On the decentralization of the Cosmos Hub

Hub Proposals Proposal Ideas
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Part C: Incentive Levers

One of the reasons I am particularly excited about proof-of-stake is that the design space is wide - there are many ways in which the incentives could be changed to attempt to encourage or discourage particular aspects of the network’s topology - and this holds true for the Cosmos Hub. I think it is helpful to split analysis into two categories: in-protocol changes, which change the Cosmos Hub state machine, how rewards are distributed, how slashing works, etc. and would require governance proposals or hard forks, and out-of-protocol changes, which include actions taken by individual actors, potential legal structures, or social norms, and can be enacted without governance proposals or hard forks (although governance proposals could still be used to poll stakeholder support).

Generally these changes are not mutually exclusive.

In-protocol

  • Sublinear rewards, where validators receive inflation and fees slightly less than linearly proportional to their stake, i.e. rewards ~ stake ^ 0.9 (at the moment rewards ~ stake ^ 1). Of course, larger stakeholders could simply run multiple validators, but the real-world transaction costs (in the economic sense) of doing that may be high - e.g. convincing delegators to balance their delegations between “ChrisValidator One” and “ChrisValidator Two” sounds tricky.
  • Sublinear proposer election, where validators’ chances of being elected proposer are slightly less than linearly proportional to their stake, i.e. ~ stake ^ 0.9 (at the moment ~ stake ^ 1). This would indirectly decentralize rewards a bit due to the proposer reward, and might be more effective than sublinear rewards if censorship is a particular concern. The same note on Sybil attacks applies.
  • Correlated slashing, where the slash fraction for equivocation or liveness faults is proportional with some coefficient to the amount of stake that has been slashed (including the stake being slashed) in a recent time interval (probably the unbonding period). This is not vulnerable to Sybil attacks in the same way, since three validators with 10% stake equivocating around the same time would be slashed as much as a single validator with 30% stake - so in that sense one might expect it to cause large validators to split up and diversify their setups (although legal risks or governance influence might remain correlated).

Out-of-protocol

  • Convincing large holders to split their delegations in a way which would preference smaller validators (relative to the current stake distribution), such as the Interchain Foundation (there’s already a petition), venture funds, or substantial individual holders.
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