We are definitely supporting this proposition and hope to see it funded as soon as possible.
In order to provide constructive feedback, we would note these points:
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We hope to see this VP tax deployed along with the “cubic delegation” proposition you also suggested. These two make a good pair, and we invite you to start the process for this one in parallel.
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- When you say, “The reality is the Cosmos Hub’s security budget is more than enough to scale its ICS offering,” well, this couldn’t be further from the truth. These models only account for infrastructure costs and are widely underestimated for a proper professional deployment, compounded by the fact that operators’ costs to run them properly are much higher than just server costs. We are tired of statements suggesting validators are overpaid; it’s simply not true. Still, the vote power tax is a necessary reform to better balance stake distribution. We just think misleading statements to present the reform could have been avoided!
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- To address the limitations presented by the possibility of sybiling by either dividing into multiple smaller validators and/or self-bonding custodian funds for big exchange validators: we find both to be highly unlikely given the regulatory scrutiny. It would clearly constitute an accounting violation to self-bond user funds, while splitting validators could be easily tracked on-chain. In the event of such misbehavior, we could consider actions, but we really doubt this will ever be attempted.
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We also think that an additional mechanism to safeguard sufficient decentralization should be presented. We propose to introduce an additional factor in the equation:
VotePowerTax = max (VPi - Median[VPs] - (VPsb^2/VPi), (100*VPi/VPs - 4)^2, 0%)
Adding this second factor will effectively cause the tax to be applied to validators above 4% VP and scale exponentially, without the chance to counter with self-bond. We propose setting it to 4% as this represents the level beyond which the Nakamoto coefficient falls below 8 (the minimum acceptable threshold for us). This offers an additional layer of security with negligible extra computational complexity. With this formula, a validator with 14% VP would effectively suffer a 100% tax, and all its rewards would be sent to other validators. This kind of extreme concentration should never happen, and if it does, this total tax should quickly force stake to redelegate and decentralize.
To give a practical example: in the current supply distribution, only Coinbase & SG-1 would be affected, respectively taking a 19.8% and 7.45% tax, thereby lowering their APR to 9.18% and 12.58%. This approach does not put them out of business while still bringing extra revenue to support smaller validators.
We are eager to hear the author @effortcapital and community feedback on this upgrade proposition. If there is interest, we are also willing to create a spreadsheet mathematical model to showcase the effect it would have in specific scenarios.
- I like the idea
- I like the idea but 4% is too low
- I like the idea but 4% is too high
- I don’t like the idea
- other reasons (please answer with comment)
Thanks for reading,
Govmos
