CHIPs discussion phase: Optimizing ICS reward distribution with per-chain commission

[jtremback]

Ok it’s a week later, but here I am.

@Cosmic_Validator

-Stride, ICF and other delegation programs have a maximum 10% commission requirement in the Cosmos Hub, will they be ok with fees above 10% for certain consumer chains?

This is an interesting question. I assume that they would have to adjust to what is considered the reasonable market commission rate for a given consumer chain.

@Cosmic_Validator

-This idea could work if it is done for the whole validator set, for example adding a minimum 10% or higher fee for certain consumer chains. Because if individual validators raise the commission on certain consumer chains they might then lose delegations in the Cosmos Hub so they wouldn’t raise the commission

I haven’t thought that far along, but minimum commission is an interesting idea in combination with per consumer commission. It could even be offered by consumer chain teams, and set in the consumer addition proposal to make a given consumer work for the valset.

@Cosmic_Validator

-Neutron had a monthly revenue in September of around $300, to share amongst the 180 active set validators and all ATOM stakers. We could raise the commission for Neutron to 100% and still wouldn’t change much

With 20/20 hindsight, I wish that Neutron had made some very different tokenomics choices. They spent their entire security budget doing a huge airdrop to ATOM holders, around 7% of supply. With no inflation, this leaves very low fees. If they had chosen to use the 7% airdrop to instead pay ICS fees for a few years, the annual income for the Hub would be close to $10M or more of NTRN per year, and would get closer to covering validator expenses. That is to say: I don’t think that Neutron is a typical example of a consumer chain.

@Cosmic_Validator

-For me the solution should be more about bringing revenue to validators to cover the CCs costs, not raising fee on a negligable revenue amount. The Vote Power Tax idea of @effortcapital is promising, since it would both accelerate and scale AEZ growth by giving resources to validators to run 5+ consumers chains and at the same time improving decentralization, I think we should focus on this idea. Other ideas would be to use part of the NTRN unclaimed from the airdrop currently in the community pool to be distributed as rewards to validators to help them cover at least the costs to run Neutron

I strongly agree with your idea to use the unclaimed NTRN, and I hope to spearhead a proposal to do just this. I also think that “minimum validator income” ideas could be useful.

That being said, I think the variable commission fixes some fundamental economic imbalances in ICS, namely: ATOM holders want consumer chains with big future upside, while ATOM validators need to bear the costs now.