On the problem of delegation centralization

1. It is economically forced for big validator with large delegations to become continuously bigger. “Economy of scale”

2. Although there exists several technical and incentive oriented attempts to make delegations more decentralized, spinning up new node can sidestep most of the attempts.

3. Therefore I think the problem of delegation centralization is more about governance issue.

4. Although we can solve it when it happens in mainnet, it will be a messy chaos discussion when it actually happens because it is directly affect each validator’s business quite severely.

5. Therefore I suggest a healthy discussion here about ground rules of prevention/post-happened-solution of delegation centralization before we become too greedy in mainnet. Strong and healthy consensus on this topic will help us guide to a better calm way to deal with it when it really happens.

Can you outline, why 1. holds true? I understand that it is a likely scenario, since delegators give commission to validators. However in a perfect market, where MR = MC (marginal cost equals marginal return), the commission would be just so high, that it covers the expense of running the validator. So in reality of course the return is slightly higher than the cost, but it might be that it takes some 100 years until this makes a noticable difference. But within such a timeframe there are heirs who don’t identify with cosmos and just sell their stake and buy lambos etc. So at some timeframe this will be mixed up anyway. Furthermore there is another scenario, where big validators don’t charge any commission at all, because for them it is nice to have more voting power, since it turned out that many just delegate and don’t use their individual voting rights. So I’d like to hear more why it necessarily must happen this way. For me it is possible that someone who wants to validate, because his/her own stake is big enough so that it makes sense, then well allowing delegation with a commission that matches the running cost of the validator nodes, means that the costs are paid by the…

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Thanks for expressing opinion. • Why economy of scale happens? Good reputation / great skill / better marketing ability / enough capital to spend on / possessing good platform(other mining or exchanges or other blockchain services) Those will bring more delegation, result in more profitable business, hence more capital to reinvest, richer services and possibly less fees. So it is an infinite loop of better competitiveness and better profit interation. It is not a bad thing in the process. It is very nature of capitalism. I am focusing more on the side effects, especially more critical in dPoS network. It is happening in most IT service industries in real world so I am not sure why you doubt it to be happened?? Do you know any IT service industry without a goliath? One counter arguement is that delegator needs risk diversyfication. First of all, a lot of investors are not wise enough to actually execute that idea. Also, even though wise investors want diversification, they don’t diversify over 100 validators. They will probably diversify among top 5 validators. Therefore oligopoly is what we can naturally expect, and existence of a cartel of those top validators…

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Oh sorry, I assumed you were referring to another effect. I think this is a very hasty generalization. It is not necessary to generalize IT industry and then answer specific questions for Cosmos, because we know the mechanics of token economy in Cosmos and we can also have influence on it. So let’s do some calculations: First scenario: zero commission, no running cost of validators In this scenario everyone gets 7% (or 20%, does not matter) inflationary reward and some transaction fees as well, let’s say it is 3% on average. This value can change quite fast, but it does not matter, it is always distributed proportional to stake, so it can always be calculated as a percentage of what you hold and acts the same way as inflation it is just more volatile. So lets assume there are 3 different actors, a whale with 900 atoms, a medium validator with 90 atoms and a small delegator with 10 atoms. So at the beginning the proportions of ownership are: whale 90% medium validator 9% delegator 1% Now let’s apply the 7% + 3% of interest they gain, then they have: whale 990 atoms validator 99 atoms delegator 11 atoms Now we calculate the new proportions: whale 90% validator 9%…

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I really carefully read your post but I think you are 100% agree that 1 will happen without fork…

Is it right? If not, could you sum up just counter argument of 1? Most of your argument actually support 1.

Donation is our hope, which will be not likely to happen. It is not a “solution” or “prevention”.

We will see top performers of GoS attracting the ICO atom holders, probably as the atom holders become a larger group newcomers in turn are more likely to want to delegate to the most popular(in this case larger) validators. How can this be stopped ? • Technical “warnings” in Voyager that a Validator is reaching a threshold , as mentioned this can be circumvented. • Validators refusing to take more delegations , bad actors probably won’t follow this path. • Delegators making informed decisions about the security of the network. What will influence a delegator ? • Validator has skin in the game • Top performer (Initially measured via GoS) • Validator actually contributes to eco-system Of course a validator can have all of the above qualities and more. Most delegators will diversify but this diversification will probably be aimed at the “top” ranked validators. Delegation will be the key to the success of this system just as much as validation is. Validators have proven their technical prowess. What do delegators have to prove ? Can a quiz be implemented into Voyager ? If a delegator fails the quiz they are unable to delegate and must return to retake the…

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If we believe in decentralization, this is inevitable we need to deal with the evils of capitalism, which had been sufficiently covered by Karl Marx and proven by the Wall Street.

I suggest independent validators/delegators need to discuss a “gentlemen’s agreement” publicly to conclude:

1. A set of code of ethics or best practice of being a professional validator and delegator on PoS blockchain
2. A set of measurable red flags of which if appear, the group of these independent validators and delegators will initiate and support a hard fork

Thanks for the opinions. Possible solutions discussed so far are below.

• education and quiz(?) on delegators

• warning to delegators when there exists a big possibility of oligopoly by certain big validators or some other threats to the network

• proper effective communication channel from united validators to delegators(including detail information on governance issues)

• bring awareness of each validator’s contribution to ecosystem

• gentlemen’s agreement on code of ethics for those validators who are willing to join into the group of “good and honest cosmos validators unity”(there should be a better name of course)

Please share more ideas on suggested solutions or new ones.

IMO you guys are being way too logical, too rational, and not nearly realistic enough… So I’m going to throw some monkey wrenches into this conversation. In GoS, Bitfish provided a near-perfect example of a what a nefarious validator could look like and who you all should plan for… They werent communicating, ever. So a “gentleman’s agreement” is cool in the short-term but likely useless in the medium- to long-term as validators quit/change/grow/move on/merge/etc. And sure the lack of communication from bitfish might have made forking them out easier to do, but what if they were a massive exchange, with a sudden dominant network share of staked Atoms? What if they were also a well-known exchange, with the most daily fiat-to-Atom purchases? And what if their Atom owners were legit crypto noobs who just wanted to earn interest? What if their staked users never needed to touch the Cosmos Wallet, hence wallet warnings are useless because the exchange does it all? Are you all ready to attempt to fork out someone like that? Continuing on this… What if the exchange charged 0% commissions for staking? Meaning they now have a massive competitive advantage over most independent…

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what if they were a massive exchange, with a sudden dominant network share of staked Atoms? What if they were also a well-known exchange, with the most daily fiat-to-Atom purchases? And what if their Atom owners were legit crypto noobs who just wanted to earn interest? What if their staked users never needed to touch the Cosmos Wallet, hence wallet warnings are useless because the exchange does it all? Are you all ready to attempt to fork out someone like that? These arguments are what I want to discuss in here. I am aware of those propositions very well. As a honest Cosmos ecosystem contributor, we need to discuss which value is more important to us. First, we need to clarify the forkout scheme. When we did it in GoS, we burnt all coins possessed by the cartel. But, definitely it will not be the case in mainnet because most of the delegations from big validator are from other delegators(not self-delegation). Therefore, non-self-delegation atoms will be ONLY UNBONDED. So, it is not kind of some extreme situation. We just remove the problematic validator and go on the blockchain. We might decide how much of the self-delegation of big validator has to be burnt as a punishment.…

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bharvest:

Therefore, non-self-delegation atoms will be ONLY UNBONDED.

Interesting. Explain these ramifications more. Wouldn’t they just rebond? Or would they forever be unbonded? And if that’s the case did you just create 2 types of Atoms, those which can and can’t stake?

They can rebond, it is possible. We need to discuss deeper about how to deal with this. We might give all the delegator little bit of punishment, like 1% or so. But it is just an idea which should be decided by consensus of the community.

I assume this topic is not a simple problem to solve. We need proper group with many honest validators which can give information and rationales about decentralization of the network and its threats. It will be a long journey to the new normal of decentralized blockchain economy. Nobody never been there yet.

Bharvest, I love that you are a worry wart, and always take the worst case scenario in mind when building or suggesting ideas, but in this case, there is quite honestly little we can actually do to prevent the above from happening. There -are- things we can do to help minimize them. • Yoyager will unlikely issue warnings against X validator, it’s simply to “hands on” for a decentralized network. • a Wall of rules, or a quiz, will be skipped no different than a terms of service on a software install. • Greed all to often outweighs good deeds. With that said, I think that there are a few good things that could come of this discussion. While I think that we should build a group of technically capable validators, bring them together in a public facing channel (where public can see the chat, but only verified validators can actually communicate). From there and with some mainnet experience under our belts, we can build an expectation of the validator community. I personally think governance to decide if someone can or can bond atoms should be a last resort, and that we should use governance to not -remove- a validator, but rather as a recommendation of commission…

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bharvest:

In short, commission rate, honest willing, business advantages, all of these are irrelevant when we decide the centralization caused by an entity is harmful or not. If it already caused it, it is already harmful no matter what reasons behind it.

And I agree. I was more painting out a scenario/path whereby it’s relatively easy for an exchange to suddenly centralize something that’s meant to be decentralized.

It seems to me that there little solutions here and we’re almost entirely reliant upon the exchanges purposely choosing NOT to run a dominant amount of validators. Like even if they somehow have 2/3’s of all Atoms in their accounts’ wallets, we’re just going to hope that they choose to run less than 2/3’s of the available validator nodes.
Not good.