I wrote this out in a separate forum post here but now I think it’s worth revisiting.
You have to incentivize diversification for the Delegators:
Right now there are theories of there being benefits to diversifying, but little to no actual evidence of the benefit in diversifying because there’s no difference between systematic versus unsystematic risk, since most Validators seem to be doing fine and dandy with regards to uptime.
I’d suggest we create an additional staking rewards formula so that diversified Delegators receive “extra rewards” on top of the normal staking rewards for Delegating Atoms to a diversified group of Validators. Example: if the Atoms in your wallet are diversified more or less equally to at least 50 active Validators then you get 50% extra staking rewards.
-What’s a “diversified group of Validators” look like?
Hard to say, but a perfectly distributed Delegator wallet with 100 Atoms in the wallet would have 1 Atom to all 100 active Validators. A sliding scale for these extra rewards would also make sense; ie- an ideal diversified wallet would have to see the highest “extra rewards” possible but a somewhat diversified wallet would have to see only somewhat “extra rewards”.
-How does someone “game” this system?
Validators with large self-stakes might charge higher than normal commissions, knowing that Delegators trying to get extra rewards would be essentially forced to delegate to them and pay that higher commission.
Could cause Validators to start to spread out their staked Atoms and take up multiple active Validator spots in order to artificially allow Delegators to falsely “diversify” across multiple active Validators. This could cause a good chunk of smaller Validators to fall out of the active Validator spot they’re currently in.
I’m sure there are more ways to game it, but those are just a couple that come to mind.
-How high would the “extra rewards” have to be in order for Delegators to want to do it?
In my mind, as a Delegator, it would have to obviously compensate me for staking to a lot of Validators who I otherwise wouldn’t normally stake to. And the various reasons for not staking to certain Validators are if:
-I don’t know a thing about the Validator;
-the Validator charges what I think is an irrationally high commission;
-the Validator has had poor performance and possibly might be a slashing risk;
-the Validator is a company or individual I just don’t want to support for personal reasons.
So to quell these factors it would truly have to be a large chunk. Off the top of my head I’m thinking like an additional +50% of whatever the going staking reward is (so if staking rewards are at 10%, this would have to be 15%).