Technology

As a Protocol, Ankr Aims to Decentralize Ethereum Nodes

31 Mar 2022 9:39am, by
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At the beginning of February, Ankr announced a partnership with Maxihost to expand Ethereum Nodes into more countries as part of an effort to decentralize nodes. This remains significant because Etherscan Node Tracker data suggests that roughly 32% of nodes are located in the U.S. as of this writing, with more than 40% in North America if including Canada.

If you’re building a decentralized app (dApp) for a market that is primarily outside the U.S., that means most of the node infrastructure is nowhere near your users.

Table showing top 10 countries where Ethereum nodes have been located in the last 24 hours and the last 7 days. e last 24

Data courtesy of Ethereum Node Tracker.

Thursday, Ankr is announcing a move away from a traditional corporate structure to form Ankr DAO,  a move that repositions the company from a platform to a protocol, which also moves decision-making away from Ankr’s executive team to token holders.

The transition increases the utility and governance mechanisms of the Ankr token, allowing the developer community to actively participate in decisions around things like fee structures for node hosting and reward distribution mechanics for node operators.

In a follow-up interview with The New Stack, Josh Neuroth, Ankr head of product, told why the pivot from platform to protocol is aligned with the original Maxihost partnership: “Ankr will still contribute a good deal of server resources to the protocol as a base layer of incredibly high-performance nodes.

“Having Maxihost on board means more global server resources for the protocol, which means lower latency, enhanced resilience and better user experience, with faster transactions processing.”

In what may be most relevant for dApp developers, he said, “Increasing total server resources may also result in less risk of impact to users when node providers are prevented from serving traffic to or from certain countries due to blocking or geofencing, or when services are impacted by an internet or cloud outage.”

Why Reorganize as a DAO?

One of the things I’ve yet to see well explained is why it is advantageous for a company to be a DAO (decentralized autonomous organization) versus a more traditional corporate entity.

Neuroth offered a clear reason: “By definition, centralized operators separate ownership, usage, and governance rights, which creates misaligned incentives among constituents. In contrast, tokenomics systems consistent with the Web3 ethos create incentives for users to participate in the ownership, usage and governance of a protocol.

“In this way, economic rewards are deployed to align incentives among protocol stakeholders in ways that allow it to function in a more decentralized way.”

By going beyond resource consumption, which is the typical approach to buying infrastructure and services in the technology space, participating in something like Ankr protocol makes all parties vested in a collective success.

If you operate a node on Ankr protocol, you are incentivized to maintain a healthy node. Ankr also has a proposal that would potentially reward users who stake Ankr for participating in governance, while implementing accountability mechanisms to encourage positive decision-making.

Neuroth offered a bit more detail. “Since more participation in governance by diverse groups of stakeholders leads to more effective incentives. and good incentives help reinforce tokenomics, giving more control to the Ankr community to govern the protocol should help ensure the reward structures powering the Ankr economy remain balanced and effective.”

How Does Ankr Protocol Benefit dApp Developers?

As a developer company, why would you potentially want to participate in the Ankr Protocol?

The Ankr Protocol, Neuroth said, offers dApp developers “more control over the tools and services they use on a regular basis than the centrally-managed competitors do.” It also, he said, offers them an incentive to actively participate in Ankr DAO’s governance.

Another benefit for developers is the approach Ankr is taking to evolving token staking. Traditionally staking has taken three main forms with almost all protocols. You can run your own validator, delegate to an existing validator, or deposit tokens with a service that delegates to an existing validator.

Ankr is adding a new option for staking, Neuroth said, “We are very excited to soon announce a new model of liquid staking-as-a-service that will combine Ankr’s liquid staking technology with a system of delegation that will encourage more and more stakers and validators to actively participate in the Ankr economy.” More details on this new staking approach will be forthcoming.

Risks to Ankr Reorganizing as a DAO

Given the high concentration of Ethereum Nodes controlled by Infura and Alchemy, what would prevent venture capital (VC) firms or competitors from purchasing large stakes of the Ankr tokens and ultimately having significant influence over the protocol?

“This is a vulnerability that every DAO faces,” Neuroth said. “We understand that implementing a decentralized system of control is a process that must involve education of token holders and a phased transfer of responsibilities to facilitate responsible and educated governance.

“In recognition of this reality, we will soon propose to the Ankr community a formal governance model involving token holders that will include limitations on how governance proposals can be made, a staggered release of governance power so that voting rights of users become stronger over time, and reasonable restrictions on the type of activities the DAO treasury will be authorized to execute.”

Ankr’s move appears to be directly community-focused, with the right types of incentives to encourage broad participation. Going up against well-funded, VC-backed competitors like Infura and Alchemy comes with significant challenges. It’s easy to see some advantages to the community approach to align ownership, usage and governance for the benefit of all stakeholders. It will be interesting to watch how Ankr evolves.