[PROPOSAL #826][PASSED] Minimum Commission Proposal

Minimum Commission Proposal EDIT 29/09 - Has been put up for voting - Mintscan EDIT 27/09 - Updated the status to Last Call as the proposal will soon go live. Any final feedback will be appreciated. Authors: Simply Staking This is a continuation of the Forum Discussion to Set a minimum commission of 5% Background of the Issue This is not the first time the universal minimum commission for validators debate has been brought up. In a previous proposal with a similar context, the overwhelming majority of validators and the community voted against implementing a universal minimum commission. Whilst this was less than a year ago, we believe that the context has changed with the introduction of Replicated Security. The proposal below will: • Introduce a global minimum commission of 5% to allow validators to generate revenue in order to re-invest those funds into the security of the chain through enhanced operational capacity and better infrastructure • Lead to a reduction in staking APR by 1%. The minimum commission would remove the incentive for delegators to choose a validator purely off of their commissions. In a healthy governance system, delegators would…

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Fully support this proposal. The APR hit from 19.12% to 18.17% in the most extreme cases for delegators (0% to 5%), to create a sustainable chain and validator set that is being used for security as it’s main value prop, makes logical sense to me.

hello,

it would be very nice and innovative to integrate the following idea alongside a min commission.

don’t know if easily feasible ( i guess no x)) i still think it would solve many problems at once

VelvetMilkman🥛

While I support original prop, I do like this idea as well.

0.5%-1% per consumer chain, with a cap idk somewhere around 10%? (total guesstimate with no figures behind it)

Not sure if someone would like to code that out, this minimum commission at 5% is something that can easily be done via governance param change.

I assume we’d just do follow up proposals instead of some type of coded version of this. Not sure we’ll see a return any time soon to match those levels though.

tom:

don’t know if easily feasible ( i guess no x)) i still think it would solve many problems at once

This is related to another discussion we are having in the forum. This idea would be like an ATOM staker CC tax that we are discussing. This idea you suggest is nice but less flexible, with the ATOM staker CC tax its value takes into account all CCs, the revenue for each etc., increasing the minimum commission with each CC is not very flexible in case some consumer chains start providing better revenues for example. However, this idea might be simpler to implement so could be another idea to consider. Also, we shouldn’t only tax ATOM stakers. CCs cannot get the security of the Cosmos Hub for free being subsidized by Cosmos Hub validators. Some ideas being discussed is a variable CC tax for each depending on the revenues they provide or they need to buy X amount of ATOM and stake it with validators

this is not a single purpose tax
this tax would modularize itself accordingly with consumer chain’s revenues

stakers must be responsible when they choose to add a chain to AEZ, nothing desincentivise them to make shitty choices currently

(polkadot auction model has been tried already and failed, btw)

(i agree this is maybe not the right place to talk about it, i just thought implementing both these proposals together would be beneficial for everyone)

tom: this tax would modularize itself accordingly with consumer chain’s revenues This is basically very similar to the ATOM staker CC tax being discussed in another thread in the forum. The suggestion here is to implement this tax as a gradual increase in the minimum commission, this is another solution yes and as you say ATOM stakers will be thinking a lot more about which CCs to approve. tom: (i agree this is maybe not the right place to talk about it, i just thought implementing both these proposals together would be beneficial for everyone) I think it is totally the right place to discuss since it combines several solutions for different issues into one comprehensive solution actually. What do you think about this @Damien ? It is an idea to easily implement the ATOM staker CC tax tom: (polkadot auction model has been tried already and failed, btw) Yes so if we don’t ask CCs to buy ATOM and stake it, there should also be a CC tax depending on the revenues on each. We cannot put infra cost tax for validators, now an ATOM stakers CC tax and the CCs themselves have no taxes, provide no revenues and have all the benefits. An idea to…

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will always be amazed by people thinking consumer chains/startups/whatever should provide revenues from day 1.

i agree AEZ community have to find solutions to build a sustainable model for every party involved, but please, please, stop arguing as if the consumer chains were born 2 years ago.

for the rest of your statements, i quite agree.

anyway, i’ve expressed my point, let’s see what’s discussed next.

tom:

will always be amazed by people thinking consumer chains/startups/whatever should provide revenues from day 1.

i agree AEZ community have to find solutions to build a sustainable model for every party involved, but please, please, stop arguing as if the consumer chains were born 2 years ago.

Ok, so according to you we should be fine with CCs not providing revenue for a few years. So if the Cosmos Hub is acting as an investor for CCs then the funds to cover CCs infra costs should come from the CP, not from validators’ pockets.

we should be fine with it for a year yeah imo.

i have a doubt suddenly, are validators voting for CCs’ onboarding? i feel they don’t and are just forced to follow a god’s choice.

anyway, as i said, i agree we have to find sustainability tricks for all parties involved, CCs included.

tom:

i have a doubt suddenly, are validators voting for CCs’ onboarding? i feel they don’t and are just forced to follow a god’s choice.

Validators were promised good revenues during the voting period and proposals of already onboarded consumer chains, so far revenues are negligable: example, Dokia 3rd largest validator and with 15% commission so far has accumulated less than $15 in CCs revenue combined. Moreover, since Replicated Security was just launched there is a pressure for validators to vote yes to kickstart the onboarding of Consumer chains paying less attention to the revenues they bring it seems

we’re still into the scheme “they should bring massive revenues from day one” I didn’t see Neutron or Stride promising that.

also validators’ duty is to point issues out during the props’ periods. a handful of them did, most of them didn’t. there are probably other reasons for that than the sole kickstart “pressure”.

anyway it seems we don’t focus on the same timelines, and we agree AEZ needs more sustainability rails.

the min commission is probably one of them, as incentivizing delegators to vote wisely could be another one.

Minimum commission has worked well in all other chains that have added it.

Many chains have 5% min commission and it has always balanced the chain. Validators who contribute will grow. Anonymous validators with nothing else to offer than 0% fees, well, they stop growing. Like they should.

OP did have very good start for the discussion.

This step appears reasonable in light of the latest challenges regarding the increased infra costs due to AEZ expanding and no balance between maintenance and payouts from CC yet. Assuming there still will be room for adjustments later when the ICS landscape changes.

making a time limit and cool down period for 0% commission rate would allow it to continue being an effective marketing tool for validators.

We have always been for support of a minimum validator fee to ensure a fair competition and a more rational balancing of governance and technical accountability against the current pure economic arbitrage that some validator use openly. Pleased to see the discussions are on the table again. They are likely going to pass someday anyway but the sooner the better to have a more professional validator set.

So that’s a big yes for us. hoping this won’t take another year to get through this debate !

Damien:

This is why we need to protect those validators by allowing them to make some form of revenue which in turn will protect those delegators from an unexpected shutdown of a validator’s operations.

Damien:

0% commission is harmful to the network.

Salute - who is not for ensuring validators are fairly compensated for network security?

If 5% commission is set as the standard minimum, what would be the cap for max? 100%? This should be adamantly enforced/changed as well.

The max commission (and more importantly max-change-rate) should be discussed, I agree. I would personally leave that for a different proposal though. Don’t want to lose the plot of making the network (that has it’s #1 value prop of network security) sustainable.

Iam just adding here what i already wrote in the last thread.

5% might be too high to be accepted, so a lower percentage might be better to start with. If more consumer chains will be added a further increase might be necessary though.

As voting for a minimum commission poses a conflict of interest for every validator, CrowdControl will vote abstain if it goes on-chain.

Hi I agree! I’m drafting a proposal that will include a 5% commission and include my proposal for Replicated Security “Reimagined” in the next week. Thanks for the shoutout!

I’m working on it… it’s taken me a little longer than I anticipated because I’m a terrible writer. I should have a draft ready early next week. Apologies for the extended delay.

Great that it won’t be only a proposal for a simple 5% minimum commission but also including your idea of ‘Any new consumer chain approved increases the minimum commission rate on staked $ATOM by x%. The increase remains in place until commissions earned from the consumer chain exceeds the USD value of the x% increase for 90 days.’, @Noam, @Damien, ourselves and many others will be strongly supporting this proposal. If you need any support for the draft please let us know

Lol, didn’t mean to delete my post
For those interested, was asking whether the proposal was going up and that I support the 5% minimum commission rate.

@Cosmic_Validator I’m not actually so sure if I support the continuous increase of commission rate for each consumer chain. I think there are more efficient ways to handle operational costs. Also with Atomic IBC we can likely reduce operational costs as well.

But just going to 5% in general I think would be a very helpful start.

I would suggest separating the 5% ask from the x% per consumer chain, because it increases your odds of the proposal failing, and then we’re left with nothing.

Hey Noam!

We plan on putting this on chain shortly.

We’ve been gathering feedback and we would also agree that this proposal should be kept simple and just for the 5% commission increase.

Would love to see this on-chain!

The point here is that it’s a variable rate. The cost to operate 180 validators (or 160 or 100 or 12) per Consumer Chain, is not economically viable or sustainable. No one has really run the numbers and anyone who has, would be disappointed by the output.

Wait for the proposal to come out, then punch holes. I’m very excited for the debate and critiques.

5% isn’t too high. It’s actually below the average commission rate charged by most validators (even if you remove the 4-5 validators that charge 100%). • As of September 4, 2023, the active set of Cosmos Hub operators totals 180 validators. The average commission rate of the 180 validators is ~8.2% Four validators charge 100% commissions. Removing them from our calculation lowers the average commission rate of the 176 remaining validators to ~6.12%, which suggests that 5% remains below the average commission rate currently being charged by operators actively validating on the Cosmos Hub. • Approximately 31% of active validators (57 out of 180) have set their commissions below 5%. This statistic informs us that the proposed minimum commission rate of 5% is not extractive and seems like a reasonable standard to set. • Increasing the minimum commission rate would increase the average commission rate charged by the 180 validators and 176 validators mentioned above by approximately 1% each, resulting in average commission rates of ~9.2% and ~7.11%, respectively. • Beyond the figures above, based on market trends this is an inevitability. Several well-respected operators…

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I fully agree about the minimum 5% commission, and I think your additional idea is also interesting because this would create a way to incentivize ATOM stakers to perform in-depth due diligence for each new consumer chain. If a new consumer chain is very successful and brings revenues as expected there won’t be any increase in the minimum commission. In contrast, if a consumer chain doesn’t bring revenues the minimum commission would be increased. This would 100% make ATOM stakers much more involved in governance and it would make the situation more balanced and not putting all the consumer chains cost burden in validators as it is currently the case. In addition, if ATOM stakers don’t like the increase in the minimum commission from a consumer chain not bringing revenues, they can always vote to remove such consumer chain. I would however suggest that this is applied for new consumer chains joining, not Neutron or Stride, meaning the minimum commission of 5% is introduced first and then your idea would be applied for new consumer chains joining after this proposal is approved on-chain.

I’m very much “for” the minimum commission.

I am also interested in the variable commission rate (as a function of # of consumer chains) that @velvetmilkman has been researching.

I didnt say it should not be 5%, what i said is that i think 5% might be too high to be accepted.

Although i love statics, i dont think that the ones you stated will tell us anything about the outcome of this proposal. If we have a look at the votes of prop 76 there were big validators below and above the 5% commission that rejected the proposals and they all might have different reasons.

In fact if the 5 biggest validators that voted no on prop 76 will vote no again, this proposal will be rejected again. I dont think that anything has changes for big validators since prop 76, they dont have any problems funding their operations. If one of them said in this thread that they changed their mind, this proposal could succeed but if not i think it will be rejected.

Votings from non validator accounts have been even more in favour of NO than YES than the ones from validators so that most likely wont change the outcome.

Edit: Since @Vadim_Everstake signalled they think the proposal is reasonable, there is a chance this will pass

Hey all, Just wanted to say thanks for all the feedback and discussions that have occurred in this thread.

We at Simply Staking are in the process of placing this proposal on-chain so please keep an eye over the coming days.

Thanks!

Thank you for putting this on-chain. It will be interesting to see which validators are against it.

I am apparently the only validator (Quokka Stake) as of now who voted no, pretty much for the same reason I’ve described in the previous forum thread:

• this doesn’t fix the issue with validators raising their commission overnight at all, unlike, for example, setting a cap on max commission
• it’s a nice way of promotion for some validators to set the commission to 0% or some small percentage temporarily to get more people to stake with them, and I don’t consider this a bad practice
• having it hard capped kills the free market vibe, it’s better to advocate and spread awareness of why do validators charge commission and how to choose a good validator to stake with instead of setting limits this way

Just to clarify, I personally do not like 0% validators (I’d rather stake with validators with technical contributions as I can relate), but I dislike the idea of setting a limit on it, it should be a conscious decision instead of a forced one. But considering the current tally, I’m the minority that thinks so, duh.

validators voting to alter the parameters of the chain in order to pay themselves more at the expense of users is indicative of an unregistered security being issued by validators. Making ATOM into a business rather than using atom to conduct business turns it into an unregistered security. It seems like an obvious mistake to risk the most liquid token in the cosmos to change the function of atom in validators favor and users expense. Tokens should have a function, not a business model.

Perhaps, this case can be simplified as follows: Replicated Security has doubled or even more than doubled validator operation costs, and compensation from cc won’t arrive tomorrow. Nobody knows how deep atom can fall due to the market conditions.

The clear pros of raising the min fee are: validators prioritize service quality over trying to attract stakers through dumping, actively contribute to Cosmos public goods as a competitive strategy, and possess the funds for this purpose. A more even distribution of delegations leads to fairer governance. Although, initially, stakers lose a tiny part of the rewards, in the long term, they win, as the Hub becomes more stable, and efficient & atom more valuable.

We will also vote no

Choosing a validator with 0% commission may also seem like a good idea in order to maximize your returns. But keep in mind that running a validator is a lot of work and comes at a cost to the operator. The commission rate is a contribution to the validator that is used to help cover the expenses of running it. Choosing zero commission may not promote a sustainable network; whereas supporting validators through commission will.

This is not the first time this debate has been brought up. In a previous proposal with a similar context, the overwhelming majority of validators and the community voted against implementing a global minimum commission. • Proposal #12 occurred in July 2019, intending to engage the community in a debate by introducing a question on whether 0% commission is harmful. Proposal #12 went live four months after the Cosmos Hub’s genesis block, and a 0% minimum commission rate was appropriate for a bootstrapping phase where meager benefits of staking and high risk were a reality for delegators. • Following the discussions, Proposal #76 in September 2022 landed on-chain seeking a minimum commission rate of 5%. Proposal #76 inferred flawed logic that 0% commission validators don’t “truly innovate” or “create value” for delegators and was seen as too informal. Whilst this was less than a year ago, we believe that the context has changed with the introduction of Replicated Security. The Cosmos Hub is growing more complex and cost-heavy. With the entrance of Replicated Security the bootstrapping phase mentioned in Proposal 12 has ended, and a development phase has begun. As the…

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0% commission is unsustainable. It is a bait-and-switch.

in3s.com identified the race-to-the-bottom problem of the tokenomics back in August of 2018 when Riot was used for communications. Sikka won that race on block 1 and made the work of many teams irrelevant since 0 profit does not make for a good business. Fast-forward to Osmosis and its imposition of a minimum commission. Sunny is a super smart guy and he learned his lesson. Why do you think he changed his mind?

Cosmostation is now changes 0%. How can we ever achieve a good degree of decentralization when one of the big guys is willing to burn cash for market share? Anti-trust laws in real life would be all over them, so why do you think that allowing monopolistic tactics are a good thing in crypto?

stakefish here! This is our new company account.

We will be voting yes. Here’s why.

CosmosHub is mature blockchain, much more than when it was first launched March 19, 2019 (4 years, 6 months ago). Because it is mature, we need to consider the stability of the network, which supports many other chains on the network. It was okay to allow 0% fee when it was first launch to attract new users to the entire Cosmos ecosystem. However, allowing it at this stage would introduce a risk that it would destabilize the ecosystem. New validator with much more resources (investors, hedge fund, bad actors) run at loss, to acquire voting power, may pose a governance risk. This is a subtle method to acquire voting power without buying it, at a fixed cost (operating validator) where as buying ATOM is a linear cost.

you voted to take on the cost.

LSM validator bonding centralizes delegations to the top by allowing validators to buy LSD delegations at 250:1. the CEOs of the ICF have always been CEOs of a top validator. validators control the CP and use it as a slush fund.

minimum commission seems like a silly place to catalyze “decentralization”

Another way to decentralize stake is to have wallet providers display the validators with the lowest total stake first and the largest validators at the bottom of the list. The Polygon MATIC dashboard does a good job at this.

Why was this proposal a text proposal and not a parameter change proposal? It seems to me that we’ve had the ability to set the minimum commission parameter for nearly two years now (feat: Min commission upgrade by tac0turtle · Pull Request #10529 · cosmos/cosmos-sdk · GitHub). Let’s execute the intent of proposal 826 since it passed.

feat: Min commission upgrade by tac0turtle · Pull Request #10529 · cosmos/cosmos-sdk · GitHub

guess that’s why, the Hub is still at 0.45

I didn’t dig through the comments. Thanks.

Hello everyone, I have a question, the proposal has been approved.

When will the minimum commission for validators be adjusted to a minimum of 5%?

Thanks for the question.

It will be adjusted in a future release of the network.

For more details on adding the minimum commission to Gaia, see my post here.