Minimum Validator Commision - Discussion

One validator suggested that a discussion be started around the topic of a minimum validator fee during the 2021 Q4 Validator Survey. The full report can be found at: 2021-Q4 Validator Survey Report

This is a topic that was already discussed back in September '20 (Commission Rates - The Race To The Bottom (Floor Proposal)) but in the end did not lead to an implementation. Since then other chains have implemented such features, for example IXO, Juno, Chihuahua, and Osmosis.

The two previous governance calls did cover this topic and a good portion of the present validators seem supportive of a minimum validator commision. One of the main advantages seems to be that it would shift competition on the basis of higher returns to competition on the basis of added value. One of the main disadvantages would be that new validators have less ways to set themselves apart. Currently 68.7% of SCRT staked with 0% nodes is staked to the top 0% node (88.9% to the top three 0% nodes, out of ten 0% nodes), arguments were made that new validators thus do not benefit much from running 0% to attract early delegators. On the other hand, even a few thousand in delegations can currently make a large difference in the validator’s ranking, which could in turn affect their ability to attract delegators.

If a minimum fee would be implemented it would probably be best to do so during an already scheduled hardfork and introduce it as a governance parameter.

The governance calls have not arrived at an agreement regarding what the limit should be, if there was the to be one. 5% seems to be most popular, but arguments were made for 1% and 10% as well.

In this thread I’d like to trigger a discussion regarding a potential minimum validator fee, both from validators as well as from delegators. Do you think this should be implemented? And if so, how and what should the original limit be set at? Which pros and cons do you observe? Hopefully this will provide good input for next week’s ‘major’ monthly governance meeting.

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We are in favor of a forced minimum 5% commission, as required by a software upgrade proposal.

If a minimum fee would be implemented it would probably be best to do so during an already scheduled hardfork and introduce it as a governance parameter.

This isn’t necessary, it could be implemented at any time and still have a software-upgrade proposal to push it forward. I’d argue making it not part of the fork would be better, as it’d be a relatively simple, testable upgrade.

In this thread I’d like to trigger a discussion regarding a potential minimum validator fee, both from validators as well as from delegators. Do you think this should be implemented? And if so, how and what should the original limit be set at? Which pros and cons do you observe? Hopefully this will provide good input for next week’s ‘major’ monthly governance meeting.

I would argue for a 5% commission, but can also see a strong argument for 10%.

5% is what the cosmos ecosystem has rallied around, however it’s important to note that Secret has much higher hardware costs and “attention” requirements, for lack of a better term. I’d also add that many of our validators are more active in the ecosystem than external ecosystems. We should be finding ways to encourage that interaction, and raising the commission would help them commit to the network more fully.

Having a 0% commission option doesn’t provide anything for smaller validators. With Melea existing, they don’t offer any room for the lower validators to gain commission through the lower commission. Indeed, from my discussions with delegators, there are really 3 options for commissions that matter: 0%, 5%, and 10%. Anything between those shows no difference in interest.

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My take on suggesting 5%: “I dont want to lower my profits but others should mandatorily increase their commission so delegators come back to me and I make more money again. Ill also look cheap compared to those 10% validators”.

Anything thats not 0% when 100% is allowed is nothing but arbitrary lines.

Either fix it to single value (not a floor) or dont restrict it at all.

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A locked value isn’t necessary, after all, some validators have higher expenses than others. Relayers, for example, have far higher expenses than the average validator.

We don’t have our commission above average to pay for it, but I can totally understand other relayers choosing to increase their commission for that reason.

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For reference, these are other chains with commission floors.

→ ixo

→ juno

→ chihuahua

→ osmosis

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Fixed doesn’t make sense. As @dylanschultzie said, some validators have much higher expenses than others. We for example probably have higher expenses than the majority out there since we are working on explorer, wallet, dapps, API needs, and relayer offerings.

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I agree, a fixed value doesn’t seem reasonable. Many validators offer advantages that delegators would be willing to pay additional commission for.

In my mind, the idea around a floor makes much more sense as it stops the race to the bottom. If a validator can justify a top level commission rate to their delegator, why would we stop them?

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doesnt running relayer and most of this extra stuff qualify you for slabs delegation based on their newly updated policy?

That depends on how outlandish i get on the forums.

Yeah, and other validators have lower expenses, which is why they might choose to run at 0%/1% for some time. Which is why the logic “others should raise their floor so I can make more money” has no ground on fairness.

The 5% is completely arbitrary.

P.S: To be clear, I have never delegated to a 0% node, and I have no intention of ever doing so.

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Wait - I don’t think anyone suggested that? 5% is absolutely arbitrary, and what @moonstash and I are currently at. Raising the floor wouldn’t make us more, it’d make others more and shift validator competition from pricing to contributions (in whatever form that may be).

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It makes you more because you are effectively eliminating the chance for other validators to compete by lowering their prices

Running a node is already a contribution

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This would also make it impossible to have innovative ideas where staking commission can pay for having a service.

Take the ALTER node as an example. They can set their commission to a certain percentage so that staking an x amount of SCRT would pay for a 1 year subscription

Or the Podcast node which runs to fund the secret code podcast efforts following a SNAC proposal.

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Like Ive said in the past and now, I am completely against any kind of restrictions to the commission %s.

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Could this be a scenario where the pros outweigh the cons? In my eyes, creating a floor would benefit the SCRT ecosystem as a whole, and enable much more innovation than the downsides would create. The overall idea is to shift the conversation from purely financial motivation, to network contribution, and delegator benefits.

We already see this playing out successfully on IXO, Juno, Chihuahua, and Osmosis. Have there been major drawbacks to that decision I’m unaware of?

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A price floor could result in a surplus if some people would rather unbond and switch to substitutes (e.g., LP) rather than remain delegated.

Looking at the chains mentioned:

Secret - 55% bonded ([https://secretnodes.com/secret/chains/secret-4])
Ixo - 39% bonded (https://blockscan.ixo.world/)
Osmosis - 36% bonded (https://www.mintscan.io/osmosis)
Juno - 33% bonded (https://www.mintscan.io/juno)
Chihuahua - 12% bonded (https://www.mintscan.io/chihuahua)

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Just want to point out that such a scenario would result in a higher staking return for stakers.

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My take on this (as a smaller validator):
A leveled out playing field for all the validators by introducing a 5% min. commission could be a good thing for the very small ones. But personally I promised my delegators to never raise my 1% commission, so I would be forced to break that promise (which is kinda sad tbh…).

If some validators are not happy to have a 5% min. commission other incentives such as NFTs (done by DomeriumLabs) or SEFI Airdrops (done by ChainOfSecrets) can be made to attract new delegators to them. DomeriumLabs was very successful with this approach.

Having a good uptime and reliable servers is also getting more important with a 5% min. commission cap, as this is now the only thing effectively limits the rewards (since you don’t get you a reward for missed blocks).

A “race to the bottom” is certainly not good (esp. the 0% commission) for the network since validators could and did make compromises (not enough RAM, small disk sizes, etc.) in their setups for being cheap or free, which in turn destabilizes the network when under heavy load (which happens all the time now).

A 5% min. commission ensures better funding for the smaller ones and more available money to use for more reliable servers.

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If the fixed “minimum price” of a service is below the “minimum market cost” this will increase scarcity.
If the fixed “minimum price” of a service is above the “minimum market cost” this will increase competition.

But this is tricky, because the 0% commission is more like dumping , where validators accept losses in order to overcome the competition. Of course there is no way the “minimum market cost” is equivalent to 0%… but depending on the size of validator 1% may be enough.

The ideal solution, IMO, would be a different way of penalty for delegators of nodes who cheap out on hardware, or server location or lack of redundancy etc, because they are ones choosing the 0% commissions based only on this aspect. Maybe some easy to spot “% of max rewards generated” would help.

Having said that, and aware of the technical difficulties of such idea, I would “vote” on a 1% minimum, or even 0.5%.

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A commission floor might make sense around 1-2%, but ultimately I’m against anything higher than that. At the end of the day running a validator is business. If you can’t make the math work out then keep doing it, but if you can’t the business isn’t profitable yet. That doesn’t mean everyone should stop producing blocks, but you have to adjust your approach. We shouldn’t raise all commissions to prop up the lower end. In my experience the validators who are active in the community over time gain delegations.

Not all validators provide extra services. Fewer do it without some increased compensation as is. With the recent SLABs delegation policy I believe that anyone providing true value to the chain will get made whole on their nodes.

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