Mainnet Validators: Raise Minimum Commission Rate From 0% ->> 5%

Raising minimum validator commission rates from 0% to a 5% floor rate.

A 5% commission rate floor is pretty standard across the Cosmos ecosystem. We’ve seen this implemented on Osmosis, JUNO, Chihuahua, etc - and doing so has had a number of positive impacts to these chains, including maintaining ‘healthier’ levels of decentralization.

I say this because a 0% commission floor leaves the chain susceptible to 0% “attacks” - where a validator comes in, sets their commission at 0%, and simply leaves it there until they’ve risen to the top/close to the top of the active set.

We currently see this happening on a number of chains - on Secret Network, for example, the #2 validator has a 0% commission rate, controlling a total of 7.02% of all voting power in a set of 70 validators.

Why is a 0% commission rate "bad", you ask?

  • 0% rates tend to lead towards heavy centralization of delegations (and thus, Voting Power). This gives single validators a high level of control over the future of a network simply because they can afford to eat the cost of maintaining infrastructure / labor longer than other validator teams can (or are willing to).

  • 0% rates usually hurt “the little guys” - think about smaller validators that are outside say, the top 50. They usually have to work quite hard to grow (whether that’s through building their community via engagement, working on governance, creating dApps, contributing code to chain repos, etc). Delegators are usually looking to maximize their yield; so, in their effort to do so, they go with the validator offering the cheapest fees. In this scenario, it’s really easy to overlook the contributions of those great validators contributing however they are, in favor of a 0% validator - simply because they yield more.

  • Lack of a commission floor typically starts a “race to the bottom” - especially on chains that start becoming popular/are about to launch an app or platform (which applies to Comdex, currently). Right now, we see 3 validators (out of 75) that are offering 0% commissions. Had Proposal #5 passed (expanding the set from 75 → 100 active set validators), I guarantee we would’ve seen even more 0% validators start up.

Establishing a commission floor is "good" for a number of reasons:

  • Helps maintain a higher level of decentralization (by preventing 0% attacks) - pretty self explanatory. We’ll see a wider distribution of stake across the set with a 5% commission floor vs 0%.

  • Encourages delegators to choose validators based on merit - delegators are far more likely to research the validators they’re delegating to. How are they contributing to the network? Are they voting on governance? Have they built any cool/useful tooling or applications for the community? Are they engaging with the community and helping to keep them informed of what’s going on / providing education to their delegators?

  • Squashes the “race to the bottom” scenario - since validators don’t have to worry about undercutting each other simply for the sake of keeping their nodes alive / maintaining delegations, they are able to spend more time working to build the network and community. They’re also able to at least earn something and hopefully earn enough to at minimum, cover infrastructure & labor costs (this isn’t always the case, but having a floor at least helps).

With the Comdex platform now in Devnet, I believe $CMDX is rapidly approaching a point of wider adoption - we’ll start to see more and more $CMDX token volume, and we’ll probably see a lot more staking happening. Continuing to stick with 0% commissions will only exacerbate the above mentioned points - I’ve already watched 1 validator jump multiple slots practically overnight simply because they have 0% comms.

There are probably plenty of other reasons why a commission floor should be enacted & why a lack of one is unhealthy for the network overall, but I’m going to wrap this up for now. I simply wanted to get the conversation started, because as some of you already know, I’ve been mentioning the need for a comms floor for a while now.

I’d love to hear community feedback and have a discussion, and hopefully within a few days, get a parameter change proposal on chain to raise the commission floor to 5%.

-gh0st, WhisperNode validator team

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It looks like 13 validators currently have a commission rate that is lower than 5%.

Of the 13 that have a rate lower than 5%:

  • 3 have a 0% rate
  • 1 has a 1% rate
  • 6 have a 2% rate
  • 1 has a 2.5% rate
  • 1 has a 3% rate
  • 1 has a 4.5% rate

Of the 10 smallest validators, 4 have a commission rate lower than 5%.Of the 4, 3 are also the smallest validators and have commission rates that are 0-2%.

Of the 30 largest validators, 3 have a commission rate lower than 5%.
Two of the three have commission rates of 2% and are the 4th and 8th largest. The third has rate of 4.5% and is the 37th largest.

Based on what I am seeing:
- 0% Commission Is Not Currently Hurting the Little Guy: a 5% minimum would actually hurt the smallest validators at the moment. With the three smallest validators all having a commission rate lower than 5%, there is very little reason a delegator might choose them .

-There is No Race to the Bottom: With only 3 of the top 30 validators having a commission rate lower than 5% there is no evidence that there is a race to the bottom. Most in the top 20 have commission rates higher than 5%.

There may be a time in which the minimum commission should be raised. But as of now, it seems it might hurt the smallest validators the most, which is something I don’t know we want.

A minimum commission rate policy of 5% should have an exception that allows at least the smallest validators to have lower rates to help decentralize the network

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While you do make valid points here, my reasoning for posting this is to nip the problem in the butt BEFORE it snowballs out of control; trying to tackle it later, when it’s usually “too late”, is far less effective than tackling it early on, before the network explodes in popularity/usage.

I do appreciate your feedback here, as I do believe that discussing all sides of an issue before raising an official parameter change proposal is indeed important. Hopefully, others will drop their feedback on this as well.

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Looking at centralization the following have 5% minimum policy:
OSMO = Top 10% of validators control 51%+ of voting power.
HUAHUA = Top 8% of validators control 51%+ of voting power.
JUNO = Top 12% of validators control 51% of voting power
STAR = Top 16% of validators control 51% of voting power
CERB = Top 9% of validators control 51% of voting power
(Average 11%)

The following don’t have a 5% minimum policy:
SCRT = Top 16% of validators control 51%+ of voting power.
KAVA = Top 12% of validators control 51%+ of voting power.
XPRT = Top 12% of validators control 51%+ of voting power.
AKT = Top 11% of validators control 51%+ of voting power.
DSM = Top 21% of validators control 51%+ of voting power.
DVPN = Top 21% of validators control 51%+ of voting power.
UMEE = Top 10% of validators control 51%+ of voting power.
LUM = Top 8% of validators control 51%+ of voting power.
REGEN = Top 21% of validators control 51%+ of voting power.
ATOM = Top 7% of validators control 51%+ of voting power.
(Average 15%)

The bottom 10% of validators on each chains with a 5% minimum policy control the following:
OSMO = 0.35% of voting power
HUAHUA = 0.85% of voting power
JUNO= 1.65% of voting power
STAR = 2.54% of voting power
CERB = 0.24% of voting power
(Average 1.13%)

The bottom 10% of validators on each chain with no 5% policy:
KAVA= 0.72% of voting power
SCRT = 0.51% of voting power
XPRT = 0.42% of voting power
AKT = 0.72% of voting power
DSM = 0.06% of voting power
DVPN = 1.85% of voting power
UMEE = 1.24% of voting power
LUM = 0.01% of voting power
REGEN = 0.95% of voting power
ATOM = 0.06% of voting power
(Average 0.65%)

Comdex: The Top 27 % control 51%+ of the vote. Bottom 10% control 1.31% of the vote.

I think we want to address any issues before it becomes to big of a problem like on a few other chains, and its good to start the conversation now.

I think if anything that maybe a staggered compliance date might be beneficial if people are open to it. For example, if the largest 25 had to comply with by June, the middle 25 by July, and the smallest 25 by August. When new validator are added, would it perhaps be beneficial if the policy also gave them a 30day grace period as a way to attract delegators? I would guess many new validators have trouble attracting delegators with a 5% minimum policy where it is both the floor and ceiling, like on OSMO.

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Appreciate you taking the time to pull some analytics - extremely useful here!

While the idea of a staggered compliance schedule sounds like a good idea (in theory), unfortunately, I do not see it being adhered to by everyone.

We saw this exact scenario happen in the $HUAHUA active set - a “gentleman’s agreement” proposal was passed before an actual parameter change was pushed live, and while almost all validators complied with it, there were a few that completely disregarded it (1 of those validators being one of the ones currently running their 0% attack on Comdex).

So unfortunately, this would only increase the ability for 0% attackers to get ahead, as almost everyone would comply, but they would still do their own thing. They’ve done it before, they will do it again (I’m not going to name names, but I’m sure any validator reading this that’s in the $HUAHUA set knows exactly who I’m talking about).

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I was expecting to see he bottom 10% controlling much more voting power among the chains without a 5% minimum. The numbers I found really surprised me and showed me original thinking on the issue wasn’t as appropriate as I believed it to be.

Wasn’t to sure about how possible a rolling compliance date. Was hoping there was any “easy” button even though that is often rarely the case in life. And no one should have to go through the headaches of organizing a 75 person gentlemens agreement unless the other 74 are all buying him a drink. lol

Let me know if I can help out in anyway. Owe you one for being a thorn in your side earlier. If you think of any other numbers that might be helpful to have for the proposal am all about data based decision making!

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Data analysis is always a massive help when it comes to these things, of course! I truly appreciate you taking the time to contribute to this thread with these detailed numbers.

Unfortunately, all it takes is 1 single bad actor to ruin it for everyone else, and I can pretty much guarantee that will occur here if we tried to do any sort of gentleman’s agreement. Either way, we’d still have to wait for an actual upgrade to implement the parameter change, so 0% will still be a thing for a little while, but this at least gets us moving in the right direction if we pass a proposal to implement a commission floor as soon as possible.

Thank you again for your feedback and contributions here, and don’t worry haha you weren’t a “thorn in my side” - I’d much rather hear the other side of an argument and perhaps see a point that I wasn’t seeing before. That’s how we learn and grow, staying open to different ideas and views on something!

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Here’s our comments on the issue.

The case for a commission floor

The year 2022 may very well be one of the best in the books for the Cosmos Ecosystem. Many new application specific blockchains, all operating independently, yet bridged together with a working Inter-Blockchain Communication protocol.

Invisible behind the scenes is a non-stop working army of validators that very few understand and are often under-appreciated. Here lie technical traps, whale games, and politics.

Today we’ll discuss the topic of commissions, specifically “Commission Floors”. There are arguments on both sides whether commission floors are good, so let’s dive in. Our goal is to share ideas and opinions, but still allow you to make your own educated decision.

We’ll go a little deeper than typical articles regarding this topic. For light articles that make you feel good, there are many other article on the web. We’re digging into the sticky oil between the gears, but stop just short of drowning.

Not all the points below will apply to your network, but we are too tired to write more than one version of this so just use your head.

Background

A Cosmos Proof-of-Stake blockchain requires validators to form consensus to produce a block that the world can trust. Each validator team runs a program on a server that calculates what it thinks is the right result of a block. All going well, other validators will agree, a block will be produced and transactions such as transfers and swaps complete.

In this process each validator votes with the power of the coins they “bond” plus the coins that others “delegate”. The sum of these quantities determines voting power. To produce a block, you need at least 67% of voting power to agree.

To incentivize teams to run validators, each block that gets produced also “mines/creates” some new tokens.

In a give and take type situation, participants who do not wish to run validators themselves may “delegate” tokens to validators and get a portion of the mined tokens.

In return for performing validation and performing governance duties, a validator will get a “commission” from the portion of the tokens allocated to delegators.

As and example and skipping a lot of math, assume a delegator earns 1 token commission for a month. A small portion of that token will be given to the validator for their services, typically 5% or 0.05 tokens.

The validator may do anything they wish with that token and this leads in to the next subject. What do we want the validator to do with those tokens?

Desire for growth or decay?

Each blockchain was created with a particular vision of the creator(s). A blockchain will have little market value without its users. And of course, users will only come if there are things to do. There are only things to do if someone creates a program, which often require additional tooling to help programmers onboard . It goes without saying that there will be no program on the blockchain without a working blockchain with blocks created by validators.

Ultimately if there is not enough to do on the blockchain, or the blockchain is not stable enough, the blockchain will be effectively both useless and worthless.

When given the choice between aiming to grow or aiming to die, it is natural for good leaders to choose growth.

How does growth happen? When everyone pitches in towards the same goal, including Validators.

Enabling growth

The best businesses and corporations succeed as a result of clear vision being provided by leaders, and top notch members all contributing to a common goal. A blockchain needs many different kinds of members:

  • Management
  • Marketing
  • Blockchain base layer engineers
  • API/SDK framework teams
  • API/RPC endpoint providers
  • Validators
  • Dapp Creators
  • Probably more

There is no such thing as one aspect being more important than another. A blockchain with weakness in any of of those member roles will suffer. On the other hand, a blockchain project having the best minds in each of those spaces has the ingredients to flourish.

While we would love to talk about all aspects today, we will focus on “Validators” for today.

The validator dream team

Let’s keep in mind two main goals we have thus far:

  • Growth of the ecosystem
  • Quality team members in each role

Also remember that each block mines a certain number of new coins for distribution to the validators and delegators.

Let’s say that for any given block, we mine 100 coins. We as a blockchain project can use these 100 coins to get for the same price either:

A) 10 good validators

B) 100 good validators

What would you choose? You would choose B) 100 good validators.

If you look, most cosmos chains have about 100 validators, but the number is not material. The point is you have many validators.

Put this thought aside for a second.

Who are validators?

Validators for the most part love technology. A great number of them have extensive experience running real products in real life.

For example, if you use a credit card, play video games, or watch movies, you have a reasonable chance of having encountered systems that were designed and provided by Chill Validation members at some point in their career.

An exceeding number of validators are technical people that corporations would pay top salaries and signing bonuses to bring on board. This includes some very well known validators, as well as some lesser known validators.

In some hand waving generalization, if you’ve seen a validator survive a chain upgrade a few times, they’re probably not so bad. If you’re technical, you can pretty much tell by the kinds of questions and corresponding debug information they share. Yes, it’s that obvious, and we’ll go into that a different day.

What do these validators want?

Some validators are just completely rich and whales as a result of what they have done. Kudos to them. They just want to collect coins for fun and make new projects.

Some validators are actually companies, the same kinds you are trying to run away from on the centralized web. They have enough money and now they want power over you in this new world too. All is not well in blockchain land.

Many validators however are not rich, and not rich beyond belief. They want to put the skills they have acquired over the past 10 to 40+ years of their career and share it with you. Their hope is to run a Validator node well, take their mined coins, spend some (lets be real here), and reinvest some back into the ecosystem.

Why should the network care?

Remember, the network generates enough coins each block to draw in 100 quality validators. The network also wants to grow.

You have 100 validators who have the skill to contribute, but have we enabled that?

Smart people don’t think losing money is smart. So if it costs more to run a Validator than the earnings, it is not sustainable long term. Professionals cost money, in some countries more than other. However it is rare that you will find a country that pays engineers below their national average.

Imagine if we covered the costs to run a validator by 100 validator teams and they had extra to reinvest and contribute to the ecosystem. That is a dream that even the biggest corporations struggle to achieve. Yet it is here at your fingertips if a network decides that is valuable.

Why 0% validators are value vampires

On any given network, a large number of tokens are delegated to 0% commission validators. As a delegator, we certainly enjoy earning that extra 0.05 coins for each coins we share of mining rewards.

However, it was that very commission that we want as a network to get reinvested into the network for growth.

If those 0.05 coins “run away” to delegators (who “get enough already”), that is 0.05 coins less for talented validators to reinvest. That adds up.

Even worse, the bottom validators are often running at a loss or barely breakeven. That is not the way we get talent to agree to investing more time into the ecosystem.

In the worst cases, some validators will run at 0% to gather delegations for months or years, only to suddenly increase the commission later on a public that is largely too lazy to redelegate. At this point, the network has:

A) Lost months of years of reinvestment

B) Starved the lower tier validators

C) Now providing a great number of coins to be liquidated against the project’s market liquidity

It’s like letting a vampire suck on your neck for months or years, then just bite your head off. There we said it.

A case for supporting the little guy

A common argument for not having a floor is that the network shouldn’t be trying to hand out coins to those new lowly tiny validators. They should earn their delegation like everyone else.

You would be a fool to say that’s not valid. In fact it is valid.

However remember, THAT IS NOT THE ONLY GOAL WE HAVE. Network growth today is more important than a stuck up mental position of you didn’t earn it.

You want to know why there are starving poor people in some third world countries that have billionaires running around? Because their lowly workers didn’t earn it. They’d rather see their staff starve as a matter of principle and market rate. Is this your network?

As a network, we want all pistons in an engine to be firing from the moment we turn the key. The car does not go faster if we ask the 4th piston to prove itself before we give it fuel.

Again, our basis for argument is that your network likely has many talented people looking for the right opportunity to pitch in. The sooner they break even and earn a little, the sooner they contribute to your ecosystem.

Besides, it’s not like those tiny validators are taking away a lot of commission. They don’t have much delegation in the first place.

The 0% commission validators have little to lose other than voting power, so if nobody is losing, why not grow a few extra talented contributors for your network.

A case for 1%

As a first stop above 0%, we make the leap to the next full integer value of 1 (and divide it by 100 to get percent).

At this point, there are no value vampire validators dumping all network growth mined coins overboard. Each validator has at least some coins to which they can reinvest into the ecosystem.

If this is as far as you can agree, our job is done. We thank you for being this open minded.

A case for 5% or 10%

As a network seeking growth, we want to see validators freed up from paying the bills so they can move into contributor mode.

Thus a higher commission is good for network reinvestment in two cases:

  1. A highly imbalanced network where the lower end validators do not have enough extra funding to start contributing
  2. A new network where coin value is relatively low and many coins are necessary to make aggregate value.

What is the value of starving out the lower validators? Is this beneficial for the network?

If the network wishes to test the financial ability of a new validator to survive losses over time, it truly is the design of a sick mind. Even if it isn’t a deliberate sick goal, if this is the scenario your policy creates, you have accomplished no better.

For completely new networks, guaranteed coin earnings for loyal validators can entice them to find more ways to contribute. Investment and growth together is fine. In fact, we have done so in several networks already (a future article).

So as a leader wanting all 100 validators to contribute to growth, it would be my goal to ensure each validator is empowered to do so.

Encourage delegation to the lower end, adjust the floor as necessary, build a loyal validation team.

Starving workers work slow. Don’t starve your workers.

A case for reducing the floor

Let’s assume we have a 5% commission floor and even the small delegators have more than enough to survive and feel enticed to contribute, there is room to lower the floor. Why? Because we still preserve our mission for network growth.

This may happen if your token suddenly explodes in value and stays up there, or delegations get very much evened out between the top and bottom.

A case for 0%

If we were an entity who did not need the commission to survive, it probably means we have enough coins on “this network” to survive or enough coins from somewhere else.

At this point, gathering voting power would allow me to vote in a manner counter to the common good.

As an example, Juno Network recently voted to allocate $520k of Juno to run some RPC nodes and add Juno to Keplr by default. They also elected to allow Keplr to later hold the network ransom in return for further funding. We are not saying this is what will happen, but this increased risk of inefficiency is what could be made more frequent with “selfish” power.

Additionally as a power hungry validator, we would want all new validators to starve and die. Why divide power when we can keep more of it ourselves?

The argument to withhold until a validator does more

A common argument made is that a validator hasn’t earned the delegations. They should do something small or magnificent to get people to delegate.

We agree that wonderful people have earned their delegations and we certainly want to work towards that end as well.

However again, empower those at the bottom to earn, cover costs and help everyone grow.

If we “Truly Are Early”, then we must invest in growth and empower all to assist.

Running a validator takes work, and to value it at 0% is something humanity overcame decades ago. Don’t go back there.

And remember, even just 1% is recognition of value for work done.

The argument against arbitrary floors

Many argue against commission floors because 5% is arbitrary.

However that is a poor argument because it enforces the idea that because we can’t pick the perfect number, it is better the default the value of work to zero.

If network growth is something desired, pick a number for a floor and get on the path to improvement.

If we may suggest, at least pick the arbitrary number of 1% if you are unable to agree with anything else.

We argue strongly that any validator that is trying to do their validator job correctly has indeed performed work of value

The argument for “we don’t want commission”

While it may be true that a particular Validator either hates money, doesn’t need money, wants to be nice, or is just pure evil trying to grab votes, it isn’t worth sacrificing the chance for the network to grow.

At this point in time, all blockchain projects are in growth mode, and your project can not afford to allow validators to chuck your development funds out the window.

Each coin delegation to a 0% validator is one less coin that a good validator could have put to good use.

If your network is done growing, please let us know.

If a Validator truly doesn’t need money, they can give away their commission to a charity or their delegators.

However the fact that a validator doesn’t need the commission shouldn’t volunteer all other Validators to fight against a zero commission floor.

The argument for “we promised 0%/1% and it’s sad”

Do you really really think these validators are truly “sad” and is it so sad and distressing that you as a leader of a network would be willing to sacrifice network growth so that some manic depressive can stop being sad?

(We’re not picking on you, we just see the word “sad” abused to the point of… well… being sad)

Let’s get real here. Those sad validators can rebate away their commissions and still keep their promise. They can do whatever they want with their coins.

However as a network, as a leader for growth, we must set the vision for growth. That must be enabled with empowerment rather than apathy. As leaders you must create the culture and to sacrifice your entire growth and culture because a few vampires might rebate is akin to abdication.

We are going to make a giant leap of faith and predict 1) everyone will get over needing to pay 1% or 5% to their validator in return for massive network growth driven by 100 Validators who all contribute to the ecosystem.

Besides, this is the role of governance/government. To ensure the ecosystem supports the greatest good. Let’s not be afraid to create a better tomorrow just because someone might sob for a short second. We’ll be happier when we are much more successful, together.

The argument for “0% differentiation”

Some validators argue that 0% is a necessary method to differentiate new validators to get delegation.

This is silly. How do 0% delegators differentiate themselves? Give negative percent commission? Give 00.00%?

Just because there is a 1% or 5% floor doesn’t mean all validators must lower to 1% or 5%.

The validators who have earned their 5% or 10% loyal crowds will keep them.

All 0% validators will be pushed to the new floor and be just as uninteresting as when the floor was 0%.

The argument for “some relayers need more commission”

Yes, this is a messed up thing in Cosmos. Some validators spend all most all their commissions on subsidizing relay gas fees.

Raise the floor to 5% and make it even less horrible to delegate to a 7% validator doing relaying.

The fact that a network isn’t rebating a relayer for gas, while they need to put up the equipment and time is completely taking advantage of people.

So if a network is so stingy they won’t even support their relayers, the least you can do is get the floor closer to what the relayer needs to do good work.

Become a leader for growth

We understand we can’t win everyone to agree with what we think is ideal. But if you made it this far, we’re thankful you at least took the time.

We look forward to growing with you should your network allow. We would find it ever more enjoyable if we could have talented peers who were able to contribute along side us.

Yes it isn’t your responsibility to ensure validators get a commission. However as a leader with a vision for growth, you should do everything possible to ensure that happens. A commission floor is a simple first step for valuing the contribution of your validators who are on call 24x7x365.

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We should really circle back to this. I’m still 100% in favor of creating a floor, for a healthier set.

1 Like