Reward Schemes and Committee Sizes in Proof of Stake Governance

TL;DR

This paper models blockchain governance with delegated voting, analyzing how reward schemes and committee sizes influence the likelihood of correct decision-making, offering insights for designing effective PoS governance mechanisms.

Contribution

It introduces a game-theoretic model for delegated voting with effort-based voting accuracy, optimizing reward schemes and committee sizes for better governance outcomes.

Findings

Optimal committee sizes depend on the reward budget and effort costs.

Reward schemes significantly influence DReps' effort and voting accuracy.

Design guidelines for effective PoS governance mechanisms are provided.

Abstract

In this paper, we investigate the impact of reward schemes and committee sizes motivated by governance systems over blockchain communities. We introduce a model for elections with a binary outcome space where there is a ground truth (i.e., a "correct" outcome), and where stakeholders can only choose to delegate their voting power to a set of delegation representatives (DReps). Moreover, the effort (cost) invested by each DRep positively influences both (i) her ability to vote correctly and (ii) the total delegation that she attracts, thereby increasing her voting power. This model constitutes the natural counterpart of delegated proof-of-stake (PoS) protocols, where delegated stakes are used to elect the block builders. As a way to motivate the representatives to exert effort, a reward scheme can be used based on the delegation attracted by each DRep. We analyze both the game-theoretic aspects and the optimization counterpart of this model. Our primary focus is on selecting a committee that maximizes the probability of reaching the correct outcome, given a fixed monetary budget allocated for rewarding the delegates. Our findings provide insights into the design of effective reward mechanisms and optimal committee structures (i.e., how many DReps are enough) in these PoS-like governance systems.