Tezos Insider’s Ken Garofalo was joined recently by Jovan Smith of iBakeTezos to discuss the ins and outs of Tezos baking and everything involved with operating a high-quality delegation service. Jovan, who also works as the Outreach and Education Director for iBuyTezos, has a background in political science but finds blockchain technology fascinating for the way it is driving social and economic change by empowering individuals to transact outside the traditional banking system.
Jovan has been involved with Tezos and its community since before the ICO in July of 2017. He has deep knowledge of the Tezos core protocol and is well known inside of the community and has continually supported the project on Twitter, Reddit and YouTube.
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Here are some key excerpts from Ken’s talk with Jovan focusing on Tezos baking and the economics of why he believes Tezos is poised for a breakout in value at some point in the near future due to the need for expanded bond pools. This transcript below contains partial excerpts of the interview.
Ken: As someone who has built a service like this, what do you want to see in terms of tools that can be developed or provided to you to make that an easier process?
Jovan Smith: A very simple and reliable automated payment method. There is one, it’s called Bäckerei, and I might be doing something wrong on my end, however, when I’m running the software it’s completing itself and it’s a way to pay out all of your delegators without manually paying them out.
So, can you imagine a situation where you have thousands of delegators, and we guarantee payments on the completion of every cycle? So every 2 days, 20 hours, and 60 minutes, or roughly 3 days, you have to manually pay these out if you don’t have an automated payment system.
Ken: How do you deal with this problem of over-delegation?
Jovan Smith: There’s really nothing you can do about it, you either increase your bond or you don’t get delegates. For a delegate, from that perspective, it’s not that big of a deal but it does put some pressure and some decency upon us to let that KT1 account know on Twitter, “hey, owner of this account, you delegated to us, but we’re not accepting delegations.”
Right now, the protocol has no way of stopping that. I’m not sure if that’s something that can come about in the future. But for that delegator, what if he’s not even on Twitter?
But sometimes, delegators don’t realize what just happened is they delegated to a baker that was over-delegated, and there’s no formal method or a mechanism to let him know, or a website, or whatever the case may be.
So these things are still kind of “fly by night.” So for that delegator, he’s delegated and he’s not receiving rewards. Who knows how long some KT1 accounts can be stuck in limbo?
Ken: How do you plan to manage the growth of people delegating toward you?
Jovan Smith: So, I’m a true believer in Tezos, true believer. It’s passive income. What we haven’t seen yet is what I call the “massive XTZ bond hunt.” The “massive XTZ bond hunt,” that really hasn’t happened yet. But you see bakers reaching out to each other and to other people asking to either participate in their bond pool or somehow they’re looking for more bond.
Because you necessarily can’t buy more on exchanges, there just isn’t enough liquidity. With an almost 80% staking ratio across both operations, the actual delegation and then the operation of setting a delegation to a delegate. All of that is included in that number, that staking ratio.
People are holding their Tez, so if you needed 100,000 to increase your tz1 bond size, where are you going to get it at?
Ken: If you go to the market right now, you’d buy it up, 10% on the price, or more. It wouldn’t even be available right now?
Jovan Smith: Yeah, it wouldn’t even be available, that’s the thing. I’ve looked over the exchanges, there’s just no volume there. That’s neither a good thing or a bad thing. If anything, it’s good. What it says, is that people, not only bakers, everyday stakeholders are locking up their tokens with delegates to receive rewards and assisting in securing the blockchain and they’re being incentivized to do so.
You tell me one protocol that does that?
Ken: It’s pointing the profitability and the growth factor back to the XTZ token. In bitcoin, if you want to increase your mining power, you have to buy more computing power, more asics, more GPU. In Tezos, you have to buy more XTZ to increase your baking power.
Jovan Smith: So my opinion, really soon here, Tezos is going to go straight from this little 48 cents to something like 5 bucks. Because that’s what it’s going to take to get guys to come off their Tez.
Ken: How do you encourage more people to get involved and become bakers?
Jovan Smith: First, get the Tezos white paper and put it by your bedside. That’s what you gotta do. L.M. Goodman, alright? You have to read it, and you have to read it a few times, more than a few times. Then go to the hidden baking slack, join the different Telegram groups, there’s Riot, start talking with people. Almost every individual in Tezos that has anything to do with baking have been around for quite a long time and they’re very, very approachable.
It was CryptoDelegate, the delegation service, Mike Monohan, he taught me everything I know on the Alphanet and Zeronet. Literally, we’d stay up all night.
Ken: That’s awesome to hear that people in the community are so easy to talk to, and help you with setting up whatever you need for the baking process.
Jovan Smith: Exactly, and always remember, if it’s going to be a baker’s life for you, and read the Medium article by Arthur Breitman called “A Baker’s Life,” you have to read that too. That’s almost just as important because what he lays out there is what it takes to actually maintain a node. Again, it’s not energy intensive, but it does require you to pay attention to what’s going on in the protocol, to make sure that you’re updating your node, your node can go down. Do you need staff, do you not need staff? Is this worth a full-time job? Those things have to be considered by every delegation service. Self-baking, that’s fine, because you don’t have any delegators that you’re paying out. Delegation services have to take those things into consideration.
Ken: What sets your service, iBakeTezos, apart from others, besides the fees?
Jovan Smith: So we started off with a 6% promotional fee. We set our delegation in cycle 46, and we endorsed our first block in cycle 52, and we baked our first baked in the same cycle, so about 32 to 34 days ago is when we actually started to participate in the network. Then we had 5 delegations in cycle 52, now we have 51.
Any delegation service that has been around since cycle 8, they’re very reputable. There’s really no need to switch from them unless the fee is way crazy too high. We have an interactive kind of website, so if you go to iBakeTezos.com, you can live-chat with one of our team members, it’s usually me. You can get all your questions answered there.
I think the 6 percent fee is what got the ball rolling for us, and that will last until December 31. So any delegations after December 31 will be a 12% fee. I’m here all the time, I’m available, I’m accessible. I let people know I run and maintain this service, you can reach out to me if you have a question, so you know your baker, right? We use Ledger, I think people do, so it’s good practice.
I think what sets us apart is being engaged in the community, which is the same thing with CryptoDelegate and Tezos Community, and others, the list goes on and on.
Ken: When people can put a face to the baker they’re delegating toward, and if they login and get a live chat, they can ask questions, and get answers right on the spot. Are there any announcements for future ventures that you’re into?
Jovan Smith: Not at the moment, we are trying to put together a fairly large baker chat that will be live, we’re still working out the odds and ends on it, all that good stuff, but hopefully we’ll be doing that by January 19 or 20. That’s about it, iBakeTezos is doing fairly well, it’s slow-going in terms of the delegation service, but I think the overall crypto market is tired after the big bull run of last year, and this long bear market, huge correction.
So eventually all of that will start folding back. Last night we got a delegation of 208,000 Tez, out of nowhere. That’s essentially how it happens. So you don’t need much in advertising, because the protocol advertises itself.
For more, watch the entire interview available on YouTube. Special thanks to Jovan for joining Ken and offering his thoughts and time to discuss Tezos baking and delegation.