On-chain Minimum Commission - Discussions before launch
Dear community,
With the upcoming rollout of runtime 9160 we should explore the option of an extrinsic to set a network wide minimum commission. This discussion relates to metrics associated with the KUSAMA chain. After the on chain parameter is declared any persons using the staking.validate() extrinsic to change their commission would have to abide by the new threshold. All existing commission values would remain the same.
I implore those who are contributing to this post to do so in a meaningful and calculated manner. The goal is to ensure that validators are compensated fairly and that they may continue to operate their nodes in a sustainable manner. It is not an avenue for undue enrichment.
Stakeholders
Some of the apparent stakeholders are:
- Independent Validators
- Commercial Validators
- Retail Nominators (everyday person)
- Commercial Nominators who don't operate their own validator (Karura, ParallelFi etc.)
Parties who self-nominate like many of the exchanges should not be affected by this change.
This thread is opened for us to discuss in an empirical manner what is a reasonable value for this threshold and to appreciate the views of all entities it affects. A high commission can deter retail nominators from staking and it can encourage commercial nominators to host their own validators.
Considerations
I would like to encourage discussions in a structured and meaningful manner. The proposed commission should consider items like:
- Rental cost for an appropriately spec'd validator host-machine
- Compensation for the hours exerted by the validator operator
- Fair and reasonable profit
- Fluctuations in era points during a monthly period
- Fluctuations in token price during a monthly period
Constants
The following should be used in calculations.
- Kusama Price - USD$256 / 1 KSM
- Total Kusama earned per era = 0.6 KSM
- 30 days per month
Sample Calculation
Ideal return per month [IR] = ( [Rental Cost] + [Operator Hourly Rate] * 1 (hr) * 30 (days) ) * (1 + ( [Percentage Profit]) / 100);
IR = (80 + 20 * 1 * 30) * (1+(15/100))
IR = (80+600) * 1.15
IR = $680/mth or 2.656 KSM
Commission required [CR] to earn 2.656 KSM over 30 days =>
0.6 * [CR] * 4 (eras) * 30 (days) = 3.054
[CR] = 2.656 / (0.6 * 4 * 30)
[CR] = 0.03689 or 3.7%
CALCULATION AMENDED TO REMOVE 15% PROFIT
Allowing for 20% for fluctuations in token price and era points a commission of 4.8% is calculated. There aren't any validators in the active set with a commission of 4.8%, however those that have 5% offer a return of 17.77% on a total-stake of 4,798.2177 KSM. The total stake in question is nPoS normalized and should represent the 'general stake'.
I do confess that larger operators would enjoy better returns due to economies of scale but I present the above for general consideration. I also note that while the token price is set at $256.00 the present price is $170.00.
I also understand that it is technically possible to submit a proposal to forcefully adjust the commission of validators. While this sounds a bit excessive it might be an good accompaniment to ensure an even playing field.
Regards,
Will | Paradox
Comments (39)
Comments (39)
Trying to get a sensible minimum through governance is fine, and ideally it would be naturally proposed by validators as they are the one directly affected by this. As long as it’s approximately the reasonable costs involved with running/maintaining a validator node then I’d support - I would want to try to avoid any distortion tho. I am wondering if the first approved commission should be a minimum first to experiment with the effects and reorg of votes in the nomination side on Kusama?
I am certainly in agreement that we should aim for a sensible value. In my private discussions Validators have different costs depending on their direct involvement and hosting options. Prior to this analysis I (for some reason) had the value of 3% in mind as a reasonable figure. Taking pen to paper revealed another. I want to be challenged (in a structured manner) to identify any gaps with my approach.
I do have some concern with adopting and implementing one value now and another later; mainly with the ease of transition. If we (the public) are to accompany the new minimum commission value with another proposal to adjust commissions of all validators to comply then the overall exercise might be a more difficult. If this is not a challenge then I'm in agreement with your suggestion.
Ultimately, I would like this value to remain constant unless there's a major change in the ecosystem or one that significantly affects the parameters upon which the value was derived. Current market dip in mind, this should not result in us changing the value. An increase to the active validator count to 1,500 would.
Trying to get a sensible minimum through governance is fine, and ideally it would be naturally proposed by validators as they are the one directly affected by this. As long as it’s approximately the reasonable costs involved with running/maintaining a validator node then I’d support - I would want to try to avoid any distortion tho. I am wondering if the first approved commission should be a minimum first to experiment with the effects and reorg of votes in the nomination side on Kusama?
I am certainly in agreement that we should aim for a sensible value. In my private discussions Validators have different costs depending on their direct involvement and hosting options. Prior to this analysis I (for some reason) had the value of 3% in mind as a reasonable figure. Taking pen to paper revealed another. I want to be challenged (in a structured manner) to identify any gaps with my approach.
I do have some concern with adopting and implementing one value now and another later; mainly with the ease of transition. If we (the public) are to accompany the new minimum commission value with another proposal to adjust commissions of all validators to comply then the overall exercise might be a more difficult. If this is not a challenge then I'm in agreement with your suggestion.
Ultimately, I would like this value to remain constant unless there's a major change in the ecosystem or one that significantly affects the parameters upon which the value was derived. Current market dip in mind, this should not result in us changing the value. An increase to the active validator count to 1,500 would.