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.
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.