Welcome!

1. Introduction

This is a decision proposal to increase the proposal system’s spending limit (i.e., its flexibility) and incentivize increasing the value of funded proposals (i.e., its efficiency). Similar to the visual identity / rebranding proposal from 2018, two proposals are being submitted for evaluation. These two proposals are mutually exclusive; only one may be implemented. Further detail about the voting process is found in the next section.

In preparing for this proposal, two alternatives emerged with enough interest and support for network-wide consideration. One option originated from Dash Core Group (DCG), the other from a group of masternode owner/operators (MNOs). The Dash trust protectors (TPs) are submitting both proposal options as a neutral third party. Apart from the proposal submission itself, individual TPs may choose to express their personal opinions non-neutrally.

The primary objective of both proposal system upgrade options is to provide the network with greater flexibility over proposal spending, while better aligning MNO incentives to avoid spending network resources on low-value proposals. The options differ in their approach and the resulting implications. The differences will be detailed in subsequent sections.

After this introduction, and the proposal process section that follows, further details about the background will be presented. These three sections, as well as the appendix at the end are identical in each of the two proposals, so you will only need to read these sections once. The only section that differentiates the two proposals is section 4.

Cross-reference links for each proposal:
[DCG Plan] - 
https://app.dashnexus.org/proposals/decision-vote-improve-proposal-system-dcg-plan/overview
https://www.dashcentral.org/p/decision-vote-improve-proposal-system-dc
[MNO Plan] - 
https://app.dashnexus.org/proposals/decision-vote-improve-proposal-system-mno-plan/overview
https://www.dashcentral.org/p/decision-vote-improve-proposal-system-mn

Link to Dash Forum proposal discussion thread -
https://www.dash.org/forum/threads/decision-proposal-increase-proposal-system-flexibility-efficiency.50873/

2. Process

The voting and proposal process consists of two phases:

• Phase 1 - the two proposal options are evaluated against each other
• Phase 2 - the favored option from Phase 1 is evaluated against our current system

In Phase 1 (this phase, this month) you are asked to vote for which option you prefer. Regardless of degree, the option with the most net (yes minus no) votes will proceed to the next phase (next month). DCG will implement the Phase 2 upgrade option if it exceeds the normal 10% net vote criterion in Phase 2. In the unlikely event the higher ranked proposal exceeds the 10% net yes votes during Phase 1, Phase 2 would not be necessary.

Edit for clarity: "net vote" means "yes" votes minus "no" votes.

In an effort to reduce the need to post and respond to comments and discussions in both proposals, we have created a Dash Forum thread we hope the community will leverage, particularly for any debate and comparisons. If you have comments or questions specifically related to one proposal, those could be posted on the Dash Central / Dash Nexus proposal itself. This will help reduce the workload for the proposal owners (POs) and others that would otherwise need to reply to the same comments in multiple locations.

3. Background

Dash Core Group identified several issues with network economics and incentives, and presented its initial findings in December 2019 at DCG’s Open House, available to view as a presentation titled “Improving Dash as a Store of Value”.

The presentation explored a number of unique attributes of the Dash network’s incentives and economics, and presented a hypothesis regarding the impact those attributes have had on Dash’s market performance and long-term price volatility.

These issues were addressed partially through an independent, but related proposal (passed in the July voting cycle), which approved a reallocation of the block subsidy. The changes were incorporated into v0.16 of Dash Core, which was released to mainnet on September 30, 2020. That proposal did not address any changes to the proposal system itself. Proposal system upgrades are the subject of this proposal.

Dash’s current proposal system allocates up to a fixed 10% of the block subsidy toward proposals on a cycle of 16,616 blocks, which approximates one calendar month in duration, through a “superblock”. Proposal funding is dispersed in a coinbase transaction to the address specified in the proposal if the proposal receives enough support from the MNOs. The proposal system prioritizes payment to the highest ranking proposals until the available funding is exhausted for each superblock, subject to the constraint that each proposal must reach 10% “net votes”. Proposals meeting these criteria are funded with newly created Dash. More information on the functioning of the current system is found in the governance section of the Dash documentation.

While this system has been effective at funding Dash’s development, there are several issues and concerns that emerged over the years. The current proposal system lacks incentives for MNOs to focus on value-creating proposals, resulting in approval of high-cost proposals that deliver limited long-term value. In addition, MNOs lacked the flexibility to increase proposal funding beyond 10%, potentially forcing valued teams to disband due to even temporary price declines.

The root-causes of these issues are as follows:

1. There is no personal and immediate cost for MNOs to approve low-value proposals, as it has no impact on their Dash-denominated rewards.
2. The monthly budget is relatively small and has no ability to increase capacity if needed for large proposals or to accommodate price declines.

Community discussions revealed support for expanding the budget, maintaining a proposal cap, and introducing incentives for MNOs to restrain spending. Both decision proposals carry these features, but differ in the approach and specific effects on miners, masternodes, and proposal owners.

4. MNO Plan

This proposal is sponsored/paid by a group of MNOs: @Rion, @hilawe, @TroyDASH, @xkcd, @unchained, @MastermIned, @macrochip, @MoKa, @kanuuker, @Bridgewater, @Sequal, Anonymous1, and Anonymous2. The plan represents the preference of a larger group of MNOs who made up the majority of respondents to a 4-question poll conducted by Ryan Taylor on July 4th, 2020 on the Dash Talk Discord #mno channel.

Like DCG, we propose to increase the proposal system limit from 10% to 20% and allocate unused proposal funds instead of not creating them. Our plans differ in how unused proposal funds are allocated. DCG’s plan proposes a fixed 60/40 MNO/mining allocation ratio, regardless of proposal funding. This results in variable MNO allocation and variable mining allocation. Conversely, our plan maintains a mining reward that is fixed with respect to proposal funding. This results in only a variable MNO allocation (see Table 1 below). Further details regarding guiding principles, proposed changes, benefits/rationale, and risk management are provided in later sections. 

The remainder of this section is background regarding the poll mentioned above, given for those who aren’t active members of that particular Discord channel.

This proposal addresses questions 1-3, which deal with proposal funding and MNO/miner reward allocations. Question 4 (which dealt with timing) has effectively been decided by the recently approved reallocation proposal.  

Note in the following figures (Discord screenshots) that Ryan Taylor (@babygiraffe) voted for each poll option of all questions, in order to give MNOs options to click.

Question 1 showed that a clear majority of voting MNOs preferred “proposal funding [to] increase or decrease the amount of block subsidy rewards allocated to masternodes only”, as follows:


Figure 1 - Poll question 1

Question 2 showed that a clear majority of voting MNOs preferred the final state mining reward allocation to be a fixed 35%, as follows:


Figure 2 - Poll question 2

Question 3 showed more evenly distributed voting regarding proposal system limits, as follows:


Figure 3 - Poll question 3

Regarding proposal funding limits (question 3), we propose a 20% limit (same as DCG), which roughly aligns with the median preferred amount from the poll. Regarding the reallocation strategy (question 1) and the prefered mining allocation (question 2), polled MNOs gave a strong preference, with the winning option in each case garnering more votes than all other options combined. DCG’s proposal does not represent these preferences, which should be presented to all MNOs as an option, hence this proposal.

4.1 Guiding Principles

Our plan is guided by the following principles:

1. The purpose of mining is security and coin distribution. Any funding allocated to mining in excess of security needs and/or which doesn’t distribute coins in a desirable manner is wasteful, lowering overall security by reducing non-mining security.
2. The purpose of masternodes is security, coin distribution, interest-bearing savings, incentivized service provision, and a means to assess value. MNOs have the most at stake in Dash; decisions regarding what constitutes value (and values), and the best way to achieve such should be in their hands.
3. The purpose of the proposal system is security, coin distribution, and value creation. Proposal owners (POs) create value when the benefits of their work outweigh its costs. Currently, MNOs experience no immediate, personal costs when funding proposals, so it is easy to fund low-value proposals. The proposal system will create more value with MNOs funding proposals from their own pockets.

MNOs define value, POs create value, and miners secure value.  

Each group provides an important form of security and coin distribution. Miners primarily secure against one form of computational attack, i.e. the 51% attack. MNOs and POs (which can both be simply considered “users”, particularly when trustless masternode shares arrive) secure against social attacks more broadly, e.g. government crackdowns. Users protect the things that provide them value; the more users and value we have, the more security we have. Dash can gain more users through interest-bearing savings (MNOs/savers) and general-purpose value creation (POs/workforce) than through mining. Overpaying for mining security may compromise other forms of security and coin distribution. Therefore, it makes sense to increase incentives for MNOs and the proposal system.

4.2 Proposed Changes

We propose the following changes to the proposal system:

1. Increase the proposal system limit from the current 10% of the total monthly block subsidy to 20%. No changes to the proposal approval process would be made, including the minimum net-vote threshold.
2. Keep the mining reward allocation fixed with respect to month-to-month proposal funding, as it always has been. Transition to a lower fixed allocation over the next ~4.5 years (the same transition period as the reallocation proposal). The fixed mining transition schedule should match DCG’s proposed transition schedule at 10% superblock funding (see the reallocation schedule in the Appendix, or the live version for details).  
3. Allocate any unused block subsidy associated with a given superblock’s funding limit toward masternodes.

The following table presents the 2025 end-state allocations (after the transition period described above) for miners and masternodes resulting from an array of hypothetical superblock funding levels (0%-20%). For convenience, we present the allocations resulting from both our plan and DCG’s plan.


Table 1 - 2025 End State Allocations

4.3 Benefits and Rationale

As the table above shows, both proposals increase the capacity of the proposal system (superblock) to 20% of total block rewards, up from the current 10%.

The fundamental difference between the two upgrade plans is whether the mining allocation is fixed or variable with respect to proposal funding. Like the existing system, the MNO plan maintains a fixed mining allocation. We propose a 36% 2025 end state. This aligns with DCG’s plan and for the allocation ratio to be 60/40 at 10% funding, as called for by the recently-passed reallocation proposal.  

A secondary difference between plans is that the MNO plan places 100% of the ‘variability’ onto MNOs. This is appropriate since MNOs carry 100% of the proposal-funding responsibility. Under our plan, the MNO allocation varies between 44% and 64%. DCG’s plan results in a lower MNO variability by shifting part of the variability to miners. That makes the mining allocation unpredictable from month to month.

The goal of making MNO allocation dependent on proposal funding is to increase the value of funded proposals. Currently there is no personal and immediate cost for MNOs to fund proposals. A consequence of this proposed change is that MNO rewards increase with judicious proposal funding.  

As shown in Table 1, for proposal funding <10%, the MNO plan provides a higher MNO allocation as compared to both the existing system and DCG’s plan. For proposal funding >10%, the MNO plan yields a lower MNO allocation than DCG’s plan, but higher than the existing system up to 19% proposal funding where it breaks even with the current 45% MNO allocation.

Note that in both plans, no portion of the block subsidy goes unused. This provides certainty over Dash’s projected supply, and it increases the overall amount of outstanding Dash compared to the status quo where superblock outlays are always less than 10% (even if by a small amount). If the extra Dash goes to MNOs who either hold or reinvest it into masternodes, this would raise Dash’s market capitalization. Conversely, extra Dash rewarded to miners who place market sell orders on public exchanges tends to reduce the price of Dash, partially or fully offsetting potential market capitalization gains.

4.4 Risk Management

We believe this plan is low risk. In this section we briefly discuss the economic and security risks, and those posed by migration and implementation of the plan.

4.4.1 Economic risks 

The main economic risk we see in this plan is that it may not go far enough in maximizing proposal value. As stated above, the problem with the existing system is that MNOs bear no personal immediate cost for funding proposals; funded proposals are essentially paid 100% by ‘other people’, i.e. the costs are socialized. Even with our proposed improvement, proposal cost will be socialized by up to 99.98%.  

An example to illustrate this: Consider an MNO who operates one node and a Dash network of 5,000 nodes. Now assume this MNO plan proposal has been implemented. When this MNO votes he only bears 1/5000th of the actual cost. In other words the proposal is paid by 99.98% (4999/5000) other people’s money. This makes it relatively easy to still justify funding low-value proposals. Proposal funding from even our largest whales with 100 nodes is 98% (4900/5000) socialized.

The following table presents the costs that a single-node MNO would pay for various proposals/scenarios, showing that funding costs are low, even for our plan in the most extreme scenario:


Table 2 - MNO Proposal Funding Costs

Necessary and valuable proposals are not at risk. They will continue to be funded. The incremental cost (between DCG’s plan and our MNO plan) is minimal. Even the most extreme case where an individual MNO wants to fund the entire expanded 20% proposal system, it would only cost him $45 more under our plan as compared to DCG’s (lower-right field of Table 2). Typical funding decisions (like a 100 DASH proposal) have a $0.56 incremental cost. This is all to say that only marginally valuable proposals are at risk.

Another risk: MNO reward variability could impact the decisions of current and prospective MNOs, potentially affecting the number of masternodes that are enabled on the network. Periods of lower rewards may discourage masternode operation, whereas periods of higher rewards may further incentivize masternode creation. We believe the risk to the network here is low. The masternode count in Dash has remained robust despite a turbulent market and the price of Dash having declined 95% from its all-time high.


Figure 4 - Active masternodes (source: [i]http://178.254.23.111/~pub/Dash/Dash_Info.html[/i])

Any decreases in the masternode count will naturally increase the rewards for the remaining masternodes, mitigating the effect of any extra buying or selling of collateral.

4.4.2 Security risks

This plan proposes a fixed mining allocation, which has a long history of working securely. Specifically, this plan places the minimum allowable mining allocation at 36%. If DCG is comfortable with a minimal 32% mining allocation, we are comfortable with a fixed 36% allocation.

4.4.3 Migration risks

Migration refers to the process of miners adopting changes implemented and activated through a hard fork. Both plans (DCG’s and ours) will require a hard fork. Miner support is required. There is a risk with both plans that miner support may not reach the threshold required to safely activate the changes on the network. Technically, this isn’t a “risk”; it’s giving miners their due voice in the adoption process. Miners need to be persuaded that adopting the proposed changes is in their interest. We believe it is.

At a hypothetical 10% proposal allocation, both plans have a 36% mining allocation. Proposal funding >10% yields a higher allocation to miners under our plan than DCG’s (see Table 1 above). If miners only want a higher allocation they just have to ask themselves whether they expect more or less than 10% proposal funding. In trying to predict this, one should consider that there are two “forces” pulling in opposite directions, and it’s uncertain which force will dominate.

The force that might cause MNOs to increase spending to >10% is the psychological urge to treat the limit as a target (“let’s use as much as we can”). In either plan, the proposal limit will be raised to 20%, so spending above 10% becomes possible. MNOs will be getting a higher allocation compared to the existing plan all the way up to 19% (see Table 1 above - our plan yields 45% to MNOs at 19% proposal funding), so if this force dominates we’ll likely see >10% funding.

The force that might cause MNOs to decrease (or maintain) spending <10% is that in both plans MNOs will have a slightly higher personal cost to funding proposals. But as pointed out above, even in our plan proposals are paid by up to 99.98% ‘other people’s money’ from the perspective of the individual. It’s still easy to spend, so this force seems relatively weak.

Consider also that DCG typically claims 6% of total block rewards (60% of 10%), making that the effective floor. Miners will only get a higher allocation under DCG’s plan if MNOs keep non-DCG funding to less than 4% of the total block reward, and we typically spend ~3% on non-DCG funding already.

In the pessimistic view where miners don’t like either plan, they should ask themselves whether they prefer the devil they know (a predictable 36%) or the devil they don’t (a variable rate as low as 32%). We have precedent that miners have accepted pay reductions to lower, but still fixed, predictable levels. For example, when they accepted a reduction from 100% to 50% allocation to accommodate masternodes, and from 50% to 45% to accommodate the proposal system. We have never asked miners to accept a variable rate, let alone one over which they have no control. From both historical precedent and the interests of miners, this plan seems to be more likely to be adopted by miners than the alternative.

4.4.4 Implementation risks

The required changes to the proposal system should be relatively straightforward from a coding perspective, and we have full faith that DCG can implement either plan.

4.5 Summary

This proposal is effective, conservative, and safe.  

• It is effective in that it increases the value of funded proposals while offering MNOs an increased ROI to compensate for yearly reward reductions and increasingly attractive alternative risk-adjusted returns outside of Dash.
• It is conservative in that it maintains Dash’s historical mining economics, i.e. it gives miners a reliable, fixed allocation not subject to monthly superblock funding decisions by MNOs.
• It is safe in that the associated economic, security, implementation, and migration risks are minimal.

5. Appendix

DCG introduced the idea of “Improving Dash as a Store of Value” on December 11, 2019. DCG then engaged in a series of Q&A and discussions held through various communication channels such as Discord, The Dash Forum, Zoom and Telegram from June-July 2020. The following links document these interactions, as well as other relevant information:

• Dash Economics Community Discussion Forum 
• Ryan Taylor - Improving Dash As A Store Of Value - December 11, 2019
• Dash Core Group Presentation on Dash Economics - June 4, 2020
• Store of Value Community AMAs - June 2020
• Joel Valenzuela interviews Ryan Taylor about Dash "tokenomics" - June 5, 2020

Related Discord polls:

• Poll 1 in Discord #general channel - June 5, 2020
• Poll 2 in Discord #mno channel - June 26, 2020 
• Poll 3 in Discord #mno channel - July 4, 2020
• Poll 4 in Discord #mno channel - July 8, 2020
• ABJ interviews RT about block reward allocation (timestamped) - July 16, 2020
• DCG Q2 2020 Summary Call Q&A on upcoming proposal (timestamped) - July 23, 2020
• Block reward reallocation proposal (Dash Central) - July 2020
• Block reward reallocation proposal (Dash Nexus) - July 2020
• Joel Valenzuela interviews Rion and Hilawe on Economic Incentives in Governance - October 9, 2020
• Google Sheets model showing two proposal system improvement options side by side

Side by side decision proposal example from 2018 - Visual Dash Rebrand / Logo proposals (process reference):

• Pre-Proposal - Visual Identity - March 2018
• Core Branding - Ogilvy & Mather - March 2018
• Core Branding - Tharp & Clark - March 2018
• Core Branding - Final Approval - Tharp & Clark - April 2018