Clarifying Funding Sources for Cosmos Validators

Conversation
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Recently, there has been some discussion within the Cosmos community about validators who are being paid by the Interchain Foundation (ICF) in terms of delegations and also requesting additional funding from the community pool for their contributions to the ecosystem. This raises questions about the appropriate use of community funds and the transparency of funding sources for validators.

It is important for the community to have a clear understanding of how validators are being compensated and funded for their contributions to the ecosystem. Validators who are already receiving payment from the ICF through delegations should not be requesting additional funding from the community pool, as this could be seen as double-dipping and taking advantage of community resources.

Furthermore, it is important that services funded by the community pool and those funded by the ICF do not overlap and that this information is made public. The community has the right to know how their contributions to the community pool are being used and how the ICF is contributing to the development of the Cosmos Network.

Therefore, there should be a discussion to clarify the funding sources for validators and to establish clear guidelines for how community funds should be allocated. We also call for more transparency around how the ICF is allocating its funds and supporting the development of the Cosmos ecosystem.
Questions-

1- What is the appropriate use of community funds for validators who are already being paid by the ICF?

2- How can we ensure that services funded by the community pool and those funded by the ICF do not overlap?

3- What are the best practices for ensuring transparency and accountability around funding sources for validators and other ecosystem participants?

Let’s have an open and constructive discussion about these issues and work together to ensure the long-term success and sustainability of the Cosmos Network.

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It would be great if we can summarize all this information in one place.

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The ICF is independent of the community pool. If delegations are payment then the 90k to each NWV validator by aib is a bribe. I’ve expressly stated that the delegations of 90k to each NWV validator are not in my opinion a bribe, while the prop 69 gno airdrop changes are in my opinion a bribe.

Are delegations a payment? Or are they for the purpose of ensuring security and representation in governance matters?

This is a good one. On notional’s part, we’re tracking our contributions related to prop 104 carefully. We’ve also posted to this forum how our multisig was constructed, and who’s a part of it.

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In my opinion, delegations can be considered payments as Validators receive commissions from them. We have a foundation delegation program based on this structure, which awards these delegations based on code contributions and social involvement and whatnot.

While I support the use of the community fund for development, I believe there should be a publicly accessible database to ensure transparency in the distribution of rewards. This will prevent any instances of double spending.

To illustrate my point, consider the scenario where Notional has already been compensated for certain duties from the community fund. If they were to apply for another delegation using the same contributions as justification, it would not be appropriate. Similarly, if Cryptocito were to receive compensation for arranging Cosmoverse and include this as a service in their FD application, it would not be justified.

To promote transparency in reward distribution, I am willing to develop a public record that tracks all information on who has been paid from the community pool and for what contributions. Ultimately, transparency is vital for building trust in the community. But, for that, we need all the data from ICF which itself is a difficult task.

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Strongly agree.

No idea about a database, though – we do have a tracker for our work, and frankly, the development work is a good deal more expensive than the delegations (should they ever occur) would pay for if we counted them as a cash value.

Other issue:

The real thing at play in a delegation is votepower, not commission. The foundation, AIB, or a rando-whale might want the most technically skilled, participatory teams carrying the VotePower because VP determines when/if the chain halts. (note that at this time, any delegation is merely promises of a delegation)

You’re correct that there’s conflation here, but I am not sure it is a highly solvable problem at this time.

The lineup between VotePower and comission is designed 1:1 for a bunch of good reasons.

Might almost need to decouple them, I am not sure.

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I do agree, they do think of the VP for various reasons. (buying validator votes, chain halts, and stuff)

Yes in an ideal scenario, it is 1:1 but the hub has no min commission so there is little difference due to that. But I get your point.

There was this debate to change all this in a discussion group “decentralization and governance” one of the participants had this great idea. Summary;

VP should only be used for voting, not for staking reward and commission. (in that example, suppose 2 equally good validators with the same reputation Va has 1% commission and Vb has 2% commission people tend to delegate to lower commission now they have more VP but might not earn as the Vb, because they need 2X more VP to equalize.

Most of the delegators don’t care for the decentralization that is why it is way harder to reach to top 10 of an existing network than on a new network with the same reputation. People tend to delegate and forget.

Fixed commission val commission should be fixed by the network gov, and each validator should get “Fix+variable commission”

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@waqarmmirza

– in general I wouldn’t think of it as “buying a validator’s vote” – what is really going on (in my opinion) is representation – in fact I don’t even think that the 90k to each NWV validator by AIB was a bribe – they need to choose representatives that will operate the network as they see fit.

Prop 69 was a bribe though.

… ok so next part, I need you to think about the second layer of voting – there’s gov voting but every 6 seconds a node will vote in consensus. That’s probably the more important of the two votes and it is important to weight votes that way.

As for reaching the top, it is VERY hard.

TBH, this is in some ways good. There are a lot of ideas floating around about changing incentives to make it more attractive to delegate to the bottom, I just haven’t found one that isn’t dangerous to the more important votes – consensus itself – yet.

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Okay, now I think "buying vote " is a bit harsh and a strong statement. But I do think this is to influence the vote.

Yes, I agree. in a sense they have chosen like-minded people, and there should be no objection to it. But if we think there are two polar opposite VP-influential parties (e.g AIB and ICF). Validators have to choose one party to get the VP. And this situation will worsen in future.

For me, I have prioritized formulating a graceful way out of this whole Gov fight, and it would be great if you can give your precious time to the cause.

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why voting power is 1:1 ? why not evolve it into a better way ? voting power of validator need to be limited

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Because the design is rooted in the consensus mechanism. Keep in mind that the core job of a validator is to operate the chain, and so for example, no with veto is set at a 1/3 threshold because one third is what is necessary to halt the chain.

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Thanks @waqar for raising this.

There is a lot of work being done now inside the ICF to ensure that the community has the context it needs to have constructive conversations about topics like this. In the coming week, we are hoping to release our 2022 annual financial report.

As per the delegations, when they are made, we will maintain an updated list that shows who the ICF delegates to and what amounts. The purpose of the delegation program is to increase the health of the network by incentivizing contributions from validators and improving the distribution of stake of the network.

As this relates to your question, keeping in mind the purpose of the delegation program and its scope can provide a good jumping-off point for this conversation for community pool spends on a case by case basis. It’s usually good practice to not double-dip, or receive funding twice for the same scope of work though delegations do differ from other forms of compensation, and that difference may be significant in some circumstances.

Additionally, when the annual report is issued, it should provide clarity about funding as it relates to our operations. However, we are no longer the only funding body for the Hub and the Interchain, and we hope this trend continues to address more localized needs in a sustainable way.

As such, it would be beneficial for all ratified or significant funding providers in the ecosystem to follow a similar covenant or social protocol in regards to providing this information. This protocol should be negotiated between a coalition of funding bodies and take into account the legal circumstances of each case while still seeking to provide relevant context to ensure that healthy and informed governance is possible.

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Will the funding report you speak of cover only 2022?

I think that the gap is wider than that.

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Jacob explained well, but it needs fixing.

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Thank you for your detailed response. Looking forward to your detailed financial report.

I agree. But are these bodies like data sharing with each other? again to avoid double dipping.

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they aren’t and we first and desperately need to define weather or not delegations are payment.

Recognition of work?

  • yes

Payment for said work?

I don’t think so.

Why so opinionated?

at present, the community knows nothing about what the ICF pays for work

@waqarmmirza I wish to claim:

There’s no meaningful double dipping. Wait for report. Demand report. Be steadfast.

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This is a Yes from me. I think they should make the Data public. On the topic of “payment” would it be wise if i create a new discussion type with appropriate title so people can participate too?

I think these are payments.

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So, I feel you that you’d feel that way – I should likely break down the maths for you right fast but if you don’t mind, I am going to leave it to you as an exercise –

  • ICF delegates to Notional 800kish+ atoms (well, they said they would, maybe they will, idk)

(my country blocks medium.com, sorry but here’s the article with the exact figures)

Now, if these are payments:

  • AIB paid NWV voters for their votes in proposal 82 (note that I am not sure that they are payments, but I am super happy to have the convo with you, it’s important, and also note that my speech is kinda… curtailed in the aib dept, please see: DRAFT: Censure AIB for dishonest legal practices)

Also, though if these are payments (I am not sure delegations are payments because they also affect gov and consensus – my opinion? AIB actions in prop 69 represent clear payment for voting and delegations are something else)

… but if they are payments:

Calculate for me, how much a validator earns on an 800k atom delegation, here’s the rough math:

  • inflation is defaulted to 7% but currently at 20%
  • a validators delegators earn a % of inflation equal to their votepower (take notionals votepower and add the 800kish from icf, calculate our new votepower, someone made a spreadsheet)
  • take the # of atoms that the delegators earn and calculate the commission

After doing this exercise, and realizing that there’s no contract between the icf and validators, nor the chain and validators, I believe strongly that you’ll adopt my position that delegations are not payments, as they lack some essential features of payments:

  • a fixed amount
  • predictability
  • a mutually agreed upon set of services

(you’ll also find that the icf delegation to notional – the largest one – amounts to about $60kusd per year in atom, if atom is about $13 each) – there is no way that could pay for the things mentioned in the doc we submitted for the icf delegation) (but please do the math for yourself, it will prove to be a very useful exercise for you)

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First thing first, I will explain why delegations are also payments.

-Securing a network is the primary job of the validator. For that, they need delegations that also represent VP 1:1, so governance participation and voting power come with the delegation. Now, these are the 2 main jobs of the validator securing the network and participating in the governance with the delegated VP.

-With that VP comes the monetary benefit, because the token has value and the validator has a commission.

-A validator has a cost of operations ranging from 100-500 USD. Say 40 $Atom ATM.

If people are only doing this job for VP and governance we should have a fixed payment module. Where people delegate their VP and all the commission goes in a bucket and distributes evenly among all the validator sets.

But this will kill the Free-Market, keep in mind the free market and the reward system makers of the POS didn’t do that.

Now, there is no denying that with VP there comes a monetary benefit. (whatever the magnitude of that benefit is) and any monetary benefit is a payment. People do delegations to a validator where they feel secure, sometimes for their benefit (airdrops and stuff), sometimes to pay tribute to validator’s services. But we are not talking about retail customers we are talking about Foundations like ICF.

We know ICF can set up its own validator and stake with it, but they don’t they want to pay gratitude for the services validators provided to grow the community, in form of delegations that help in fulfilling the physiological need of money. So they can keep working on the good stuff.

(There is a thought if these delegations should be postpaid or prepaid, but this is for another time)

Now coming to your calculations, let’s do a quick math.

Notional has 400K delegations at 5% comm and 22 APR
Monthly earning 360 Atom

Current bonded assets 223 million APR 22%
Post delegations Bonded assets 233 million APR 21%

Notional has 1200K delegations at 5% comm and 21 APR
Monthly earnings 1035 Atom

Increase 675 Atom at 13 USD it is 8.7K USD

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When I talked to @jtremback about validator expenses, fyi I estimated $600/mo.

It’s actually pretty hard to quantify the cost of running a node cause here’s ours:

  • equipment: $1200 one-time cost
  • internet: for us it’s about $1500/mo and yes in most places it’s cheaper
  • labor: idk ser what is the precise cost of a 24/7 infra team of four (I’m serious by the way – wages only account for a small part of the total cost of employment.)

Incidentally:

Are you also arguing that allinbits bribed NWV prop 82 voters?

I am in fact not arguing that, but it seems very relevant here.

Also I want you to know I am thoroughly enjoying this conversation, and will reply in more detail when I’ve more time.

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Yes, it can be $600 or even more for quality service. Also, the equipment/depreciation/variable cost might increase the cost of the validator to even $1000.

Yes, I do think if the delegations were toward NWV only this is to influence future votes, and deterrence for the anti-party because most of the 93 validators from ICF got less than that.

Thank you for having this conversation, I am not only enjoying but learning as well.

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