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: • 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. Mintscan 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. • 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…

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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.

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.