Alice: Defending Cardano Staking Ecosystem

Stakeboard will foster trust in staking by disarming malicious Stakepool Operators (SPOs) and frauds posing as SPOs and Cardano projects.

Staking-Related Scams Erode Decentralization:

The security of Cardano’s delegated proof-of-stake consensus fundamentally depends upon delegators staking across a broad distribution of stakepools. If trust in a great number of stakepools is eroded or destroyed by a general lack of trust in Cardano’s staking landscape, and delegations concentrate more and more in a small number of trusted pools, the ability and incentive for remaining trusted pools to attack the network increases. And if such a trend towards centralization were to continue unabated, Cardano participants would (knowingly or not) be entrusting the security of the network to a small number of stakeholders who may be able to selfishly benefit from an attack on the system.

People will doubtless point out Cardano’s prodigious number of more than 2,000 stakepools as proof we’re nowhere near this potentially disastrous scenario. But currently an estimated 11% of staked ADA is being staked on Binance Exchange alone. And more than 50% of all delegated ADA is currently delegated to just 25 multi-pool owners operating in a handful of countries. So while few (if any) of us believe the Cardano network is in imminent risk of attack, we at Stakeboard still believe trust in a broad array of globally distributed Stakepool Operators (SPOs) needs to remain front and center in the Cardano community’s list of priorities: As Cardano’s decentralized applications (dApps) come to change the world, increasing pressure to weaken and destroy Cardano will come from the outside, so we must remember the incredible things built on Cardano are only as stable and strong as the consensus mechanism underlying them.

Moreover, because our central mission at Stakeboard is to promote transparency, trust and decentralization in staking, we see what bad actors on Cardano are already doing to undermine these principles: Imposter stakepool operators spinning up fraudulent pools to impersonate trusted SPOs and development teams; scammers posing as SPOs on fraudulent social accounts; SPOs creating pools to mimic pools participating in Initial Stakepool Offerings (ISOs).

Our team is already building tools and protocols to disarm these threats as they emerge. For example, in mid-November, a bot named Alice, developed by Stakeboard’s engineers, immediately spotted the launch of several suspicious, 100% margin stakepools bearing the names of prominent Cardano projects[1]. Among these were Hosky[2] and Nami Wallet[3], so our team reached out to the founders of these projects, asking them if the new Stakepools were associated with their projects. They let us know they were in no way associated with the pools, and their subsequent Tweets to their communities elicited tens of thousands of impressions.

This alert from Alice likely saved unwitting delegators from losing a large amount of block rewards to scam stakepools, and may have also stifled further operations of the bad actors that launched these pools. We know fraudulent stakepools can have serious consequences: The scam pools mimicking Meld’s Initial Stakepool Offering (ISO) stakepools were able to siphon off tens of thousands of ADA from the Meld ISO. And attacks that successfully exploit the good will of Cardano delegators not only lead to centralization and fuel the growth of parasitic business models within Cardano’s staking landscape. They could also be used by powerful adversaries to sew FUD and mount more systematic and systemic DDot attacks. For these reasons, our team at Stakeboard is obsessed with achieving our core mission: Fostering the growth of transparency and trust in Cardano’s staking community, and increasingly Cardano’s decentralization as a result.

Stakeboard: A Social Staking Marketplace

Truth is not just the absence of falsehood. Experiencing the “truth” is having something true confront you in its authenticity. And that being said, one of the biggest things lacking in the current Cardano staking landscape is a marketplace where all honest Stakepool Operators (SPOs) can stand on an equal footing to present their unique value propositions to the delegator community.

Stakeboard will provide this fair marketplace for SPOs — a place where delegators can view and stake to any stakepool on Cardano. At the same time, Stakeboard will fostering the growth and distribution of trust in the Cardano staking landscape via some key tools and protocols:

Stakepool Verification — the Basis of Trust:

The Stakeboard team has identified a reliable way of verifying stakepool ownership: Thanks to CIP (Cardano Improvement Proposal)-022, SPOs can prove ownership of their stakepools by proving possession of their special, private keys which stakepools use to sign blocks they’ve verified on the blockchain. And they can do this without actually sharing these private keys with Stakeboard or anyone else. This smart innovation is the cornerstone of the trust our team means to build on Stakeboard, because you can’t even begin to build trust in a marketplace unless you know for a fact the vendors own what they’re selling. On Stakeboard, only when a SPO verifies their ownership of their pool (or pools) will they be able to create a profile for their pool — effectively bringing it to market. And by virtue of this filter, users will at least be able to know on Stakeboard that the value propositions, the social accounts, the stakepool website url, etc., are coming from the legitimate owner of the stakepool they’re researching.

Trust, but Verify:

Stakeboard can verify with a high level of assurance whether or not an individual claiming to own a stakepool actually owns it. But just because a SPO goes through this basic verification process, doesn’t mean they won’t behave maliciously or fraudulently. For example, a true owner of a stakepool might nonetheless falsely claim association with a prominent Cardano project or person. As described above, this is already happening to a growing degree, so our team has devised a protocol by which we can look at a number of on-chain and off-chain metrics to determine with pretty high assurance if these kinds of association claims being made by SPOs are legitimate or fraudulent.

Similarly, a malicious SPO could make other false claims to attract delegators. For example, an SPO could falsely claim their stakepool runs on renewable energy, or that they donate some of their profits to charity. And while the Stakeboard team will not independently verify these specific claims, Stakeboard will encourage a culture of “trust, but verify” in staking, and provide our users with the tools they need to do their own research: If a delegator is uncertain about whether a stakepool’s specific claims are true, then Stakeboard’s messaging application enables them to ask the SPO for supportive documentation. And Stakeboard will provide verified stakepools with the ability to upload documents to their profile that evidence the truth of their value propositions.

Education:

Besides the above kinds of scenarios, there’s another kind of situation where the trust of delegators in promoting decentralization is be eroded: Delegators who don’t understand the metrics that govern block rewards often have unreasonable expectations of what kinds of rewards they should receive as delegators, and they frequently become frustrated with the experience of staking directly to a smaller stakepool.

For example, a delegator accustomed to gaining a regular yield on a CEX may not understand that staking to a lower saturation stakepool will likely result in more sporadic, uneven delegation rewards that nonetheless equal roughly the same percentage yield over the long term. Such a delegator will have unreasonable expectations about the kind of rewards they should receive each epoch, and may go back to staking on a CEX after a couple epochs of not receiving any block rewards. They’ll likely become convinced there’s something “wrong” with their choice of stakepools, and become intimidated.

In this case, and all cases involving less savvy delegators, a critical component of furthering decentralization is education about what different stakepool metrics mean. For this reason, our team at Stakeboard not only plans to provide delegators with the stakepool metrics they should in staking. And we don’t just want to post blog entries about what various staking metrics mean, in hopes that Stakeboard users will read and remember them. We plan to take education one step further by incorporating it into the platform — embedding it seamlessly into the stakepool search, research and staking process. The goal is to always have educational info one click away, right where it’s relevant, as users do things on Stakeboard, but to also make the presence of this info unobtrusive to users who don’t need it.

Alice, the Staking Detective:

There’s one more common scenario where bad actors and a lack of transparency in the staking landscape can erode confidence in decentralization: Malicious, or otherwise unprincipled SPOs sometimes make changes to their stakepool metrics (most commonly to their pledge and/or margin) which negatively impact their delegators’ block rewards. At times, there are legitimate reasons why a SPO would change these metrics, and a great feature of Stakeboard is that it enables SPO’s to notify their delegators of important updates (like their need to change pool parameters and why they need to do so). But in many cases, changes SPOs make seem to be aimed at exploiting or gaming their delegators to obtain a greater share of block rewards.

In any case, at Stakeboard we believe delegators should be kept informed about any changes made to the stakepools they’re delegated to. Moreover, we believe one reason why delegations are relatively concentrated in larger, more established stakepools and on centralized exchanges is the vast majority of delegators can’t closely monitor their staking positions. And this is one of the main reasons why we created Alice. In addition to sending out alerts about the creation of potential scam stakepools, Alice scans Cardano for a variety of questionable and suspicious SPO actions that could negatively impact delegator rewards. And with the launch of Stakeboard, Cardano delegates will be able to opt into email notifications from Alice that alert them about any questionable or suspicions taken by stakepools they’re delegating to.

Roadmap:

Summing Up …

At Stakeboard, we’re currently working on tools and features to …

  • Verify individuals own the stakepools they claim to own;
  • Disarm would-be scammers from being able to use fake websites and social accounts to defraud Cardano users;
  • Provide Cardano users with the tools they need to determine the whether SPO claims are true;
  • Prevent delegators from falling victim to fraudulent SPOs impersonating trusted SPOs, Cardano projects and people;
  • Protect delegators from having their rewards siphoned off by unprincipled SPOs;
  • Educate the Cardano community about the value propositions small stakepools are offering, and all the aspects and dimensions of staking on Cardano.

By addressing these key areas where disinformation can and is undermining trust in Cardano’s staking landscape, we hope to play a valued role in furthering Cardano’s decentralization and securing its consensus protocol far into the future. That said, we hope you’ll trust us enough to join us on our journey and support us in our mission.

This proposal can be found on Ideascale through the following link:
https://cardano.ideascale.com/a/dtd/Defending-Cardano-Staking-Ecosystem/384952-48088

Related Proposals

If you want to lean more about Stakeboard and the other features we are building, check out the following proposals:

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