The goal of this post is to gather feedback on our centralization concerns around the on-going onboarding of consumer chains to the Cosmos Hub.
Upfront, it is important to note that our concerns relate to the economics of the current consumer chain model in general - a fixed, minority revenue share with limited opt-out.
As the vote to on-board Stride is currently live, we will use this case as a revenue proxy for past- and future consumer chains.
This is not an assessment of any particular consumer chain’s characteristics or growth perspective.
As such, we have and will continue to vote ‘Abstain’ on all related proposals until we feel that a more systematic and sustainable model has been agreed upon.
While running a validator incurs fixed costs, the revenue collected from consumer chains is variable as a function of voting power.
Currently, for a majority of the validator set, this revenue stream appears insufficient to cover the fixed cost associated with operating an additional node for a consumer chain.
Therefore, this manifests as centralization pressure, including in the following ways -
Small validators may need to terminate operations, causing delegators to seek out more stable options, i.e. delegate to large validators.
Small validators especially may have to compromise on cost, decreasing their security and consequently attractiveness.
Large validators will have relatively more income at their disposal.
This situation can be framed as a fixed tax imposed on the validator set. Small validators may not be able to afford it, leading delegators to prefer large validators over the long run.
Large validators now control more stake, and delegators earn higher yields due to consumer chain emissions.
However, this benefit is generated at the expense of decentralization, i.e. staking on Cosmos Hub just shifts on the risk <> return curve.
Large validators win, delegators ostensibly win, small validators lose.
Please access the link above for the full analysis.