Concerns Related to NNS Participation
A follow up to the recent Medium article and Dfinity forum post
By: Wenzel Bartlett, Kyle Langham and Alex Mucalov
This article is a follow up to this week’s earlier article (The Current State of Governance of the Internet Computer) in order to provide more context to some concerns over the current structure of the NNS. These concerns were presented in broad terms in the previous article to allow room to discuss a solution through an NNS proposal. To partake in the community discussion around these concerns and the proposed proposal, visit the Dfinity forum. Please see the Medium article above in order to understand the data methodology and limitations of this analysis.
Concern 1: The NNS is bleeding participation
Currently, 49% of the total supply of ICP is in non-dissolved neurons on the NNS, including both dissolving and non-dissolving neurons. This number was 51% in June, showing a declining participation of available ICP in the governance of the Internet Computer. The cause of this decrease is both (a) a large number of neurons dissolving each month, almost exclusively genesis neurons, and (b) an insufficient number of new ICP coming on to the NNS. Figure 1 shows the amount of ICP locked into new neurons for each month, which averages about 0.5M a month. Figure 2 shows the amount of ICP dissolving each month, showing that another 54M ICP dissolving by the end of 2022. It is likely that, if things remain constant, the NNS will lose another 46M ICP by eoy 2022, meaning the NNS participation rate will be ~40%.
Participation in the NNS is vital because the NNS is the governing system for the Internet Computer. Without a strong, diversified pool of stakers in the NNS, the Internet Computer can be at risk of malicious attacks and at risk of losing long term focus.
Two obvious solutions exist for this concern: (1) increase the amount of new stakers and/or ICP coming onto the NNS. This solution was outside the scope of the recent proposal, however the IC community is encouraged to discuss potential solutions. (2) decrease the number of stakers and ICP coming off the NNS. This second solution is the focus of the aforementioned proposal.
Figure 1 – Total ICP brought onto the NNS in new neurons, by month. Data as of 19NOV21.
Figure 2 – Total dissolving ICP by month of dissolve
Concern 2 – Too many genesis neurons decided to dissolve
469M ICP were minted at the genesis launch. Of that 469M, 151M has already dissolved and was moved out of the dissolved neuron. Of the remaining ICP in genesis neurons, 87M is in a dissolved state, meaning it could be moved off the NNS at any time. 199M genesis ICP is in dissolving state and 112M is in the locked state. Of the 469M initial allotment, only 23.9% remains in the locked state. When looking at only seed and early contributor neurons, 160.5M ICP was included in at genesis, of which 15M has dissolved, 66.5M is dissolving and 79M is locked (49% of initial allotment).
A large contributor to concern 1 above is the fact that most genesis ICP is not locked. There could be many reasons for this, one of which is caused by the negligible effect age bonus has on the vote power calculation. Due to the very long time to accumulate age (4 years) and the relatively low age bonus (1.25x), the incentive to remain locked is not greater than the reduction of risk through dissolving.
Figure 3 – Percent of ICP by neuron state for genesis neurons that have not moved their ICP off the NNS.
Figure 4 – Percent of ICP by neuron state for seed and early contributor genesis neurons that have not moved their ICP off the NNS.
Concern 3 – The voting power held by dissolving neurons
There’s a considerable difference between the behavior of early participants in the Internet Computer (genesis neurons) and new participants (non-genesis neurons). Namely, 98% of non-genesis neurons remain in a locked state, while only 35% of genesis neurons with ICP are locked. This could present a problem for the Internet Computer governance because dissolving neurons currently hold 36.1% of the voting power. While this isn’t a majority, it could easily sway key votes on the NNS that are conducted using the Simple Majority voting mechanism. These dissolving neurons have expressed an interest in reducing their commitment to the Internet Computer (through dissolving). While this could be for many reasons, one such reason could be a strong investment in a blockchain or big tech company that is in direct competition with the Internet Computer. In short, there exists a risk in having a large amount of voting power held by participants who are actively decreasing their involvement in the Internet Computer.
Figure 5 - Voting power on the NNS by neurons state