I don’t know if it has already been discussed : couldn’t we make the commission fee depend on current voting power (percentage of delegated atoms) ? For example minimum commission fee could be set to current voting power * 3,33 :
new validators with 0 delegated atoms could then propose 0% commission fee, so they can attract delegators
with 2% voting power : 6.66% commission fee (or more)
with 5% voting power : 16.65% commission fee (or more)
with 10% voting power : 33.3% commission fee (or more)
with 20% voting power : 66,6% commission fee (or more)
with 30% voting power : 99.9% commission fee, so people are strongly discouraged to delegate to a validator that may then get more than 1/3rd of voting power.
This rule also has some other advantages in my opinion :
it is very simple to understand
it gives the opportunity for newcomers to become validators, and at the same time it guarantees sustainable commission fee for validators that have been able get at least a few percents of voting power
it should incite people to redelegate to smaller validators
At the end with such a rule voting power should be equally shared between validators, if delegators follow economic incentives (i.e. if there is 100 validators, roughly everyone should have 1% of voting power with commission fee around 3.33%, if economics are the only incentive)
I understand the reasons for setting a minimum, but I strongly disagree. Crypto was founded on libertarian principals. Cosmos seeks to become the governance behind the entire cryprto infrastructure. If we are to be better than those we are trying to replace we should not set unnecessary restrictions for any reason no matter how noble the intentions. It should be a true free market. You cannot assume to know everyone’s intentions and situations. To be decentralized you do not have to cater to the less well off. We as a network should utilize all the resources available including large corporations and people with access to cheap energy. Do not confuse “free market” with “fair market”.
This ^^. I agree wholeheartedly that we want the protocol to lean on free market economics rather than impose arbitrary restrictions in order to achieve a more distributed outcome. Moreover, we cannot ever accurately predict second order outcomes of imposing regulations on any economic system, especially one in which proposes to “tax the rich”. I would rather the voting power be slightly less distributed than it could be over it being less secure than it could be. Because at the extreme end of imposing a limit on 0% commission, is validators leaving the Cosmos Hub to seek other, more lucrative opportunities by providing staking services to other PoS based protocols that have higher payouts and less restrictions on their bottom line. Let’s call this the “Stake Drain”. Again, I would rather the voting power on the Cosmos Hub be slightly less distributed than to see a Stake Drain on the Cosmos Hub.
So what about the 21 days unbonding period ? It seems to me it is a pretty strong restriction rule that is imposed to everyone …
I am not sure what you mean by “second order outcome of imposing regulation” but I do not see why you could accurately predict “first order” better. As for the rule I proposed, it is quite the contrary to “tax the rich”, as the more delegated Atoms a validator would get, the richer he would be !
Even if at the end it is not distributed at all ? I am no economist but I am pretty sure that without any rules this is what will happen.
I understand your concern but in this particular case we are trying to find a way to make it more lucrative for every validator to provide staking services to Cosmos, not the contrary.
This should exclude self delegations and then yes is a slightly better idea then preventing unpreventable 0% commissions (tho still would not prevent validators from returning commission fees and always being 0% anyway ). This however can be achieved indirectly by introducing Guaranteed Minimum Income below the level that could cause sybils and kill 2 birds with 1 stone (second one is the 0.76 Gini Coefficient of rewards from commission fees) and discouraging smaller players from participation. This way small players could afford 0%.
I do appreciate the thought behind your idea it is cool how the economic incentives basically bring all validators equal. I’m sorry, but to me this is not simple and there are likely many unintended consequences that we do not understand. It is not so much tax the rich, but more regulate the rich which does not sit well with me. But, the biggest issue I have is it assumes everyone acts per the incentive economics. I think the assumption should be a malicious attempt to aquire power.
Thinking about your post gives me an idea…
What if all validators get one super vote (rather than a vote for each bonded atom), equal to all staked atoms divided by the number of validators. This would eliminate centralization governance concerns with validators. It would also incentivise the entire network to pay close attention to all validators not just the top dogs. It could increase the number of people who cast their own vote. You could think of the validator set like Congress and everyday is election day.
The 21-day unbonding period has an explicit security function to it and can, in no way, be classified as an arbitrary restriction on the cryptoeconomic system. The unbonding period’s function is a deterrent to the Nothing at Stake Attack and thus is a security measure that should not be removed or reduced from the Hub.
The Nothing-at-Stake Attack describes a certain weakness present against all Proof-of-Stake-based protocols. The reason you stake ATOMs is because one ATOM is analogous to one unit of hashpower that would otherwise be spent in Proof-of-Work systems. Without ATOMs collateralized on the Hub (i.e. unbonded ATOMs), there would be no collateral to slash if an attacker stole tokens.
21 days is the minimum needed to mitigate Nothing at Stake, a well-documented attack for Proof-of-Stake networks. This means that when you unbond, you are still liable for slashing during those 3 weeks of unbonding in case any slashable offenses are found after you’ve unbonded but during the time you were bonded.
This protects the Hub from malicious validators who decide to equivocate, or double spend, the chain. Say at time T = 0, Validator A equivocates but this action was not discovered until time T = 2. And at time T = 1, Validator A unbonded. If there were no unbonding period, Validator A would’ve gotten away with stealing the tokens. This is Nothing at Stake.
I understand your concern but in this particular case we are trying to find a way to make it more lucrative for every validator to provide staking services to Cosmos, not the contrary.
Making distributions more equitable for all validators in the current set as a whole via a top-down rule seems suboptimal to me with unforeseeable consequences. The way I’d approach my business, as a validator—theoretically—is to think of how I could launch secondary markets that pipe users into my validator in an effort to differentiate my validator from the rest. Perhaps your validator could provide insurance to your delegators? A sort of SAFU-esque fund that protects your delegators in case you/they get slashed?
Doing this does three things:
Justify a higher commission rate for your validator to attract delegators with a lower risk tolerance (a non-negligible market in staking).
Makes your profit margins higher because now you’re charging higher commission (not compete with other validators at 0 commission). And now you don’t need to race other validators to the bottom.
Gives your validator an edge in a competitive, free market for validation services.
This is how I’d think of things, at the very least. Hope this is helpful.
You’re correct, we should always assume malicious attemps when imposing new rules. However, I believe most people actually act per incentive economics. Besides, it is a basic assumption for the whole crypto eco system, whether it is based on PoW or PoS.
This is an interesting idea, but in my opinion the consequences of such a change would be far more difficult to predic than setting a fixed or variable minimum commission fee
Basically you are saying than security is more important than decentralization for you, i.e. rules to enforce security measures are acceptable but rules to enforce decentralization are not. I strongly disagree. Decentralization is as important as security, since it is at the heart of any crypto system promise.
Actually we could make the system way more secure (and simple !) by making it centralized. On the contrary, any decentralized system will have inherent major security flaws, in the case of Cosmos this is the 1/3rd attack. It is because we want to have a decentralized system that we are ready to accept such a risk, but there should be ways to mitigate it, and I am not convinced that “free market” rules will be sufficient, at least right now.
At the moment, the top 5 validators already earn more than 33% of voting power. If these top 5 validators would collude the system would go to an end. The risk would be far more acceptable if voting power was better divided (i.e. top 10 instead of top 5 would get more than 33% of voting power) and if there was more changes in the validator set, i.e. if more validators were able to access to top 10 to replace current ones.
I think that even in what we call “free market” certain ground rules should be made. While economic incentives are no magical tool to cause people to act in one certain way, it is still an efficient one. If we allow the market participants to constantly compete over pricing, validators constantly competing are going to end up lowering constantly, and higher fee validators will lose their delegators. I think this will only lead to lose-lose situation where nobody wins.
In Proof-of-Stake, I think representing voting power based on the tokens “on Stake” should stay that way. Having one super vote per validator could lead to sybil attacks, and also smaller validators voting against the long-term benefit of the network as they have less in stake than larger ones.
Thank you for a deep analysis of this post and replies.
From my assumption, this could also mean that people are more likely to delegate to
larger validators within top 10
validators with lower commission
It seems interesting that less people delegated to validators with 0% fee who are also outside of higher stake ranking. But currently, it seems delegators are more likely to choose among higher ranked validators.
Only thinking about pricing may not be the case for all large delegators who are delegating more than 100k Atoms. But Cosmos network and community is relatively a young one. New delegators may not be so aware of the factors other than commission fee at the moment, which can easily lead them to delegate to a 0% validator. This is not because delegators are ‘unsophisticated’ but it could be a natural behavior of humans.
I agree and disagree with this thought at the same time. I agree that no “guarantee” profit could be expected from a start up. But I disagree in a perspective of long-term security of the network. Validators are crucial in maintenance of Cosmos hub. Not every validator will leave the network because they do not make profit, but in a long term, if any validator consider this business an unprofitable one, they could abandon to be a validator in the future. New validators may fill up the empty spots, but similar issue with making ‘small profit’ or negative profit will arise to them as well. This could repeat, and I do not think this is good for the network.
Competition is the catalyst to creativity and innovation. Validators with higher pricing are forced to get better or get out. Validators who are smart or fortunate make a lot of money. Deligators get the highest return on their investment. This is a win-win-win.
This ^^ is where you lost me. Using economic incentives to facilitate decentralization tends toward socialism. I for one will oppose such policies. I think you will find others who agree.
This is a great point. I would like to make revisions based on this…
We can agree that more than 1/3 voting power with too few validators is an unacceptable security risk. Therefore let us set a limit to validator voting power as 5% of the total, the remaining voting power would go to a community pool which is distributed to validators with less than 5% (5% is starting point more thought to be given to the number, also many possibilities to how to distribute the votes). This would eliminate the condition of centralization beyond the threshold of compromised network security AND maintain free market economics. Sybil attacks and voting against long-term network benefit would be minimized, but not eliminated. This would serve as network incentive to deligate to smaller validators who are trustworthy.
Economic incentives usually align with Laissez-faire over raw capitalism. It’s kind of hard to argue Cosmos is a raw capitalist system when it has an on-chain governance system in place to promote changes and upgrades using certain consensus rules.
I agree most of the proposals on this topic align with LF, however they key word in my statement is ‘tends’. Allow me to elaborate. I believe that once the door is opened to regulation of certain groups the tendency will be to increase regulation and even taxation of those groups. I think it is a dangerous precedent to choose regulation or taxation to solve these issues. For this reason I am brain-storming ways to solve the network security concerns without regulation or taxation on certain groups.
You are absolutely correct about the on-chain governance system of Cosmos. It is very interesting to me how cryptocurrency was founded in part to overcome the shortcomings of government policy (regulation, taxation, inflation, ext) and Cosmos is a cryptocurrency with a governing body. Do you think we will create a system better than those we seek to replace if we start the same way they did?
Crypto anarchy is an interesting idea to toy with, but maybe it is time to realize it would lead to nowhere ? Current system is not especially bad (the mere fact that we are discussing freely about it comfortably seated behind our desks should be a sufficient proof). What we should aim for is to make it even better. As for regulation and taxation, I believe they are a necessity for any sustainable society, we can only hope to reduce them to the strict minimum by maximizing their efficiency.
Of course regulation and taxation are necessary, but we have different definition of ‘strict minimum’. Can you imagine the impact of such regulation on american business… Aanyways, this is turning into a political argument, and no longer seems productive. I apologize for my part that was not my intention. I could tell you had given this a lot of thought and I wanted to pick your brain. I will be watching this topic closely to see what is eventually proposed to the network. good luck.
The point that nodeateam is attempting the effect of a 0% commission fee system is going to turn delegations ugly and lopsided over time. We need to do something about this.
Validators running 0% stakes will be encouraging other validators, especially those that aren’t as well established, or indie Validators without a network of well-connected marketers, to move towards a zero commission model. People will be running on fumes over time. Validators will find it hard to attract talented individuals as the rewards will be meager. Validators will beging to lose out on setting up infrastructure at formidable data centers (unless they have proper connections). Validators will begin worrying about being penny-wise on nickel diming their infrastructure setup while pound-foolishly missing many strategic work they can be doing, they might even start cutting corners in not running as many backups as they should. All these risk weakening the Cosmos staking world which will expose operational and security risks. Imagine a series of brownouts/outages and security exposures will surely spell doom for what we all hope to be the future Internet of Blockchains.
As you can tell, I agree with what David (Cosmostation) mentioned earlier – it’s “bad for business”. Seasoned infrastructure engineers will be mostly shunned away (except for blockchain AND PoS die-hard believers) as there’s really no incentives for them to enter the arena. This is really the best time to attract them, but not with a zero-commission story! Cosmos is a lot about game theory – the block proposal rewards, the DPoS, the commissions, the unbonding period to reduce delegation movement velocity, the ability to re-delegate, the gas model like Ethereum to discourage spam, the inflation model, the limited supply of ATOMs, the increase of active Validator counts over the next decade, etc.
IMO, allowing a zero-commission model is a big miss in the Cosmos game theory.
There’s talks earlier about bringing in a taxation model, Sunny’s SikkaDAO, side channel paybacks for large investors, etc. Why not do something similar to start with, like first move to raising the minimum to 5% for all Validators. Then figure out in a different proposal whether there are exceptions to this, have a tiered commission model depending on the size of the delegation, or peg it to something like LIBOR in the blockchain world, or have the minimum % set by a DAO, etc.
Anyhow, I hope we can move this into a voting stage soon
I agree on the fact that Nodeastream is arguing about the effect it will have and is probably already having on validators’ operations and delegators heuristics for choosing validators. And it does seem it has more to do with the Cosmos game theory than with anything else.
Currently it seems that most delegators’ choosing heuristic is just to pick the one(s) on top and not much else because a high percentage assume they are the most secure given their reputation or recent performance. There is another smaller set of delelagors who divide their stakes across the board which should be the most logical approach.
I would assume the practical approach for this topic, is to create a single proposal or different proposals (preferred) because it seems they have sufficient support from many people holding ATOM, delegators and validatorsto be considered to be implemented and to vote.
The way I understand it there are several ideas that ATOM holders are entertaining to improve decentralization and balance fees to encourage small validators to participate in the network. Most can agree that having 5 validators the power to attack the network is bad and many smaller validations may not compete against 0% fees. And that needs to be changed. I’m also against taxing rewards directly but other approaches have been suggested which can be summarized as follows:
Social consensus
This is potentially a tragedy of the commons scenario. It is to wait for validators to act in the best common interest over their economic gains. When in reality validators are expected to maximize economic gains while securing the network, in the same way PoW miners act which is in self interest. So hoping for a social consensus to further improve decentralization via fees is as pointless as the creation of the EOS constitution and hoping everyone abides by its social rules without any enforcement.
Minimum Commission fee
The one discussed in the original post. Limit a 0% validation fee. The main concern is to know how much is good enough. Having a fixed minimum commission fee depends on the price of ATOM, the needs (or lack of need) of validators to cash out the commission fee for operation costs or simply the raw capital the validator & delegators have compared to others. Like [jacksteroo]
(https://forum.cosmos.network/u/jacksteroo)
suggested a 5% might work and it is better to have a higher fee than the cost of operations than one that barely cover its costs. Another approaches can be choosing the median fee across all validators divided by a certain amount as the minimum fee or setting a minimum fee like 5% and having a continuous vote to alter this number depending on the needs of many. This can also go down to zero again if most token holders decide that’s for the best.
Equilibrium based minimum fee - suggested by JLiBercrypto
Given a validator’s percentage of control of the network, a minimum fee is enforced so that the higher the percentage of ATOM delegated the higher the minimum fee needs to be. The most likely implementation should be having 0% minimum fee up to a certain percent of the network, it could be up to 2% of total ATOM delegated which currently only affect the top 16 validators many of which already have fees between 10-15%. Using a function starting at 2% total delegation being 0% minimum fee and ending at 33% total delegation being a high minimum fee could work because we additionally can agree upon “having one validator that has 33% of the total stakes is a bad idea” It wouldn’t be difficult to implement. The shape of the function should also be agreed upon.
The main opposition for such proposals is that “it may or may not inject unintended consequences” which might be true but these theoretical consequences should be discussed as such a change is not extremely esoteric or incomprehensible to discuss.
I feel like I owe it to you to participate in discussion of unintended consequences.
Theoretic consequences of number 2 or 3.
Validators are profitable at lower price atom so atom price is held lower. Opposite effect of Bitcoin mining reward halving.
There could be a case made that all validators essentially have to offer 0% for some period to gather enough delegations to be relevant. This could serve as a barrier to entry similar to a franchise fee or a 10mil pay to play… Possible this could improve network security due to validator must remain truthful to recoup entry cost. You remove the entry cost you lesson stake of validators.
Atom hodler’s go to other POS chain with higher returns, thus driving price down and forcing higher commission %.
A potential validator with lots of capital does not have option to attract new deligators with low fees. This forcing them rather than return atoms to general population buy atoms and self stake which in the long run increases centralization.
Some validators with lower than normal cost could use the higher commission to accumulate more and more atoms to the point where delegation doesn’t matter.
If validator decides to avoid regulation there could be incentive to open more than one node.
Essentially lower cost of entry encourages small validators who cannot cover cost in event of some market low. Or who may cut corners.
I’m sure others could think of more or give reasons why all of there are not feasible. I just know I’m not smart enough to think of all the possibilities which is why I would try to stick with a few principles that I know to be sound.
). This however can be achieved indirectly by introducing Guaranteed Minimum Income below the level that could cause sybils and kill 2 birds with 1 stone (second one is the 0.76 Gini Coefficient of rewards from commission fees) and discouraging smaller players from participation. This way small players could afford 0%.