Short description: This proposal seeks to adjust validator minimum commission rate from 3% to 10%
Project Category / Type: Infrastructure
Discussion date: 23.11.2022. https://kusama.polkassembly.io/post/1993
Onchain publish date: 26.01.2023.
Governance referenda origin call: staking_admin
Context
This proposal seeks to adjust the validator minimum commission rate and keeps all other staking configurations unchanged. In the current market (last several months) validator income from the minimum commission can cover less than 50% of the server rent costs. In order to maintain a sustainable environment and prevent the network degradation I am passing this proposal to onchain voting.
Problem
There were several topics regarding to the validator infrastructure expenses and operational costs that can be found here:
https://kusama.polkassembly.io/post/1980
https://kusama.polkassembly.io/post/1306
A fully active validator operating at 3% commission can stand to earn:
(800/1000)* 4 * 30 * 0.03 = 2.88 KSM/month.
With KSM priced at 34$ this equates to ~97.92 USD/month.
Proposal
The proposed increase of minimum commission to 10% is trying to create a better and more sustainable network environment. With the numbers given above it is clear this is a small step towards this goal. Beside the commission, we would need KSM price to double and reach 50$ in order to earn ~480 USD/month which is still within the boundaries of operational costs.
With this proposal we are not influencing KSM inflation rate. We are asking the nominators to steer 1.36% of their staking APY towards the network, current returns are 18.88% and we anticipate it to be 17.52% all other factors being equal. We need to have a strong, reliable, secure and redundant blockchain network in order to process and secure multi million $ assets on it.
Objectives
Validator earnings and effects on staking rewards
A fully active validator operating at 3% commission can stand to earn
(800/1000)* 4 * 30 * 0.03 = 2.88 KSM/month. :
with KSM priced at 25$ this equates to ~ 72.00 USD/month.
with KSM priced at 34$ this equates to ~ 97.92 USD/month.
with KSM priced at 50$ this equates to ~ 144.00 USD/month.
A fully active validator operating at 10% commission can stand to earn
(800/1000)* 4 * 30 * 0.1 = 9.60 KSM/ month.
with KSM priced at 25$ this equates to ~ 240.00 USD/month.
with KSM priced at 34$ this equates to ~ 326.40 USD/month.
with KSM priced at 50$ this equates to ~ 480.00 USD/month.
Known constraints
A significant change of KSM price can have a positive or a negative impact to the changes proposed. This proposal is not trying to set permanent staking parameters i.e. In a scenario where KSM hits $100 anyone can start a new proposal to decrease the commission rate.
Full Proposal
As we already posted in the discussion round, we are against this proposal and repeat our thoughts here again for people who did not see our reasoning yet.
There are two distinct issues at hand here: to have a minimum commission at all, and to raise this minimum commission from 3% to 10%.
The first discussion point for us is whether there should be a minimum commission at all or not. We have previously voted against this, and will continue to oppose it. The whole crypto ethos builds on the foundation that network-native currencies can provide sufficient incentives to run a globally distributed, decentralized network. These economic incentive structures should be robust enough to secure a stable network even in the face of well-capitalized and motivated adversaries. To ensure that a true game-theoretical equilibrium can be found by forces of the free market, interventions should be limited to the minimum. If in this intervention-free case, the true game-theoretical equilibrium leads to an end state that is not desirable and unintended by the protocol’s developers and community, then the protocol rules for incentivization should be changed, rather than introducing a subsidy of some kind.
Establishing a minimum commission does not allow for free market competition, or at least makes it harder as the minimum commission can still be circumvented on- or off-chain by means that involve some trust between the parties (operator of the validator and nominator). This is certainly not helpful for having a transparent commissions market. The minimum commission also guarantees a minimum rent that can be extracted by validator operators, which is opposite to the crypto ethos.
The second discussion point is raising the minimum commission from 3% to 10%. This would exacerbate the issues outlined above (more interference, higher rent to be extracted, etc.), and on top of it attempts to play “central bank” to provide a “soft landing” during worsening market conditions.
Now, we have only outlined what not to do so far, so here is what we think would lead to a better commissions market and actually fix the underlying issue rather than continuously attempting to treat the symptom of some validator operators being unprofitable despite providing good services. To do that, research into how users select validators and how to assist and improve this process is required (such as demonstrated in the recent talk by J. Gehrlein, see: https://www.youtube.com/watch?v=ym8t6cVHhgY and “An active preference learning approach to aid the selection of validators in blockchain environments”, Gehrlein et al., 2022). We would support further efficient efforts in that direction, from research through to deployment so that users can better balance out validator selection criteria rather than placing a perhaps irrationally high importance on commission only.