At OMGpool, we advocate and support principles core to the greater blockchain movement: transparency, decentralization, (relative) anonymity — yet in purely capitalist terms, we run into a conflict where our ethos collides with our desire to be compensated for our work.

So how do we, a for-profit open-source technology project, justify putting money in our pockets while still touting our advocacy for a “community-first” mission where end users supposedly get the most benefit? And why would we not protect our proprietary code and force our future competitors to code their own staking pools? It all comes down to our business model: trust and credibility.

Market Dynamics: Users will have a lot of options

A staking pool is essentially a money-printing machine. As long as tokens stay in the pool and the nodes keep validating, users get paid staking fees and the pool keeps a cut of what the users get paid. For so long as the pool continues to function (and remains secure), there is almost no incentive for users to withdraw their tokens, leading to an incredibly high LTV (lifetime value, for those of you unfamiliar with SaaS metrics).

However, after enough time, staking pools will become a commodity — the market barriers to entry are low and thus anyone will be able to spin up their own staking pool in an attempt to get a piece of the pie. This is good for end users (you) because as more competition arises in the space, market forces dictate that prices/fees will be driven lower and lower as each pool desperately tries to convince users to join them and not their competitors.

This essentially means that, aside from nominal prices/fees, the only remaining differentiators among pools will be 1) security, 2) network effects, 3) trust/credibility.

Security

This aspect of a staking pool should come as a default — if any pool is “less secure” than another, it automatically loses. Touting your staking pool as being subjectively “more secure” than another pool does not justify being able to charge higher fees — it’s like a statistically “safer” airline justifying charging more for plane tickets. No one cares, because doing everything imaginable to prevent catastrophe should be fundamentally expected by end users. So as far as blockchain products are concerned, security is de facto not a competitive advantage/differentiator. This also applies to network uptime — if a node is not up and running 99.5% of the time (the devops SaaS industry standard), it shouldn’t even be in business.

Network effects

With particular PoS (proof of stake) blockchains, validator nodes may be limited to only the largest X nodes by token count (for OMG, rumor has it that only the largest 200 nodes will be able to participate). This is for speed reasons — if you have to get consensus on the state of the blockchain for every block, it’s much faster to do so with 200 nodes rather than thousands. Yet in order to maintain network decentralization, it’s important to have enough nodes on the network (for example, having 21 nodes is probably not enough for adequate decentralization).

In terms of the staking pool business, all that matters is that you have enough tokens collectively in the pool to actually qualify. This makes it hard for new staking pools to enter the market because they need to have enough tokens to be in the top 200. Being higher up in that ranking lessens the risk that you’ll fall below the top 200 and no longer qualify as a validator. TL;DR: end users will feel much more comfortable joining the 50th-largest staking pool rather than the 190th-largest staking pool.

Trust/credibility

So if all the above things are held constant, the only thing differentiating one staking pool from another is that organization’s trustworthiness and credibility in the space. How involved are they in the community? Are they actually listening to end users, or just talking to a handful of people and saying they’re “community-driven”? Are they thought leaders in the space, creating valuable and informative content for the public? Are they endorsed by the project itself? Are they providing the community with tools and resources outside of just the staking pool? This is our focus at OMGpool and how we intend on building our business.

Our Strategy: Always put the community first

Because staking pools will eventually be a commodity, we’ve decided to open-source our entire codebase from day 1. Doing so establishes us as “the originals”, the thought leaders, the ones with the trusted, vetted, publicly audited, battle-tested, secure code. If others decide to copy our code and spin up their own staking pools, we hope that you’ll be able to compare their code to ours to ensure they haven’t tampered with it maliciously. If they offer lower fees, great! Competition fosters consumer-friendly markets and users will benefit from overall lower fees. We intend on setting our initial fees to be what we perceive to be the “sweet spot” where users (you) don’t feel like you’re being taken advantage of by an early entrant into this new market, nor see any significant gain if you move your tokens into another pool (which may offer slightly lower fees but be sketchy and lack transparency, may have modified our audited code and accidentally introduced security vulnerabilities, be unknown or unfamiliar to the community, have smaller network effects and be at risk of dropping out of the top 200 nodes, or be simply out for profits as opposed to furthering the OMG community as a whole by creating tools and resources to grow the ecosystem).

As first-movers in the space, we expect to enjoy significant network effect advantages and never be at risk of falling out of the top 200 validators. We commit to total transparency with all monetary movements — staking revenue generated by your tokens, how much goes to you vs how much is distributed to the pool as fees, and statistics and metrics around the pool and the OMG ecosystem as a whole — yet maintain the same level of anonymity you expect from the Ethereum blockchain (ETH addresses are totally auditable and publically visible, yet you don’t know who it belongs to). We will never tie email addresses or personal information to ETH addresses or ETH/OMG/etc balances, and only use email addresses for marketing purposes such as announcing new tools we’ve created for the community.

Through our collaboration with the OMG team, we’re working with other contributors in the OMG community to build out additional resources (check out the OMG knowledge base!) and maintain an active presence across Reddit, Telegram, Twitter, and Medium (mostly in OMG-related channels, not OMGpool-related channels), seeking to foster enthusiasm for the project through both bull and bear markets, pre- and post-OMG network launch. We eagerly await the bright future ahead where OMG’s mission is realized — but until then, we’re heads-down, hard at work buidling a solid foundation for the future.

In doing these things — focusing not just on the staking pool, but also on the nurturing the of community as a whole — we are confident that the trust and credibility we’re building will pay off in the end, both for OMGpool and the entire OMG ecosystem.

If you have questions or comments, please leave them below!