cICP - Compounding Stream ICP - Liquid Staking Token

[Lorimer]

The only detail that needs changing to align with IC governance principals is that the VP belongs to staked NTN holders.

[Lorimer]

I’d like to reiterate that there are really great ideas in the concept for cICP, particularly those relating to node rewards. I also think there will be some challenges there. I’ve struck up a side discussion about the sort of thing I think will be needed to address any concerns around clustering:

On-chain Node Beneficiaries (scalability without sacrificing independence)

Background The IC is marketed as operated by “independent parties”, providing the IC’s foundational selling point of “deterministic decentralisation”. Independence is an imperative, not just a nice-to-have. What is meant by independent should be clear, intuitive, and easy to grasp by anyone who may make use of the IC now or in the future. Any formal ties or arrangements between two parties, such as financial or legal commitments, are clear indicators of some level of interdependence or interrela…

[sat]

@Lorimer

@sat you mentioned this sort of idea a while ago. Have you had more thoughts on it since then, or discussion within DFINITY about the practicalities and/or challenges?

@Lorimer sadly not much movements on this front. I’d be happy to support such an initiative if anyone is interested in pushing it forward but it’s unlikely to happen without multiple influential people firmly standing behind it and pushing it forward. I currently don’t have time to organize that.

[infu]

@MForum

Just two questions, how you determine who is the service provider?

Neutrinite DAO will govern the process. We will refine it with time. Need more people who want to govern that.
I don’t think one team should make multiple DAOs. It’s not like NTN is keeping 10x prices to make it hard for people to get in.

[infu]

@Mico

Can’t people follow other cicp users for voting?

Well, the idea so far is that they follow known neurons. Only their votes can be observed in the NNS. In the future - your personal AI agent voting as option.

[infu]

Let’s examine these scenarios:

Someone with 100 ICP stake votes badly and exits through the market - sure that will work, but won’t affect the NNS.

Someone with 3% VP votes badly and tries to exit quickly:

• The market will spot them, and they will lose a lot (economic principles are intact)
• If they have a private buyer to get their cICP from them, they can already do that by selling a neuron through II
• The only way I can think of them exiting is if there is a spike in demand and they offer cICP slightly discounted.

I am against NTN voting with cICP stake (WTN model) for a few reasons:

1. Results in the buying and selling of voting power (banned for a reason). This can lead to corruption, concentrated control, and decisions that benefit a few at the expense of the broader community
2. Strips stakeholders of their voting power and protection
3. Operates like a police state, exercising an extreme level of control over civil society and individual liberties.
4. Reduces NNS economic protections.

One of the leading design principles of cICP is that if someone wants 1$ of your VP, they have to buy it, not get it in some other way. Hopefully, we get there sooner with AI agents. Right now:

• Holding liquid ICP suffers inflation and diminishes that protection daily
• Following neurons diminish it
• Liquid staking protocols that take your voting power diminish it

When someone readily gifts their voting power, ICP is only priced by its utility component, losing all value of the governance component. The benefits of letting people hold their voting power are much higher and result in more protection, not less.

[MForum]

Okay so NTN DAO would be effectively a fund manager on behalf of all cICP. Would be more investor friendly if there is a rule-policy-mandate on that from the start. I agree another DAO would be confusing, what if the cICP holders can govern/vote on this fund management process? I do like the proportional voting and RWA element a lot and if this governance structure is enhanced it would be great?

[infu]

Yes, we want to give cICP holders NTN neuron, so they can vote on everything around cICP. All vector graph changes are designed to be done with proposals, and people will be able to see what the proposals do in the UI visually - modify, connect, etc. We will get there with time.

[MForum]

This is awesome, looking forward to try it out, best of luck

[borovan]

Ten thousand Chickpeas in the Dragginz Treasury. Happy to be a part of this!

[Lorimer]

@bjoernek, I’m interested to know what you make of Anvil’s assessment above, if you have the time.

@infu, would you be able to address the concern regarding incentive alignment? Could you also comment on the purpose that you think neurons serve? (Why have them if we can depend on market liquidity - or lack there of)

[infu]

I would say the main purpose of neurons is to lock liquidity and let it vote. cICP has now locked 1mil$ for 8y. That goes for the growth of the protocol.

[Lorimer]

@infu

lock liquidity and let it vote

And why is it locked?

[infu]

The liquidity is what moves from one token to another and possibly converted into a stablecoin and cashed out. When you lock liquidity, however, you give up the right to cash it out into a stablecoin. This reduces the circulating supply of tokens and helps the protocol allocate resources toward development and growth.

[Mico]

So cicp holders don’t actually vote themselves on proposals? They just get to follow who they want to vote for them?

[Lorimer]

So your opinion is that neurons exist primarily as a mechanism that →

@infu

reduces the circulating supply of tokens and helps the protocol allocate resources toward development and growth.

Do you really believe this?

[Lorimer]

Neurons exist with a deterministic locking period to ensure that voters are tied to the outcome of their vote for a specified period of time. The purpose is to align incentives. Voters who are willing to lock for significantly longer get more VP per ICP. The primary reason is to ensure that anyone who votes is voting with a medium to long-term perspective that should be intentionally in the best interests of the network as a whole - the longer the term, the higher their VP.

Do you agree that this is the main purpose of neurons on the IC?

[infu]

@Mico

So cicp holders don’t actually vote themselves on proposals?

In v1 yes, otherwise we need to develop a whole new interface for it.
v2, they can + AI agent to do it.

@Lorimer

Do you really believe this?

Don’t need to believe it, here is the cICP neuron with locked ICP https://dashboard.internetcomputer.org/neuron/7620974521361381620

Are you still worried about VP? We are fine if people gift it around by following someone, but we can’t let liquid stakers have control over it?

[Lorimer]

@infu

Don’t need to believe it, here is the cICP neuron with locked ICP https://dashboard.internetcomputer.org/neuron/7620974521361381620

The question was about what neurons are designed to do, not how you’ve subverted that design to undo the core purpose of a neuron.

@infu

We are fine if people gift it around by following someone, but we can’t let liquid stakers have control over it?

Yes, because the follower has locked their ICP. If they follow a bad, misaligned, lazy, or otherwise ineffective neuron, they’re only hurting themself if the long-term interests of the IC become compromised or weakened.

At this point we’re going around in circles. Just to be clear, if you’re not going to budge on this I will consider this project a significant threat to the IC (specifically because it undoes the most important aspects of IC governance regarding incentive alignment and long-term stake).

Are you familiar with the context regarding canister controlled neurons?

@bjoernek

It is considered important for neurons to be non-transferable/no-sellable because

• neurons should have an incentive to vote in the long-term interest of the Internet Computer and
• to avoid the possibility of attacks where an attacker acquires tokens only for a short amount of time, votes on a malicious proposal (e.g. transfer tokens) and then sells the neurons again.

Whether you know it or not, I think you’re treading on thin ice. I think you’re making rash decisions that will unnecessarily limit scope for the success of this project - which would be a real shame for everybody involved.

@bjoernek

• Establish a materiality threshold: Set a threshold that triggers mitigation measures if canister-controlled neurons exceed 10% of the total voting power. Neurons controlled by DAOs are exempt from this threshold. The threshold might be adjusted at a later point in time. For example, the threshold might be increased (upon NNS approval) following a materiality analysis of canister-controlled neurons belonging to DAOs, which are not considered to be an issue.
• Delayed implementation of additional measures: Additional disincentives for neuron transfers will be implemented if the materiality threshold is surpassed. While further measures could enhance security, they would also increase complexity for users and require significant implementation effort. The specifics of these mitigation measures can be determined as the situation evolves and will be subject to a separate motion proposal. For instance, these disincentives would reduce the rewards for transferable neurons created after this proposal is passed; to avoid the reduction, non-transferability of neurons could be shown via a proof of knowledge of a cryptographic key controlling the neuron.

I think what you’ve so far described for cICP represents a particularly bad implementation for canister-controlled neurons (with respect to how VP is managed), and I would push to see strict measures implemented to disincentivise these sorts of implementations.

I’ll stop harping on now. I just want to make my position clear up front. As I’ve mentioned before, there’s a lot that I like about this project, and I want to be able to support it. I hope you’ll be able to re-evaluate your position regarding VP fungibility.

[infu]

cICP is about DeFi and protecting stakeholders. If cICP poses a threat to the long-term success of the IC, Neutrinite DAO will be the first to take action.
I think one of the bigger threats the NNS has to work on is the following system. If we only allow a neuron to receive a following of up to 2x its own stake, the ICP liquid democracy will be protecting its stakeholders better.