grasp all consequences of the proposal .. need to re-read that thread more some times

I have to read it more myself. I know like many I have some instant negative associations to inflation/dilution even when I don't understand the proposal.

Think of it this way:  One year after this DAC gets launched, it's growth and performance comes to the attention of a major music industry player who represents, say, 200 of the biggest names.   She agrees to bring her clients to the table in exchange for, say, 2% (or 20%) of the business.  In doing so, she doubles the value of the business overnight and sets it on a new accelerated growth path because all of their fans are now going to learn about BitShares Music in a real and viral way.

That sounds like a separate situation and while events like that could be VERY favourable,  they would only happen a couple of times in the life of a DAC though & can be voted on separately when they occur.

Offline bytemaster

Many have expressed the opinion that dilution should be avoided and that is the preferred solution.  It is always better to fund growth from profits rather than via dilution if you have enough profits to grow fast enough.

I am going to contend that dilution and spending from profits are the same thing.

1) Lets suppose that BTSX takes off and delegates are earning $10,000 per day
2) Lets suppose that the cost for running a node is $100 per day.

Under the no dilution argument $9900 per day should be paid to the shareholders rather than left to the discretion of the delegates because this will maximize shareholder value "today".   Spending this $9900 is diluting the shareholders by denying them a potential buyback. 

It all comes down to something fundamental that this analogy will explain:

If you are starting a road construction company and on day one you have enough money to hire a bunch of people with shovels then you can build 1 mile per day and earn $100.  It will require 4 years of operation to save enough to backhoes and bulldozers and once you have the backhoes and bulldozers you can build 100 miles per day and earn $20,000 per day. 

If the company had issued shares earlier to buy the bulldozers and backhoes in year 1 then the profits of the company would be significantly higher for the next 3 years. 

Companies that have a "no dilution clause" in the shareholders agreement cannot attract new capital to grow and thus the new capital flows to competitors which see the successful business model of the road building company with shovels and puts their money into a competitor.

So you can never stop dilution because if you don't dilute your own shares to raise capital the market will dilute your market share with competitors who issued shares in their own companies that are now competing with your company.

Take Bitcoin for example:  it is unable to fund more than a small team of developers paid for by DONATIONS which in turn centralize development decisions in the hands of those paying the bills.   In order to grow people have to build companies AROUND bitcoin but gain nothing from the value this adds to Bitcoin.   Thus as fast as the Bitcoin ecosystem appears to be growing it is very slow compared to what could be done if the money spent on mining were spent on providing payment infrastructure and adoption incentives.

Do you really think that BTSX can fund 10 years of development on a couple million dollars?   Here is what BTSX needs to grow to the Multi-Billion dollar network we all want to see:

1) A web development team of 10 people producing and maintain a web wallet.
2) A backend development team of 10 c++ developers producing countless tests, enhancing performance, and improving security.
3) A mobile app development team of 10 people focusing only on maximizing ease of use on mobile apps.
4) A legal team working around the clock to lay the ground work for companies like Overstock and help guide the development team
5) A massive referral network / marketing campaign similar to how PayPal got bootstrapped.
6) A dozen exchanges / gateways facilitating bringing money into/out of BTSX while following all regulatory issues. 
       - each of these exchanges/gateways needs a team of people to integrate their systems with BTSX

Total cost of maintaining that kind of infrastructure?  At least $10 million per year for 10 years or $100 million dollars.

Do you really think a project can raise enough funding prior to having a proven / working base system and expect that funding to last for 10 years?
Do you really want a foundation to be sitting on 10 years worth of funding in advance?
Do you really want it to be forever centralized in the original developers / foundation with the initial funding?
Do you really want developers to be developing at a slower pace despite having funds today so they don't run out of funds in the future?

These are all the issues people must grapple with.   

I am working on a plan to keep BTSX up to date with the best possible software for 10+ years without adding dilution to BTSX.   But for new systems AGS/PTS holders benefit greatly from a larger initial allocation + dilution under their control rather than a smaller initial allocation with no control over how the 80% dilution they could face would be allocated.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline CLains

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So what will our dear Toast do?

Offline xeroc

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It certainly isn't merely about Delegate Pay Models but a rather sweeping proposal effecting the entire ecosystem structure.
*agreed* .. it's currently a little difficult for me to grasp all consequences of the proposal .. need to re-read that thread more some times

Offline blahblah7up

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Shouldn't this thread have a different title to attract a more general open discussion?

It certainly isn't merely about Delegate Pay Models but a rather sweeping proposal effecting the entire ecosystem structure.

Offline bytemaster

Thanks for all of the feedback but I think there are a lot of misplaced concerns:

1) Delegates are already a trusted source and continually competing for the approval of "shareholders". 
2) Asking shareholders to consider 1001 individual proposals AND vote for 101 delegates would increase transaction sizes 10x because at a technical level, voting for a proposal and voting for a delegate are tied to shares not people and thus every transaction affects the votes / accounting. 
3) If proposals should require X% of voter turn out and  X% is higher than the minimum delegate can achieve then that is a problem.  Delegates should be campaigning for high approval and increasing their pay when they are elected is a major way to do this.
4) It has already been pointed out that apathy is the default mode when "everything is ok".... but as soon as there is a threat suddenly everyone cares.  This will drive voter turnout for delegates and improve security.
5) Allowing the delegates to approve spending bills like a congress is the "delegated approach", but this approach doesn't give shareholders a chance to review and grants many low-trust delegates (those only trusted to sign blocks) a blank check.   

So the question remains does this "hurt" initial owners?  That depends entirely on how the initial owners "vote" and thus the problem with all voting systems.

1) Voting for charity delegates harms the network (giving away capital with only minimal PR in return)
2) Voting for kickback delegates harms the network (transferring capital from some shareholders to others while producing now value)
3) Voting for high-paid lazy delegates harms the network (giving away capital with minimal work in return)

All of the above can be easily dealt detected and most shareholders will not vote for these kinds of people. 

If they do then there is still one option that remains:
1) Delegates have the option to ignore blocks produced by other delegates, even in BTSX.   This means that the majority of delegates can run on a platform of ignoring blocks produced by kickback delegates or excessive charity delegates or excessively high pay without broad shareholder approval. 

2) By combining delegate pay with funding you require delegates to produce blocks and thus by default the blocks approved must be accepted by the other delegates.   If someone "came from nowhere" and voted themselves a "high pay" position with no public discussion about it then this "delegate" would be seen as a threat.   The other delegates would have an obligation to "black list" their blocks to maintain their own approval.

So the question becomes what is the "break even ratio" and "how fast can the network respond" to said delegate getting elected.   28 hours may not be enough, but 7 days should be enough.  During those 7 days the network has the following options:

1) Increase approval of other delegates to vote him out.
2) Delegates can vote to "black list" the delegate if it is too extreme.
3) Clients can configure their nodes not to "relay" the delegates blocks.
4) The maintainers can "hard-fork" the attacking delegate (and their stake) out of the chain

So there are processes in place with increasing levels of difficulty to deal with a "hostile takeover" by a minority shareholder.

Obviously shared ownership and democratic systems are fundamentally subject to the "group trap" and all the ills and rent seeking that go with it.

My next post will deal with the need for this approach.


For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Stan

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The more I think about this proposal the more backwards it seems.  Please convince me otherwise, though.

It actually removes incentive to participate in the initial stages of a project when the most work needs to be done.  To quote from cob's cross post announcing the same novelty for his new Music DAC:

"As the DAC matures, dilution will be less and less necessary, until it becomes a thing of the past."

Imagine I am a web designer and will be payed in the Music DAC's "Notes" (the currency) to make the DAC's first website.  500 Notes is the price. Why would I accept this job offer if I know that in a years time dilution will rapidly negatively affect the value of labor I invested?  Wouldn't I much rather avoid new projects and only participate in those which have established themselves where the currency is less inflationary?

This always happens when early investors look at later investors as competition rather than partners that are joining them.  While the early investors took more risk (compensated in the greater room for growth they might experience), the new investors are performing the same function as the old investors - their contribution just comes in at a later time when they presumably get fewer shares for the same amount of value they create.

Think of it this way:  One year after this DAC gets launched, it's growth and performance comes to the attention of a major music industry player who represents, say, 200 of the biggest names.   She agrees to bring her clients to the table in exchange for, say, 2% (or 20%) of the business.  In doing so, she doubles the value of the business overnight and sets it on a new accelerated growth path because all of their fans are now going to learn about BitShares Music in a real and viral way.

Clearly this is a no-brainer deal that wise shareholders should snap up.  But this opportunity is seldom available at startup.  It comes after the new company has proven itself to the point where other sources of horsepower want to participate.

So almost all startups follow this path.  Release some shares in the beginning to raise startup capital and more shares later when the company is able to attract more value per share released.

This new approach simply recognizes that it is crazy to sell all your shares early when their value is low.  Instead, build that value and reserve the right to sell more shares later when your company has proven itself. 

Naturally, every such decision has to weigh the expected growth of value against the size of the dilution.  Every time that ratio is significantly greater than one, it's a good deal for everybody.  You will know such deals when you see them.

Above all, you don't want to have your DAC hobbled by a Social Consensus that precludes such a smart move when the opportunity presents itself. 

And yes, it is kryptonite - but not the green kind.  This is platinum kryptonite - it enhances a company's super powers.   :)

« Last Edit: September 29, 2014, 02:36:05 pm by Stan »
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline emski

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I also think any dilution should be avoided.

Offline Empirical1.1

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In general I personally think any dilution/inflation beyond that clearly laid out in the initial business plan will be cryptonite to a DAC for the next 18 months.

(Until DAC's and the delegate systems around them are far more established, developed and understood any inflation/dilution will be incredibly unpopular imo.)
« Last Edit: September 29, 2014, 02:03:21 pm by Empirical1.1 »

Offline blahblah7up

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The more I think about this proposal the more backwards it seems.  Please convince me otherwise, though.

It actually removes incentive to participate in the initial stages of a project when the most work needs to be done.  To quote from cob's cross post announcing the same novelty for his new Music DAC:

"As the DAC matures, dilution will be less and less necessary, until it becomes a thing of the past."

Imagine I am a web designer and will be payed in the Music DAC's "Notes" (the currency) to make the DAC's first website.  500 Notes is the price. Why would I accept this job offer if I know that in a years time dilution will rapidly negatively affect the value of labor I invested?  Wouldn't I much rather avoid new projects and only participate in those which have established themselves where the currency is less inflationary?