CHIPs Discussion Phase: Minimum Commission as a Function of Voting Power

One concern of the ATOM community is the concentration of voting power present on the active validator set. Recently, there have been some discussions and proposals like imposing a tax on voting power . We present an alternative method (at a high level) to discourage concentration that is also more robust against Sybil attacks.

Here’s a summary of the benefits:

  • Encourages a decrease in voting power concentration.
  • Shields small validators from intense competition with larger validators.
  • Does not hinder the ability of small validators to compete.
  • Mitigates Sybil attacks.

High-level Description:

The proposal suggests implementing a minimum commission that increases with the validator’s voting power. As an example, the minimum commission rates could be set at 0% for the last 33% of voting power, 5% for the intermediate range, and 10% for the first 33%. Other potential designs, such as considering self-stakes similar to the tax proposal, a more granular function, or a commission greater than 0% for the last 33%, could be explored in future discussions. The specific parameters of the function are deferred for further consideration, emphasizing the high-level concept at this stage.

The idea has many benefits that we enumerate:

Encourage a fall in voting power concentration: This is straightforward and requires minimal elaboration. Staking with large validators incurs higher costs for stakers.

Supports Small Validators: A few months ago, the community voted in favor of Proposal #826, endorsing a minimum validator commission of 5%. The primary goal of this minimum commission is to ease competition among validators, ensuring profitability for smaller validators. The rationale is straightforward – if stakers predominantly choose a validator based on its commission rate, smaller validators struggle to compete with larger ones, as the break-even commission decreases with stakes. Therefore, the minimum commission serves as a means to moderate competition.

However, we challenge the assumption that stakers exclusively decide based on commission rates. Stakers likely consider various factors for selection, such as the validator’s reputation, peers’ choices, herding, etc. If this holds true, the minimum commission policy might inadvertently hinder small validators rather than assisting them. Small validators, often characterized by an unknown reputation, rely heavily on their commission as a competitive edge. In essence, the minimum commission policy constrains the competitiveness of small validators, while larger validators are primarily attractive due to their established reputation. This inadvertently contributes to an increase in concentration.

On the other hand, notice that an increment in the commission as a function of the voting power limits the ability of large validators to compete with small validators, simultaneously restoring the small validator’s competitive tool.

Sybil Resistance: This variable commission scheme is more resilient against Sybil attacks. Such attacks could be orchestrated by a large validator with his own stakes, but such a validator is indifferent to the commission and has no incentives to split into nodes. Alternatively, the attacking validator needs considerable control over its stake, in which case it may opt for side agreements with delegators to refund commissions. This is possible since, in this scheme, the commission is money left in the hands of the validator. In any case, this mechanism is unlikely to incentivize splitting up nodes.

Effects on major players: Other approaches that seek to penalize revenues could make ATOM staking appear excessively expensive for CeXs and other major players, potentially prompting them to abandon ATOM. The variable commission, on the other hand, avoids this drawback, as most CeXs have commissions set at 100% or well above 10%. Alternatively, as mentioned in the previous point, they might explore side deals with their delegators, avoiding the need to exit the ATOM network.

A negative effect would be that this scheme puts large validators with a lot of delegators at a disadvantage compared to exchange validators. So, we might see exchange validators move up in the set while large conventional validators get smaller.

Would love to have some feedback on this approach.


so force users to pay top validators more until they exit through the LSM?

Implementing minimum fee tiers is an intriguing concept on paper; however, we harbor reservations regarding its potential impact on stake distribution, primarily for two reasons:

  1. The first concern is tied to the low capital turnover within the active set. The share of redelegations in relation to the overall staked amount is minimal. Furthermore, the stake distribution has shown little change over the years, as evidenced by the chart below:

    Despite the addition of new validators to the active set, the vote power has remained consistently unchanged among the top 15 validators.

  2. The second concern revolves around the prevailing wallets that continue to exhibit validators sorted by their existing vote power, contributing to a self-reinforcing phenomenon. Many users, lacking a full understanding of stake distribution, often make random selections from the top-listed choices. This behavior is reflected in the fact that most Google search clicks are concentrated on the top-listed links. Users tend to perceive the top validators as safer, perpetuating a false notion. To address this decentralization challenge, the sorting mechanism needs a revision, rather than adjusting the minimum fee.

In response to this issue, we propose a collective effort to implement sorting based on quality-driven metrics, such as missed blocks and, by extension, the participation rate. These factors can positively drive competition within the validator set. Alternatively, we recommend each wallet display validators in a completely random manner, prompting users to manually choose their sorting criteria before selecting their preferred validator(s).

Thank you for reading !


Many thanks for your comment!!

Probably the low capital turnover within the active vals set can likely be attributed to the absence of a policy to encourage a migration from larger validators to smaller ones. Other aspects as switching costs may also play a role.

I agree that many users make random selection of the top-listed choices. Using quality-drive metrics may help in all this dynamic. I just wonder whether such measures would effectively support smaller validators.

In any case, there should be more discussion and innovation to address concentration.

This is only possible by building on the already deeply entrenched top 15.

If it was built from the beginning, then this is simply impossible, unfair mechanism

I think the voting delegation of the validator set should be cancelled!

Or slowly change the voting weight in a multi-stage manner

Reduce voting weight by 25% to 20% to 15%

Or 0%

Or modifications with a proposal approval rate of 40%

Based on the average number of people who voted in the past, what percentage should be lowered?

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