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Hitchhiker Identity

Idena Improvement Proposal (IIP): Implementation of a Liquid Staking Identity for Unvalidated addresses

Owner: ubiubi18
Type: Standard
Status: Draft

Abstract

This IIP introduces the concept of a "Virtual Identity" within the Idena network to allow unvalidated addresses to delegate their IDNA tokens, enabling them to participate in staking and earn rewards at a reduced rate. This approach is intended to enhance network growth and help to easier increase market capitalization.

Introduction

The current framework of the Idena network restricts staking to validated identities only, which inhibits growth by limiting participation to a smaller group of users. This proposal advocates for the creation of a Virtual Identity system that enables unvalidated investors to stake indirectly. It goes back to the idea of "hitchhiker staking" beeing discussed in https://medium.com/idena/idena-chronicles-116-119-44572e34d461

Motivation

The initiative to develop Virtual Identities stems from several identified needs:

  • Accessibility for New Participants: Reducing the risk and barrier to entry for newcomers by providing a safeguard through indirect staking participation.
  • Idena is hard to be integrated with DeFi and Liquidity Mining: Current limitations hinder the development of DeFi and liquidity mining within the Idena ecosystem.

Specification

The Virtual Identity would operate as follows:

  • Structure: It acts as a pooled entity that represents the combined stakes of unvalidated investors.
  • Staking Threshold: Minimum treshold of IDNA comparable to the treshold of IIP-11 required to participate.
  • Withdrawal Fees: Implementing a 0.5% burn fee on withdrawals to mitigate potential exploitation of the system.
  • Reward Distribution: 50% of rewards to stakeholders, 50% to zerowallet. The rewards are generated continously as virtual reward drawing rights with every block, but there is no real mining node involved, just a smart contract with wrapped idna. those wrapped idna can be withdrawn from the smart contract as real idna, but there is a withdrawing-fee, burning 0,5% of the withdrawn funds

Rationale

Introducing Virtual Identities addresses several strategic goals:

  • Inclusivity: Broadening the base of participants supports network security and value.
  • Lower Entry Barriers: Provides a more accessible pathway for network participation.
  • Enhanced Network Appeal: Facilitates the growth of decentralized applications by integrating a broader range of stakeholders.

Implementation

  • ? help required ?

Impact Analysis

  • Network Participation: It is anticipated that this system will diversify the stakeholder community, enhancing network security and resilience that way.
  • Economic Influence: By engaging a larger group of stakeholders, the overall demand and value stability of IDNA are expected to improve. -enabling more predictable integration with defi:
  • Allow service providers like liquid staking providers to integrate with idena

Risk

There is a risk that existing investors will delegate their cold wallet funds to this mechanism, while no new investors join in. That way the rewards for idena identities could shrink without a compensation of growing marketcap on the other hand. So the idea could have negative consequences worst case instead of setting new incentives.