As a thought exercise(I’ve made some assumptions to set a hard right edge of a gradient…this is not a realistic scenario, but is on a gradient that we are experiencing now with ID marketplaces):
A VC Neuron of 50,000,000 ICP and locked for 8 years votes with significant voting power for 2 years. Let’s say the rate of maturity is 14%(28% because locked for 8 years) for those two years to simplify the thought experiment. So the NNS(all of us) pay this VC neuron 28,000,000 ICP over two years assuming they don’t reinvest because, our assumption is, that they are securing the network by voting in the network’s best interests for at least the next 8 years(the deal they made with the NNS in forming the neuron with an 8 year lock).
After this two-year period, we discover that they have sold the ID securing their neuron to a third party for 40,000,000 ICP. As a net, they have profited 18,000,000 ICP. Further, we learn that the contract for this sale was signed before they created the neuron. Not only have they not been voting for the long-term health of the network that they signed up for, but they have also knowingly been voting for a specific horizon of 2 years. If they had only staked for 2 years they may still have profited by about 600,000 ICP. So the NNS overpaid for the security they actually provided by 17.4M ICP.
In any rational legal system, evidence that you signed a contract with party A and a conflicting contract with contract B would constitute a fairly straightforward conviction of fraud and hard damages of at least 17.4M ICP and potentially more if there is some evidence that the VC manipulated the price to be optimized when they liquidated at the cost of price further down the line. Additional damages would likely be recovered from the third party that enabled the fraud.
This is clear and explicit fraud if these were contracts. Of course, we don’t have contracts, we have code. And code is law. But I’d say that if your code enables this kind of clear common-law fraud you’re pretty doomed and the network has some responsibility to keep this from occurring. Can this behavior be dissuaded via code? Maybe? Does it make the system too complicated? Maybe? Would punitive damages work? It wouldn’t do much good to penalize the VC after the fact because they’ve liquidated their assets and likely moved them elsewhere. Can we dissuade it by being putative to anyone who enables the fraud against the NNS? Freezing, locking, or burning neurons that can be proved to have been connected to a sale would probably persuade most to not buy neurons. Probably not everyone, but certainly most people who want to de-risk neuron ownership. This punitive action is likely the left edge of a “what to do about it” gradient of action. So if you want to stay in the ‘do nothing to the code camp’ and want to have a network that doesn’t enable simple methods of fraud against the participants, then yes, penalizing individual neurons is likely the most direct way to keep this fraud from happening.
Now the participants in neuron marketplaces are not as far to the right as our VC in obvious fraud, but they are on the gradient. The sellers are committing a form of fraud against the rest of the NNS for their own gain and the people buying those neurons are enabling the fraud. We might say in some cases where someone gets cancer or has some harrowing emergency that we’ll give a humanitarian dispensation but it doesn’t eliminate the fact that if that neuron keeps voting after they know they’ll have to liquidate that they are defrauding the network of ICP that they are not due according to the ‘spirit of the code.’ Same with people who ‘always had the best intention of the network at heart’ but decided one day to sell. If they keep voting after that date then the fraud begins…
So what do we do about it? 1. let’s make that not possible or 2. change the contract or 3. change the form of security.
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Not possible: An ideal solution doesn’t involve punitive action but makes the fraud not possible. I don’t want punitive action and I don’t want a network that regularly has to do anything like freezing or confiscating funds. That leaves us with a requirement to change the code and behavior of our network. PoK for individuals and While List for known organizational neurons seems like a good path forward to me. I think the penalty for not being in one of these camps is not a 20% penalty, but maybe a more significant restriction like you can only vote on X topics(see 2.)
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Chage the contract. A few options: a) You can bail on ETH stake at any time because the security it provides is temporal. The thing you are voting on has no long-term effect. The epochs are either endorsed or not. The IC has a ton of things like this that we(have) voted on like exchange rates that expire after a few minutes, node reward payouts that once paid are paid…but we also have a ton of things that have no temporal end. If you vote to add a node to the network that node is going to be active for a long time. In order to endure the market effects of that decision may take a while. If the things we choose to vote on had terms and your stake was locked until those things’ terms expired, it would make people more selective in what they vote on. And if you only vote on short-term temporal things then you can exit in short order. This is unfortunately complicated and you lose the simple narrative of 8 years = 18%.
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Change the form of security: A much bigger discussion that should likely only be engaged if we find that the fundamental assumptions of the NNS begin to fail or create excessive risk.
I’m open to arguments that my thought exercise is flawed in some way, so if you see a flaw, please say something. Giving canisters the right to hold neurons is I think super important and I agree that we’re no under some immediate threat to network security, but over the long term I do believe these kinds of situations will occur(or others that we can’t think of now) and we should begin making plans now, if for no other reason then someone thinks they can fund an organization with X% rewards and then it all changes and the end up getting X-Y% that is unviable.