The numbers are eye-catching, aren’t they? 2nd Amendment A near 50% cut in Aptos staking rewards – from close to 7% currently to 3.79% as proposed. MoonSheisty’s Rather Airdrop proposal spells out a vision of unlocking non-extractable value potential which capital efficiency has made Aptos as competitive and exciting as other Layer-1s. Beneath the surface, a darker question lurks: are we sacrificing decentralization on the altar of TVL? I think we are.

Is TVL the Only Metric?

The core argument against staking is that it’s constraining DeFi activity. Individuals have already begun to use our APP to stake their APT for staking rewards. At the same time, they’re missing out on growth in DeFi protocols such as Aries Markets, making up a remarkable $320 million of Aptos’ total value locked of $974 million.

Let's make an unexpected connection here. Picture this one-horse town where everyone keeps all of their cash in super high-yield savings accounts. The local government, alarmed at this, decides to cut interest rates so that everyone is compelled to invest in local businesses. Sounds a bit… heavy-handed, doesn't it? What if the true problem isn’t the savings rate, but rather a lack of appealing investment prospects?

Relatedly, maybe Aptos’ DeFi ecosystem just isn’t developed enough so far. Perhaps it’s just the lack of killer dApps, or perhaps it’s the UX of navigating Web3. Reducing staking rewards would push users to learn more about and use alternative chains. That’s not going to magically transform them into DeFi power users. What more would it take to ensure that we are focusing on the right problem here?

Here's where my anxiety kicks in. The proposal recognizes that smaller validators may get starved out. The answer The antidote, they believe, is a “community validator program” involving both grants and stake.

Decentralization: A Price We Can't Afford

That sounds like a band-aid on a gaping wound.

Think of it like this: imagine a diverse ecosystem of independent bookstores. Then along comes a massive telecom corporation that can afford to undercut everybody 60% or more. The independents struggle. As a show of good faith, that same corporation awards a couple of them paltry grants. Does that really protect the ecosystem, or just put on a pretty face of inclusion while doubling down on control?

The risk is real. First, high staking rewards are a critical carrot to get an inclusive set of validators on-board. While these rewards can certainly affect capital efficiency, they help incentivize further validator participation. Cut those payouts, and you’re de facto increasing the cost of entry. And smaller validators, which are integral to a network’s security and censorship resistance, just can’t afford to be competitive. Without adequate protections, the larger, better-funded players will outweigh the smaller ones, creating centralization.

Without good faith answers to these questions, the community validator program is a public relations stunt. It’s missing the real fixes that this community deserves.

To make its case for change, the proposal references other blockchains that have changed their staking mechanisms. Context is everything.

  • Validator Distribution: How many smaller validators will be priced out? What percentage of the network could be controlled by larger entities after the cut?
  • Community Program Funding: Is the proposed program sufficiently funded to compensate for the loss of staking rewards?
  • Selection Criteria: Are the selection criteria transparent and fair? Will it be prone to biases?

Let’s draw another unexpected connection. Picture someone making the case for lower corporate taxes by citing the example of Monaco. Sure, Monaco has low taxes, but it has a unique set of circumstances – a tiny landmass, a wealthy population, and a different economic model. You can’t just take their tax policy, upload it into a much larger and more complicated economy.

Comparing Apples to Blockchains

Similarly, you can't just point to another blockchain and say, "They reduced staking rewards, so we should too!" Each blockchain is different in terms of their architecture, governance, and community. What is a success for one could be a complete failure for the next. To properly assess these trade-offs, we need to consider the trade-offs those blockchains themselves made, and if they adopted other mechanisms or methods to stay decentralized.

As the recent Ethereum Merge illustrated, there are new staking solutions to explore. Some of which are already on Ethereum. But unlike these proposals, which are more widely known, there’s a full complement of intricate proposals to balance them out with anti-centralization mechanisms. Are we considering similar safeguards?

Aptos’ progression is a remarkable journey from its founding by ex-Meta engineers. Its journey is far from over.

Is the quest for short-term capital efficiency really worth the risk? Take, for example, the possible damages to decentralization, network security, and the basic underpinnings that allow blockchain technology to be so disruptive. That’s the question that the Aptos community will need to come to terms with. I worry that in our rush to pursue TVL we may have been addressing it in the wrong manner.

Aptos has come a long way since its founding by former Meta engineers. But its journey is far from over.

Is the pursuit of short-term capital efficiency worth the potential cost to decentralization, network security, and the very principles that underpin the promise of blockchain technology? That's the question the Aptos community needs to grapple with. And I fear that in our haste to chase TVL, we might be answering it in the wrong way.