RESEARCH: Slashing incentives for validator decentralization

Decentralization Incentivized Slashing models This is active area of research for @sunnya97 and myself. Goals: • Validators that are a large fraction of the total voting power need be slashed at high levels. For instance, a validator that was 1% of the network who equivocates could be slashed 5% but 10% validator might get slashed at 10% • To discourage large validators from creating sybils, we need to introduce slashing on correlated behavior. A similar fault that occurs across multiple keys in the same slashing period should result in larger amplification factor than • Introduce a reward model that demonstrates adversarial control of a consensus key or keys and works within the above. These effects should encourage delegators to pursue a portfolio strategy with validators/staking pools and incentivize decentralizing the consensus while still encouraging delegators to strongly consider the security of the their validators. Details: • Slashing formula for a single validator relative to total stake • We need to figure out how correlations work. The validator will be tombstoned on the first fault reported but additional slashing will need to occur if new…

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I think it’s effectively impossible to create incentives against large self delegations.

This is mostly about holders that don’t run their own or closely associated validators and encouraging a portfolio strategy.

We also need to figure out a way to conduct experiments with this system.

This will also require a validator control over delegation mechanism built.

Let’s say, a validator has a decent amount of atoms delegated to him/her and don’t want to accept any new delegations in order to be below increased slashing % risk. The only control present now is commission fee that could be increased but it wouldn’t be sufficient.

I know you’re talking about slashing incentives here for decentralization but what if you incentivized Delegators to diversify for decentralization? Right now there are theories of there being benefits to diversifying, but little to no actual evidence of the benefit in diversifying. This is because there’s no difference between systematic versus unsystematic risk, since most Validators seem to be doing fine and dandy with regards to uptime. I have had a theory since mainnet launch that all Validators are doing fine now because there’s no attacks because there’s no actual market price or market value attached to attacking. So this might be a short-term problem once transfers are enabled and we see real exchanges trading Atoms. But if that theory is wrong, and centralization of Atoms among a few Validators is still present well after transfers are enabled, I’d suggest you create an additional staking rewards formula so that diversified Delegators receive “extra rewards” on top of the normal staking rewards for Delegating Atoms to a diversified group of Validators. Example: if the Atoms in your wallet are diversified more or less equally to at least 50 active Validators then…

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Higher slashing levels for a validator with higher stake impose negative externalities. This can lead to unintentional dynamics and attack vectors : • An additional delegation would increase the slashing level for every other delegation and the self-bond stake. • It would discourage validators to have a high self-bond stake as the slashing levels increase with every additional delegation. • There is a conflict of interest between validators and their delegators as a validator may profit from additional delegations while delegators are harmed by additional delegations. • A new delegator with a significant amount would increase the slashing level and and old delegator with a possibly higher amount could decide to leave. The total delegation amount could be lower afterwards. This scenario could also be constructed as an attack on a certain validator with the addition of redelegating afterwards. • Every delegator spend time and effort evaluating a validator and optimally trust and partnership emerges. Changing slashing levels could force a delegator to redelgate from a trusted validator and therefore create additional costs. To avoid these negative externalities i…

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I really like the idea. However there are some problems when it comes to implementing i think :

• How do you set up such a system with variable rewards while maintaining a fixed inflation rate?
• You claim your rewards form multiple single validators. How should the system take into account that your funds are well distributed and pay you accordingly ?