I appreciate that this is a complicated topic and that you need to put in some effort to read and understand both the problem and @StakeNow’s proposal. However, I think they have done a very good job at explaining it and I think the problem is quite pressing as it could basically render the business model of baking services illegal - and not only for German baking services but theoretically all baking services since to the best of my knowledge, there is no practical way of excluding German citizens to delegate to your service.
I myself do not operate a baking service but “only” hold XTZ and delegate them. Still, I would not want my voting potential do be rendered useless.
RESULT 1: Tezos needs a solution to this problem.
Having accepted this fact, what options do we have? StakeNow offered three choices in their proposal - let me comment:
1. Ignore the problem: Not an option, if we have truly accepted RESULT 1 (and not very supportive, if you just ignore it because you might think you’re not impacted - which you aren’t)
2. Start an argument “that they just do not get the idea and it is all a big misunderstanding”: Goes along the lines of @Blindripper’s comment to @StakeNow’s original post explaining the problem. And maybe BaFin (the Federal Regulatory Authority “causing the problems”) did misunderstand/misinterpret something, maybe they didn’t - it doesn’t matter because in the end, however they judge the issue, nobody will get around it (at least not without going through multiple courts with very expensive lawyers). I’m not saying that this is an option not worth pursuing at all. On the contrary, I think impacted bakers should keep the dialogue with BaFin open and try to take influence. However, the outcome is something that is out of the community’s control! Thus, this is an option that can be pursued in parallel, but we need a safety catch - something that we as the community can control!
3. Change the voting procedure (and the governance mechanism respectively): This is an option that is in the community’s control and thus - in my humble opinion - should be the favored one. No here I see two different approaches. The one proposed by @StakeNow and the one briefly mentioned by @StakeNow at the end of their post. Before I go deeper into these, let’s pin down another result.
RESULT 2: If we want to keep control instead of depending on a German regulatory body, we need to follow a variant of option 3 (changing the voting procedure).
Now let’s dive into the two variants of option 3 (and since @StakeNow has already layed out on variant in great detail, let me start with the other one) :
1. Separating voting rights from validation rights and thus enabling staking without delegation of voting rights and enabling every coin owner to vote themselves:
Without being to much into all the technical details, I think this should at least technically be feasible, probably by signing a voting transaction with the private keys of the wallet holding the XTZ. So assuming technical feasibility, what would be the implications?
- Bakers would lose influence since they could no longer cast votes for the XTZ staked to them. Considering that bakers depend in the smooth operation of the network, they have a strong intrinsic motivation to participate in the governance process vote against proposals that might have a negative impact on Tezos. So depending on your point of view, you might see the loss in influence by bakers as a good or a bad thing.
- Every XTZ owner would gain the possibility to cast their own vote. Even if they only hold a minimum amount of XTZ. This would be very base democratic (which - depending on your point of view, you might consider a good or a bad thing).
- It is to be assumed that overall voter turnout would drastically decrease since most smalltime XTZ owners would either not be aware that voting in Tezos exists and that their coin ownership gives them the right to cast a vote. And, even if they knew about the possibility to vote, they’d probably still not know how to vote (baker influence as described as lost in the first bullet would be retained in proportion to the unused voting rights, yet shift the influence between bakers, i.e. a baker operating near the edge of their capacity has more influence now while a baker operating far from their capacity limit would gain influence if staked voting rights “vanished”).
- Now let’s assume that some holders of comparatively small amounts (or even worse: large amounts) of XTZ no that they can vote and how to do it. They might still not be very aware of the underlying technology and not be inclined to do a lot of research regarding the proposals and their respective implications. This bears the danger of “random” uninformed voting that could theoretically endanger the integrity of the protocol in the long-run.
2. Enabling bakers to separate voting power originating from different delegation sources (including their own stake) and voting “in steps”:
Given that @StakeNow have already given a great level of detail of how to implement their proposal, I would assume technical feasibility for this variant as well. So what would be the implications:
- Assuming I understood the proposal right, small-time XTZ holders with stakes < 1 roll would not be impacted by this change, from their perspective, the status quo would prevail.
- Bakers would lose influence from those stakes where one coin holder staked 1 roll or above (to retain influence, it might then actually be a strategy for bakers to favor smaller delegations, if that is somehow technically feasible).
- However, the lost influence would then be attributed to coin holders, that hold an amount that is considered substantial enough to be allowed to start your own baking service. I think it is reasonable to assume, that interest in the system increases with increased stake. While this still does not guarantee an informed voting decision (and a big-time XTZ holder casting an uninformed vote is of course worse than a small-time XTZ holder casting an uninformed vote), I think it is an acceptable compromise.
- Even big-time XTZ holders might not be aware of their voting rights, so participation can be expected to drop in this case as well, but not to the extent as it would in the first variant.
Taking everything into account, I must say that I favor the variant proposed by @StakeNow. At first glance, I thought the variant completely separating voting rights from delegation seemed quite appealing and in a way “elegant” but now I’m not so sure if it would actually be a good thing. Separating voting power on the baker’s side is probably the reasonable compromise.
RESULT 3: I recommend following @StakeNow’s proposal.
Please let’s have a lively discussion here, and maybe someone even has a better proposal that we haven’t thought of so far. In any case, I would stress that this is an issue that could potentially harm all bakers, regardless of their own nationality.
Also, please don’t come up with any “BaFin-bashing”. It is true, it’s the regulatory body that is currently posing a “threat” yet high standards are not necessarily a bad thing and might be adopted world-wide. E.g. the European General Data Protection Regulation (GDPR) has also been widely critisized for being too restrictive and hindering business, yet it is often considered to be the “gold standard” for data protection and today, many U.S. companies adhere to GDPR standards.
