Should wallet providers be running validator nodes?

Cosmos started out quite centralized at genesis, but wallet providers appear to be compounding the problem. We see a few main issues that we’re hoping to discuss with the broader community, and especially want to hear from small validators.

We think this rapid accumulation of ATOM and voting power needs to be stopped to protect the ecosystem. Here are our thoughts:

  1. Wallet providers need to be prohibited from running validator nodes. As they provide entre to the ecosystem and are for-profit operators, it’s a total conflict of interest. Cosmostation has almost 7 million ATOM to vote in their own self interest.

Keplr runs validators too. How much longer will it take for them to be top 20? Is Leap next, then Guarda?

We feel wallet providers should only be allowed to run pools that stake with 25+ validators and charge 50bps-100bps (or whatever they want) for managing the pool. They can create their own token too, to give token holders a say in which validators receive the pool’s stake.

  1. Wallet providers should also be forced to display validators to delegators from lowest stake to highest to encourage decentralization, not highest to lowest as they currently do. Many delegators simply assume if everyone is staking with these top validators, it must be the safest bet so they do the same thereby exacerbating the problem of network centralization.

We can look to Polygon as a case-study. They reversed the list almost 2 years ago to help decentralize MATIC stake. As long as validators have 100% uptime, the smallest are displayed at the top of the delegation dashboard. They have also included a dropdown to sort and search, and have a banner at the top of the dashboard asking delegators NOT to stake with large validators.

  1. Some providers, like Exodus wallet have contracted with single validators instead of running machines themselves. Exodus uses Everstake. Consequently, Everstake has been fed enough ATOM to become the 3rd largest validator with over 10.4 million ATOM and over 4.27% voting power. Mintscan.

This unchecked accumulation of voting power can be remedied by only allowing wallet providers to run staking pools.

  1. Canadian centralized provider, NDAX has struck up a deal with one of the active ATOM validators and won’t disclose which one, claiming ignorance.
    Reddit - Dive into anything. The ecosystem has no idea which single validator will be fed ATOM tokens, or what their voting record is.

In our opinion, these first points of contact must be forced to run pools, instead of single validator nodes. Pool staking could follow a delegation policy similar to Stride’s. Look to Talisman wallet as an example.

Click Polkadot Staking Dashboard | Polkadot Staking (DOT) and type “Talisman” into the search box. You will see they now run 2 staking pools, because the first one got too big.

If the wallet providers want more revenue, they can aggregate DEXs and charge a percentage for in-wallet swaps.

The health of our beloved ecosystem is at stake and we feel the time is now to address this issue and force change.

We start with wallet providers, find a model that works well, then perhaps see if there’s something we can do about the CEX validators.


This is an important topic to discuss. However, validating is permisionless so with Informal Systems or Keplr there is a clear example that others are following.
Informal Systems was validating for a long time via a separated entity called Cephalopod equipment. Then, they realized they could leverage the Informal brand to attract more delegations and renamed the validators to Informal Systems. Same with Keplr, they were running validators under the name ‘Blockapsis’, and similarly they thought it would be better to use the Keplr brand to attract delegations, so they renamed from Blockapsis to Keplr. And now as you mentioned other wallets like Leap, Ledger and others are also trying to leverage their brand to launch validators, and recommending their validators through their wallet/staking UI. Basically, they are launching a new business segment of validators leveraging their brand as wallets and using their wallets to recommend themselves for delegators. This will lead to more centralization over time, amplified by these companies then using what they build in their core business for delegation programs of their validators using their brand.

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Any suggestions for improving the situation, other than what we listed? I think if the community votes and approves something that says wallet providers must display validators to delegators lowest stake to highest, is a great first step.

If you are going to ban wallet providers from validating, you also have to ban exchanges. Also not sure how you enforce this. I understand and welcome the intent, but not sure how this get implemented in practice. I think the real issue is the principal-agent problem - big validators using other people’s money to push their own agenda and max out their profits at the expense of stakers and non-stakers.

Making a validator is permissionless so it is hard to put a ban or any kind of restrictions.
I don’t think banning them is the right idea. Instead we should work with them to improve. I think that list of validators should be shuffled every time you enter the staking window. This way everyone has an equal chance to be seen on the top of the list of validators.

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