Smart Stake Joins List of Secret Network Validators Shuttering Operations

Staking service provider Smart Stake is the latest to announce it will no longer support the privacy-focused Secret Network.

The news comes after an internal conflict involving the project’s co-founder Tor Bair became public, however, in its Twitter post on Sunday, Smart Stake—aside from the “recent events”—also cited “complex/stressful validator operations” on the Secret Network, as well as the cost/effort ratio.

Slated for February 21, “the shutdown will be graceful and there will be no slashing for any of the delegates.”

In proof-of-stake (PoS) networks, slashing is a form of penalty designed to ensure validators' accountability and responsible behavior. While each protocol has its own specific slashing mechanism, the effect is generally the same: if a validator breaks the staking rules, a percentage of their staked tokens gets slashed.

Besides leadership concerns, validators, including Smart Stake, cited stricter operating requirements for validating the network as a reason to stop validating.

"Secret Network requires some special hardware for operations. The stability of the node is not the greatest (when compared to other Tendermint-based networks)," the founder of Smart Stake BigB told Decrypt. "Recently, a firmware upgrade from Intel was mandatory but problematic to achieve for many validators on time and it resulted in fairly stressful times for several validators. Couple of validators ended their validator in the last month and it was a decision smart stake was assessing as well at the time."

Smart Stake is currently the 45th largest validator for Secret Network with just under 1,200 delegates, which corresponds to 0.61% of voting power, according to secret.smartstake.io. It's also not the only validator to leave the network.

"We completely understand why this specific validator, who is holding only 0.61% of the voting power, would prefer to validate on the public by default PoS blockchains and avoid the complexities derived from validating on a privacy-first network," a spokesperson from the developer team behind Secret Network called SCRT Labs told Decrypt. "The Network was not impacted whatsoever by the departure of any of these validators and we wish them all success with any blockchain they'll choose to work with."

Azul Collection and Domerium Labs both announced their departure from the validator ranks last month, too. Azul said it would "focus on the application layer" of the protocol, while Domerium said that "worries voiced yesterday, regarding the 1.6 Omega update, have come true."

A Domerium Labs spokesperson pointed Decrypt to the staker's announcement on December 13, 2022, in which it explained how the Omega update had made roughly a dozen of its validators non-compliant.

"The time it takes to validate on the network and provide a professional service that we can stand by, has become an element of delay for the development of Orbem Wars," the post read, referring to a tower defense game the project had been building. "As a result of that, we have decided to stop validating on Secret Network."

Another validator called Kingnodes also said it would "discontinue validating" on January 14.

Secret Network’s leadership conflict

The latest developments come in the wake of Guy Zyskind, the founder and CEO of SCRT Labs, taking to the project’s public forum to reveal that after the Secret Foundation sold a substantial amount of the Secret (SCRT) token last year, a “significant portion” of the proceeds—a figure in the low-to-mid seven figures—was cashed out by the project’s co-founder Tor Bair as a dividend.

“This action was not disclosed in any financial reports provided to the community by the Foundation, which was introduced by Tor as a non-profit organization on several occasions,” wrote Zyskind.

The CEO added that the Q4 2021 report indicates a cash inflow of approximately $4 million for the Secret Foundation, but did not mention the above-mentioned dividend withdrawal.

Bair has his own version of events though as he claims the withdrawals were part of his share of vested tokens.

According to Bair, he began vesting tokens on June 1, 2020, when the Secret Foundation was established.

“Instead of paying out my vested tokens in December 2021, I converted my vested portion of tokens to USD at the OTC price and Secret Foundation distributed these funds as a dividend,” stated Bair, adding that this information is verifiable in the 2021 tax filings previously reviewed by SCRT Labs.