[APPROVED] Cosmos Hub & Neutron: Validator alignment

Note: This proposal is the first of a series of proposals meant to increase alignment between Cosmos Hub, Neutron, Stride, future consumer chains and their respective stakeholders. A document outlining the general vision for these proposals is being drafted.

Summary

  • Allocate 10,000 NTRN from the NTRN Airdrop to each Cosmos Hub validator running Neutron nodes to provide financial support and improve incentive alignment.
  • Validators opting to not run Neutron nodes after the 31st of December under the ‘soft opt-out’ feature will not be eligible.
  • Tokens are allocated to Cosmos Hub operators running active nodes on Neutron. Operators whose nodes become inactive on Neutron will be reallocated or returned to the Cosmos Hub Community Pool.
  • Validator allocations will be vested linearly over one year using dedicated contracts on Neutron.
  • A corresponding proposal will be made to the Neutron DAO to request the enabling of a voting vault to provide locked validator tokens with voting rights in Neutron governance.

Context

Following the approval of proposal 835 and proposal N24, the Cosmos Hub community pool received ~42,727,950 NTRN tokens (4.27% of max supply of NTRN) from the Neutron Airdrop. This NTRN materialises the close alignment between the Hub and Neutron, reinforced by the “Do no harm” and “Cooperation” policies ratified by the Cosmos Hub community.

At present market value (>$0.80 NTRN 13.12.23) the transaction will equate to a return of >$34,000,000 on its initial outlay of 50,000 ATOM to Neutron in Prop 72. Based on average monthly cost of validation estimates, this would equate to 15 to 30 years of security budget.

This redoubled incentive alignment between the networks creates massive opportunities for collaboration: joint ecosystem funding initiatives, strategic PoL to bolster the AEZ’s growth, liquidity bootstrapping programs to enshrine ATOM as money on Neutron and the AEZ, and more.

As an initial step, we propose to ensure that Cosmos Hub validators are properly incentivized to fully support Replicated Security and Neutron. To this effect, we propose to allocate 1.8M NTRN out of the 42M tokens (roughly ~4.2% of the Hub’s allocation) to support and incentivize validators running Neutron nodes.

Proposal

We propose an endowment of 10,000 NTRN per validator, to be linearly vested over a year using battle tested smart-contracts on Neutron. Assuming a corresponding proposal is ratified by the Neutron DAO, Cosmos Hub validators would benefit from voting rights in Neutron governance.

  • Validators who wish to cover infrastructure cost may claim and sell their tokens
  • Validators who wish to gain upside in Neutron’s success may hold their tokens and help steer the network towards success

In the absence of ICA controller functionality on Cosmos Hub, it is not possible to implement a fully trustless solution. In the interest of time and simplicity, we propose to start with a minimal solution that can be implemented in the coming weeks, according to the following steps:

  • Obtain governance approval from the Cosmos Hub and Neutron DAO
  • Transfer 1,800,000 NTRN to a DAODAO multisig on Neutron.
  • Allocate 10,000 NTRN per active Neutron validator to a vesting contract on Neutron.
  • Vest the tokens linearly over 12 months. Unlocked tokens can be claimed at any time.

Since this proposal would release a large number of tokens into circulation, and in order to reinforce the collaborative precedent between the DAOs (having passed joints proposals for the airdrop transfer and more), a proposal to the Neutron DAO would be made to ensure it consents to the allocation of 1,800,000 NTRN. This would ensure that the Do No Harm and Cooperation clauses approved by the Cosmos Hub in Prop 835 are explicitly respected, and would grant the validator allocations voting power in the Neutron DAO.

This structure is the most straightforward option and can be implemented in a short amount of time. It requires a committee to perform the IBC transfer and allocate the NTRN tokens to the vesting contracts.

Name Role Address
@lexa Hypha cosmos1glgpeeadl7sttf5hed0s53zmxwrz3e4wtg27nx
TBD
TBD
TBD
TBD

Upon successful passing of the proposal the full amount of 1,800,000 NTRN would be sent from the Cosmos Hub community pool to the above multisig, which would then perform an IBC transfer to Neutron and execute a message to register vesting allocations for each validator.

The multisig would retain the ability to edit/remove vesting schedules to easily handle circumstances such as:

  1. An operator key has been compromised and the vesting schedule needs to be registered to their new operator address.
  2. An operator is no longer an active validator on Neutron and the remaining tokens need to be returned to the Cosmos Hub CP or registered to a different operator which has replaced them in the active set.
  3. Etc.

Any tokens remaining at the end of the period would be returned to the Cosmos Hub community pool before the multisig is disbanded.

Governance votes

The following items summarize the voting options and what they mean for this proposal:

YES: You wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

NO: You do not wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

ABSTAIN: You wish to contribute to the quorum but you formally decline to vote either for or against the proposal.

NO WITH VETO: A ‘NoWithVeto’ vote indicates a proposal either (1) is deemed to be spam, i.e., irrelevant to Cosmos Hub, (2) disproportionately infringes on minority interests, or (3) violates or encourages violation of the rules of engagement as currently set out by Cosmos Hub governance. If the number of ‘NoWithVeto’ votes is greater than a third of total votes, the proposal is rejected and the deposits are burned.

16 Likes

is $NTRN in this case more like $FTT or simply top validators using the CP to make up for the cost of their governance failures? Validators voted to proceed with unprofitable ICS chains and heavily subsidized stride despite lack of demand and a whole host of articulated problems that validators now want to unilaterally vote to force users to pay for. The market has rejected this validator precedent reflected in the price of ATOM. I hope validators decide to listen to the market and stop relying on farming user capital to fund their failures.

1 Like

Amazing step to support the validator operations. This action is setting a commendable precedent for more ICS chains to come.

One suggestion is to exclude the CEX validators and validators abusing the commission.

5 Likes

How is this “forcing users to pay” for anything? The NTRN in the community pool wouldn’t exist at all if Neutron wasn’t a Cosmos Hub consumer chain.

5 Likes

would this not be preceded or followed by a proposal to make NTRN liquid using ATOM unilaterally taxed 10% by validators, so validators can more easily subsidize their own decision install NTRN as an ICS chain?

Bendy, the AAdao, Zaki, etc are presenting the NTRN in the CP as some huge win for ATOM, but it sounds like you are saying its just NTRN trying to pay for validator’s governance blunder

2 Likes

I was hesitant at first, but this portion of the funds but makes a large impact on the infrastructure providers of the AEZ and makes the onboarding for new consumers much easier to handle.

Would this include CEXs and white labels?

Will each validator be given a vesting account automatically without having to go through an approval process? What will that structure look like?

1 year is a long long time in this space. The return of these funds may be hard to do with turnover. There should be failsafes and procedures for signer rotation if needed. I don’t imagine theres a large portion of the funds remaining, but something to take into account considering the length of time for this responsibility.

1 Like

I would target this subsidy proposal to the bottom 80% of the validator set. I don’t see why we would be subsidizing big validators who are making money hand over fist from staking. Napkin math tells me that the biggest validators like Coinbase make nearly $100,000 per month in revenues which if validator costs are about $1000 per month per chain, that means they hardly notice the 2 extra chains they support. $99K per month or $98K per month is still pretty high profitability as far as that goes.

I’d limit this subsidy to validators with 2 million or less ATOM in assets under staking (AUS).

7 Likes

Agree with this. If not 20%, we should atleast cap it with top-20, as last 20th validator have more than 3.2m in staking so earning good commissions.

I am also interested to see linear distribution based on voting power to remaining validators (i.e., lower end validators get extra tokens than top validators). So instead of each validator getting 10,000 NTRN equally, may be the validators in the top will get 8,000 NTRN to 10000 NTRN whereas lower end validators get 10,000 NTRN to 12,000 NTRN.

5 Likes

This is a great idea, with a simple and efficient solution. As others have mentioned, CEX validators and top 20 or so validators could be excluded or receive a lower amount, but in general fully in support of this proposal

CONTEXT:

The proposal suggests allocating a portion of the NTRN tokens from the Cosmos Hub community pool to support and incentivize validators running Neutron nodes. This initiative aims to align with the “Do No Harm” and “Cooperation” policies endorsed by both Neutron and the Cosmos Hub community. The proposal addresses the financial support and incentive alignment of validators running Neutron nodes and seeks to enhance collaboration opportunities between the two networks.

ANALYSIS:

We would like to note that the proposal does not exclude certain validators based on financial metrics, demonstrating consistency with Neutron’s approach to token distribution. The proposal aligns with the principles of equally weighted distribution, similar to Neutron’s token distribution event, showcasing a commitment to fairness and inclusivity.

To further enhance efficiency of the allocated capital among validators, there’s a suggestion to explore the inclusion of basic network efficiency factors, such as a base 95%+ uptime and no slashing over the past 6-12 months in the eligibility criteria. This could contribute to fostering the highest possible quality among validators and ensuring a robust and reliable network.

Lastly, we propose considering a switch in the current NTRN fee distribution mechanism towards the Hub delegators, directing it to the community pool instead. Many delegators receive minimal amounts of tokens, and reallocating these rewards to the community pool could serve as a replenishing factor to balance the yearly expenses related to the validators’ allocation. This reallocation would contribute to a more sustainable and inclusive reward system within the Cosmos Hub.

CONCLUSION:

In conclusion, we express strong support for the proposal, acknowledging the team’s efforts to create new ways to reward validators for their work in the Cosmos ecosystem. The commitment to fairness, collaboration, and inclusivity is evident in the proposal, and we appreciate the consistency in applying these principles. The initiative exemplifies the infinite possibilities for fostering deep economic partnerships between provider and consumer chains within the Cosmos ecosystem. We look forward to the positive impact this collaboration will have on the security and growth of both the Cosmos Hub and Neutron. Still, we propose two amendments:

  • Review the eligibility criteria to include performance related factors.
  • Consider a revision to the network fee distribution mechanism to replenish the community pool.

Thanks for reading,
pro-delegators-sign

3 Likes

Hey everyone,

Although it is clear some of my original proposal draft made it into the above proposal (which is great tbh) I still think it is valuable to post my ideas as I had originally drafted them.

Therefore a secondary proposal in similar style is now available here: [Draft] - Cosmos Hub Neutron Validator cost restitution plan

4 Likes

NTRN is owned by HUB and vals extract value from HUB continously. How is that not aligned? Vals will get it either way over time. Better increase the pie and later share it.

Other thing, NTRN and Hub made a deal and all signed on it. Vals want more value but they signed up and knew there will be delay in pay off? This is just a bad precedent where vals want more instant value before it is created.

Such proposals unlikely to pass because vals are biased to vote and should abstain and I doubt community will be activly voting to extract value. Especially when many validators vote against investor’s interests.

You make a lot of baseless assumptions. Validator costs are a real, monthly expense, can’t be delayed 3 years until TX fees cover them.

Very supportive of this, thanks to @Ertemann for the initial idea.

1 Like

Please explain. In detail so I can change my mind.

I like to make $ rather than consume, businesses do same, that want to do well.

OK, I actually went and checked small validators above bottom 5%. Do you know what I find? Single individuals or few people at most. These are not professional businesses but hobbies. They do not even advertise they run nodes (some do though). Giving from NTRN is just any random income for them and won’t improve their infra as they are not even looking at validator business. I know many like to be socialists and ‘help’ the little guy because it sounds good/kind, but we are in business.

Give me something to understand why. I can go to all the bottom guys and show what they say on their websites. Very little actual validators becides a person running a node for fun.

Other example, nomic pays 0 (can’t sell and unlcear if pays off) for a long time. Vals still there, because it is an investment. One can look at NTRN validation exactly the same.

Any rational argument is welcome. I am here to learn.

1 Like

I am an anarcho-communist, please don’t insult me with the “socialist” label.

I am going to go slightly off topic here but I think it is relevant to where this conversation is going. In ICS running an additional chain is the same cost as running the Hub. So if the Hub costs $1000 per month per validator, we are talking about 180 validators or $180,000 per month or $2.2 million per year. Obviously the Hub has enough AUM and generates enough activity to justify that. But does ever additional consumer chain? Stride is getting very close to that level of activity if not already there. Neutron clearly isn’t. What happened with Neutron is what happened at Polkadot. The validators made a bet that there is big demand for WASM after all the bitter political battles over WASM on the Hub in 2020 and 2021 as Terra (LUNA) was going gangbusters. Well… since then Solana has emerged as big WASM developer honeypot and Neutron can’t attract the usage. Neutron is not the only chain losing to Solana. The Polkadot parachains lost out too. Bad bet by the validators who are fighting the last (2021) wars. Not going to be the first time such a thing has happened.

The question here is one of strategy - are validators Venture Capitalists who are investing in unproven products hoping one of them will compensate for all their losses or are they Private Equity honchos at KKR where they take a widget manufacturer from Germany who has a nice local business but who really doesn’t want to deal with a global distribution network, buy him out and take his business global and make a ton of money? Listening to all the griping about Neutron, it sounds to me that Cosmos Hub validators want to be in the Private Equity business - get projects with proven product-market fit (ie proof-of-revenue and economic activity) and then mainstream them (because obviously that is how you make a lot of money).

The other question is - does an empty chain deserve $180,000 worth of security every month? Probably not. Getting the big decentralized security that Cosmos Hub validators can offer makes sense for bigger chains that support larger amounts of economic activity.

I think up until Neutron, most validators operated under a VC strategy. Then they realized that not everybody can be a VC. You need deep pockets to be a VC. And so now there is a pivot in strategy. It is all good. People made a mistake, we’ll fix it and that’s that. Obviously the economics of the big validators vs the small validators are dramatically different and that is why I think it makes sense to target the stimulus to the small validators. The small validators is what makes the Cosmos Hub quite decentralized. Our business - as it were - is decentralization. And as such it is important to treat them fairly. In this case “fairly” means don’t stick them with losses while the community pool is rolling in dough.

2 Likes

By “abusing commission” we hope you mean 0% and above 20%.

2 Likes

Yes, mainly. I see 1%-20% acceptable range.

Love that. We don’t view the space like a VC because we rent our servers and it’s cost prohibitive to throw shit at the wall to see what sticks. Huge validators own their infra and run data centers. We’d love to get there someday and think this proposal is a good idea, with a few modifications.

We don’t believe the top 20, 0% commission, or CEX validators should receive support from this proposal. Tiered support makes sense with more going to help smaller validators.

Prop 848 was a great example of just how much power the largest validators already have. Please use this proposal to spread out voting power.

Under those circumstances we would end our soft opt-out and spin up a validator for Neutron. Our monitoring failed this past June, we ran out of disk space, almost got synced and back online with a new machine in time, but didn’t quite get there and were slashed 0.01%. Sometimes tech fails. That’s just a reality. We are a small shop, but not hobbyists. We take this quite seriously and intend to be here for many years to come. That being said, we ask that the proposal not exclude slashing within 12 months.

3 Likes

You just shared why we are here in a long essay. We are on the same page.

My argument is, we should use CP money to invest because Hub is still underfunded.

Supporting small vals is a losing game. I would support only professional vals that focus on validating and has expertise. Not one man shops. This is not adding much decentralization because person can close it at any point in time for any reason. Institutions last, people not.

Bigger vals are ok to make investments, so they do not need payout now as they can get more later.

We should have a list of vals that are actual businesses with transparent org structure. Then we see what all want to support - random people who do not care of Hub long term, just quick profit without putting much skin the game (creating actual business). Startups fail fast.

So I am just being very rational what makes sense to do with money despite having ideology.

2 Likes