[Proposal] Are validators charging 0% commission harmful to the success of the Cosmos Hub?

This governance proposal is intended to act purely as a signalling proposal. Throughout this history of the Cosmos Hub, there has been much debate about the impact that validators charging 0% commission has on the Cosmos Hub, particularly with respect to the decentralization of the Cosmos Hub and the sustainability for validator operations.

Discussion around this topic has taken place in many places including numerous threads on the Cosmos Forum, public Telegram channels, and in-person meetups. Because this has been one of the primary discussion points in off-chain Cosmos governance discussions, we believe it is important to get a signal on the matter from the on-chain governance process of the Cosmos Hub.

There have been past discussions on the Cosmos Forum about placing an in-protocol restriction on validators from charging 0% commission. [Governance] Limit validators from 0% commission fee

This proposal is NOT proposing a protocol-enforced minimum. It is merely a signalling proposal to query the viewpoint of the bonded Atom holders as a whole.

We encourage people to discuss the question behind this governance proposal in the associated Cosmos Hub forum post here: [Proposal] Are validators charging 0% commission harmful to the success of the Cosmos Hub?

Also, for voters who believe that 0% commission rates are harmful to the network, we encourage optionally sharing your belief on what a healthy minimum commission rate for the network using the memo field of their vote transaction on this governance proposal or linking to a longer written explanation such as a Forum or blog post.

The question on this proposal is “Are validators charging 0% commission harmful to the success of the Cosmos Hub?”. A Yes vote is stating that they ARE harmful to the network’s success, and a No vote is a statement that they are NOT harmful.

My point of view is that we can think of the Cosmos Hub as having a “security budget” and that security budget is best expressed as the “stake weighted average” of validator commission.

When delegators chose 0% commission validators, they are effectively moving the aggregate amount Cosmos is willing to pay it’s operators to secure the network towards 0.

This is not in the interest of atom holders.

I think it’s a great property of the Cosmos system that we are constantly negotiating the security budget of the system.

As an Atom holder, it’s in my interests to do everything I can to persuade Atom holders that a security budget > 0 is in their interests. I believe it is.

First, I would strongly advocate that Atom holders should not delegate to 0% commission validators because they are harming the formation of a healthy equilibrium security budget.

Second as iqlusion, I can deploy plans to start competing more heavily to demonstrate to my delegators what value they getting for spending on security.

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yes, I think it’s harmfull. The commission designs for balance the validator delegate amount. If commission is 0%, some validators may produce more and more blocks because there will be more delegators, and other validators earn smaller, so they may leave the network, it will cause bigger corner the network, and it’s unsafe for the network. It’s reasonable for 5%-15% for commission.

Long term: maybe.
Now: not really.

Unless we have a descent model to simulate the dynamics of delegation and fee, the long term effect of 0% fee (or even 100% fee) is hard to predict and should be observed/studied as we go along.

Also, until IBC, I think Cosmos Hub isn’t generating the proposed intrinsic value (providing the global optimum for channeling communications), so I am open to validators exploring all possible combinations of parameter setting, at least until IBC comes around and changes the optimum state of system.

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Are validators charging 15% detrimental to the success of Cosmos ? Are these validators forcing delegators to go to the lower commission based validators ?
Will 15% validators lower their commission fees when 0% validators increase their fees as many have signalled ?
When atoms increase in price will 15% validators lower their commission ?

0% is not healthy in the long term and most running at this level have stated they will raise commission. When will those 15% validators state their intent to decrease commission ?

3%-10% is the target area.

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I personally consider 0% commission has a negative impact both on short term and on long term for the ecosystem.

For the short term because it transmits a wrong message to the non technical community members, they are getting confused and are asking themselves what is the purpose of the commission if some validators are running with 0%. Also non-technical people are not aware of the security, hardware and human resources that are required to setup, run and maintain a proper infrastructure and 0% is not increasing the awareness of these aspects.

For the long run because it gets out of the game the smaller validators, it’s an indirect way of affecting the decentralisation of the HUB and encouraging validating to be an activity dedicated to large player who have a large self owned stake.

Regarding the healthy minimum commission rate, this is not a question that can be answered by simply taking the answer “out of a hat”. It depends on multiple aspects of the validator. Some validators may run with lower commission rates (eg: maybe they already have the hardware and human resources from other businesses they run and they can allocate them for validating and there is no need for hiring new people) while other validators are needed to run with higher commission rates in order to cover their costs and have some profit. From my subjective perspective a commission around 10% should do the trick for all cases, but I repeat it’s a subjective opinion and doesn’t have any studies or statistics around it, just my own personal calculations for my case.

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yes , 3% was just based a quick look of the < 10% validators of which there are quite a few.
edging around 10% may be a current target , but as I say when atoms hit say $20 will validators still justify high commission fees ?

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I also think 0% commission is harmful to the success of the Cosmos Hub. 0% commission validators destroy other validators by absorbing delegation from positive commission validators. Continuous migration to the 0% commission validators will lead to the domino of bankruptcies of quality validators with relatively small delegation, especially during low atom price.

0% commission from tendermint employee is especially harmful because it can mislead delegator community that they might become thinking that the validating service should be free. (because delegators have respect and trust on the activity of employees of tendermint)

So, Sikka’s 0% commission is not only directly harming the network, but also impact a lot of psychological, and philosophical reasoning of 0% commission rate, lead by Sikka’s activity. Those invisible impact can be much more harmful because it can accelerate the migration of delegation to 0% commission validators.

We have to think that many validators are private corporation, and it costs a lot. Currently funding of validator corporation is not very easy especially from traditional VC industry. Those corporations are so fragile that I think many of even top validators will fail to continue the business because of lack of funding. I don’t want to really see this much earlier than expected.

So, in conclusion, Yes, it harms the network a lot. And it has such a big potential to harm the network more than now. And, the fact that Sikka(Tendermint employee) is leading this migration makes the situation very worse than expected.

But I don’t agree that commission rate should be at least more than N%. Atom price moves and we expect it to arise in future, then I think it is natural to have lower commission rate because the costs of validators stay same.

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A valid question, but a little early to have an answer for that. I think the “market” may force validators to lower their commission at some point. For now with a 10k ATOMs staked one makes around 3 ATOMs/day. It might not make a difference to him that much if he pays 0.3 or 0.45 commission to a validator at 4 usd/ATOM, however that may change at 20 usd/ATOM.

On the other hand, this proposal seems a little funny to me both in formulation and in purpose as it may put validators and delegators in two opposite sides. What I wrote in my upper answer is my perspective from a validator point of view.

If I would be a delegator I must say that I would think it from profit and saftiness of funds and if I will be able to decide between paying a commission or not and have my funds safe enough with 0% commission I would go for this choice and I would care less for network security or decentralisation on the long run. Also lets not get tricked by the higher ideals where ATOM holders are thinking for the long term network health, as they are not, this is specific to only a very very small percentage of active players in any dynamic market. As an example I know a few ETH “lovers” that were truly believers in ETH and now either they sold everything at ATH either they are back in BTC. There are no long term holders of any kind of assets, only players that know when to take profit and others that skip the opportunity.

Forbole has voted NO in the proposal 12. The transaction can be found here.

My partner @terence has posted an article explaining our views on the downside of setting up a minimum commission fee at this stage.

I would like to add some more points here why we don’t think 0% commission is harmful to the success of Cosmos Hub.

  1. It should be a free market. 0%-100% is all business decisions any validators. Even if we don’t allow 0% commission, or have a non-protocol guideline of a suggested minimum commission, validators can always have some kind of rebate or even have a negative commission for their delegators. The minimum commission will just be the new 0%.

  2. Inflation is not reward, it is a punishment to the ATOM holders for not bonding their ATOMs to the network. At the current stage of Cosmos Hub, there is no transactions between networks and it is not generating any economic value. Why we have to dilute the value of the ATOM of the holders? All those so-call yield, staking rewards, etc on wallets and websites are misleading. If we take the current inflation at 7.65%, the effective inflation is about 7.65 x 6.5s / 6.9s = 7.2%. With the current delegation ratio at 70.79%, the number of tokens inflated for a delegator will be around 10.18%. With this amount, if we really need to say a delegator has “rewards”, it will be just the extra 2.98%. When a validator charge a commission at 10%, it’s already 1/3 of the “rewards” of the delegator. There is actually not much room for validators to make any interesting marketing strategies on this new business. Why we have to limit our creativities and possibilities?

  3. There are quite some validators are charging 0% commission besides Forbole, Sikka and Sparkpool.

Among these validators, we can even see some familiar names. These validators still not gaining much delegations, does 0% commission would really affecting much on delegation distribution and be harmful to the success of Cosmos Hub? Or actually delegators are wise enough to choose reliable validators?

Would the downside of setting up a minimum commission more harmful? Or allowing flexibility for a free marketing more harmful?

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Hey @sunnya97, glad to see that you’re addressing this. Perhaps it’s more than just 0% commission that’s harmful to the network, in terms of decentralization.

Strategies that concentrate delegated stake may include having 0% commission, but also consider that validator reputation (ie. being a Cosmos/Tendermint insider) coupled with having 0% commission may have led Sikka to dominate a few different delegation metrics.

Perhaps it’s worth considering what might happen to the distribution of voting power if other known Cosmos/Tendermint insiders began staking with 0% commission as well.

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Exactly, it’s been sort of a soft policy of Iqlusion to keep our commission relatively high and our marketing efforts fairly minimal to prevent our relative stature from resulting in excessive delegation to us.

It’s pretty clear that a lot of Atom holder will preferentially delegate to project insiders.

I guess where my head is at is that it’s probably time to keep iqlusion’s commission on the high side. But start competing more on the marketing side.

The question about ATOM/USD exchange rate was relevant. A healthy equilibrium average stake weighted commission.

It’s really important to realize that in emerging market if everyone just acts in their rational self interest you may never find a stable equilibrium.

The shift from validators thinking in the collective interest to purely rational self interest needs to happen gradually to optimize the chances of a stable optimal equilibrium emerging.

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I don’t understand the premise for the original post. To me the underlying question is not whether validators charging 0% commission are harmful but rather whether the parameters defined by the protocol (or whatever layer you want to attribute it to) that allow for 0% commission create the incentives that the builders and community are currently favoring for short and long term growth and sustainability. Phrasing this as “validators are harmful” makes this personal - when in reality the validators are operating within the context of the incentives provided to them.

Prior to the hub launching there was not a lot of real world deployment to look at for inspiration on how staking would play out. Now that the hub has launched, delegations made, and markets open for trading there is a lot more information. With this new information - maybe the incentives should change - maybe they shouldn’t.

Focusing on the system incentives can help shape fundamental behavior shifts - but being upset with validators who are operating within the bounds of the system does not properly highlight the system as being the thing that needs changing - not the validators and people that operate them.

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Ztake hasn’t voted yet but leaning towards voting “NO”.

There are a lot of good points brought up and discussed but here are a few more points that I want to remind everyone.

  1. We haven’t seen that many large companies getting into validator business yet. Ztake can’t compete with Sikka’s 0% commission + employee advantage but Sikka won’t be able to compete with Coinbase resources when they join.

  2. If we introduce on-chain minimum, 3% validator could still pay back the fee collected to its delegators via smart contract.

  3. Commission rate was supposed to be one of a few on-chain mechanism where validators could “signal” lack of interest in more delegations.

I think that it is might not necessary to introduce in-protocol minimum at the moment but CRUCIAL to work on in-protocol decentralization incentives.

@roman
I think we have two kinds of guideline, rules by protocol, and moral responsibility. Those two might have different guidelines. Allowed by rules of protocol does not necessarily mean it is moral and responsible.

The word harmful is relatively closer to the moral concept. It is allowed in protocol, but “is it moral for entire network?”

Humans running the validator, humans develop blockchain software. Although this blockchain environment is purely rule-base and does not have any moral sense, person who runs the validator should have such good sense of moral and responsibility. And I hopely think those good sense of moral and responsibility should have effect on delegation.

I believe protocol rules are not the only reason for humans to change their mind. We are not computers. Discussions and communications without protocol forcement also change self-motivated humans’ minds.

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I see that 0% fee can lower the persuasiveness of the security narrative. I also see that Sikka might have attracted delegators by being an insider, on top of offering 0% fee. I disagree with the argument based on the ethics though. We don’t want to go down that road, because if we start restricting what we can do on cosmos hub based on a set of ethics we will be bound by that set of ethics and become just another representation of “-isms”.

In order to achieve the full potential of cosmos as a human coordination framework, I think we should accommodate a whole spectrum of morality. Perhaps the bottom line might be set for some ideas that attempt to harm the global system for the local self interest.

So it would be great if someone can demonstrate how 0% validators are compromising the security of cosmos hub. Or can non 0% fee validators explain how the fees are being put back into achieving higher security and How it is difficult for 0% fee delegators?

I agree that it is a problem more than 0% commission and at the end it all controlled by the people who execute the validator nodes. If it is more on a moral and responsibility issue, we may have some kind of The Code of Validators which is publicly written by the validators.

If it’s an issue about the project insiders, I think it depends on how AiB communicate with their employees. There are a few project insiders running validators and obviously Sikka, Iqlusion and jackzampolin have more delegations over the others as they are more on the community end. I don’t see low commission brings any benefit to other project insiders.

Both cases will lead to a vote of No and we should look for defining the real problem first.

Yes 0% commission will have different influence on short and long terms. In short term, some dynamics have already been built and we also see some huge amount of redelegation happened. But seems it doesn’t really harm the network as somehow other delegators regulated it a little bit to fit what they want to see on the network. In longer term, I see more validators will lower their commission when big players come in and more transactions are processing on the hub.

i am writing this tl;dr type of post as a newbie to blockchain. also, i have been involved as a delegator in the cosmos hub only since june, so this is written with all due respect to the more knowledgeable and experienced members in the community

first, while i understand that this proposal is only for signaling purposes and will not effect a protocol-enforced minimum, it is in my view a discussion on censorship – a hindrance to self-expression, which 0% commission is. this would be anathema to the ethos of disintermediated, permissionless, borderless and censorship-resistant transactions of blockchains.

second, validators and delegators are undertaking their respective activities for economic gain. they are in engaged in business; they are cognizant of risk.

should there be a protective floor for validators (or delegators for that matter?), a safety net of sorts? could this be considered cartel-like or at a minimum collusion?

alternatively put, would it be inappropriate for a validator to make the following business case to potential delegators: (a) the economics during this bootstrapping phase of the cosmos hub is barely tenable; (b) we will pass on all scant financial benefits to you, sans even margin to cover our reasonable cost, as we appreciate the risk you take in the first place; © in time, as the vision of cosmos we both believe in and have invested in comes into fruition, we will, with due notice, take a reasonable and rightful share of earnings via commissions, to cover cost and enjoy a profit from risk including those previously taken; (d) and here are the other plans we have for our entity, which we hope you will continue to be involved in and to support.

all in building a reputation, the basis of proof-of-stake consensus delegation. this seems good for the cosmos hub.

would validators that have economies of scope, perhaps via validating and mining on other networks, that channel those efficiency gains to their delegators in the cosmos hub in terms of 0% commission “in the interim” be performing acts inimical to the interest of the cosmos hub?

“in the interim” - surveying not just the cosmos hub development but blockchains in general, the overwhelming majority of the applications center on lending (collateralized, peer-to-peer) and trading. these are geared towards a population set already involved in the blockchain space, almost akin to people smoking their own exhaust.

meaningful benefits will accrue to the cosmos hub stakeholders when a much broader set of applications involving a much larger swath of the people find their home in it. the regen network is such a network. and terra leverages related parties and partner entities that bring about a significant user base that largely sits outside blockchains.

a lot more is needed.

and a sine qua non for this to happen is blockchain security. does 0% commission impede or attract more business people to invest in the security of the cosmos hub even during the startup period?

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I expect the edge case of all validators operating with 0% commission will be detrimental to network security and availability. Many will not be running a viable business model and are at increased risk of default and/or are relying on the good will of third parties providing free hosting.

It also doesn’t seem like there is any good technical way to force a minimum commission, as validators would be able to reimburse the fees, although it would require some implementation work and likely have tax implications.

However, the network needs validators that are healthy and in it for the long term. One thing we could consider instead of a minimum commission is introducing a stipend for all validators, It could be tuneable through governance and competition will exist between low VP validators to remain in the set to receive the income.

Some of the properties of such a stipend could be:

  1. Large enough to be meaningful for “small fish” validators
  2. Small enough to so that large validators are not incentivised to change behaviour
  3. Paid out continuously to validators in the validator set
  4. Sourced from community pool
  5. Managed through governance
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IMO this propo looks like spam and auto promote or free publicity.

Menawhile Sikka maybe needs start charge fees now bc is in top 5?
And see others every day winnings Atoms for pay bills…

Who can be forever 0% commission?

Imagine be a miner and for free in PoW.

Why not ask about that or how they plan charge fees? Or road map?.

I said for melea 0% is ok.
Im not planning vote this propo because looks and is spam.

Ok