Kusama Staking Rates - A discussion in the aftermath of referendum 238
Good day,
In the aftermath of referendum 238 (Suggesting an increase of the minimum commission), I would like to open the floor for a discussion on the broader topic of staking rates on the Kusama network.
The voting data obtained from referendum 238 served a greater purpose. It demonstrated that there is legitimate interest on the topic of staking rates and the sustainability of operations for independent validators.
While I agree that increasing the minimum commission is not an absolute answer to the problem; there was a majority (61% by weight) who wished to steer the chain in this direction.
Voting results (by number) To share some brief highlights of information captured within 6 hrs of the votes' end. The results are:
- 411 (27%) Validators, 338 (23%) Nominators and 749 (50%) undefined (neither) participated in the vote.
With percentages respective to the total vote:
- 311 (23%) Validators, 124 (8%) Nominators and 474 (32%) of the undefined voted AYE
- 72 (5%) Validators, 214 (14%) Nominators and 275 (18%) of the undefined voted NAY
Interesting facts
- 40 (55.5%) of the 72 validators who voted against the referendum maintains a commission that is > 8.5%
- 180 (84%) of the 214 nominators who voted against the referendum nominate a validator with a commission > 8.5%
It is also quite interesting that there are a number of voters who vote against things like upgrading the chain's runtime.
Of the 71 accounts that voted against Kusama's runtime upgrade (referendum 239), 70 of them participated in referendum 238. From the 70, 1 voted AYE and 69 voted NAY.
If it becomes necessary I would like to produce the data by weight at the last block of the vote. Unfortunately my queries used derive functions which doesn't play well with .at.
State of staking rates
Amidst the discussion with referendum 238, I didn't get a sense that many appreciated the overarching state of staking rates and what the chain is (or may) be trying to achieve.
The chain's inflation rate is constant but the amount that is distributed to the treasury and to staking is determinant on the ideal staking rate. Simply put, what doesn't go to staking goes to the treasury.
I would like to identify two out of the three zones; less than ideal and greater than ideal.
When the chain is less than ideally staked it generally encourages staking by increasing staking rewards with each bond added. When it is staked greater than ideal it discourages staking by reducing staking rewards.
In my opinion, the first zone (less than ideal) seems to encourage staking so that the chain can attain high levels of security (backing), this is all good! The second zone seems to discourage staking to encourage other utilization of tokens, perhaps for crowdloans?
We are currently in the second zone and staking rewards have dropped almost by half when compared to the ideal. It should encourage persons to remove their stake but this effect isn't yet seen.
The differential of staking rewards is also going to the treasury which is already quite full. There is also the effect of a squeeze on smaller validator's returns via commission and sustainability of their operations. This is enhanced due to current market conditions.
Suggestions
I agree that fluctuations of market prices make it difficult to set an absolute 'best' commission level. I do however, believe there is value to looking at staking levels.
Perhaps when the treasury is full and we are above the ideal staking level we could:
- Reduce the amount that goes to the treasury
- Increase in the 'effective commission' which is the current minimum + an increasing amount x.
This would imo allow a flexible means by which funds could be transferred to validators during times when generally staking rewards would diminish.
Adam suggested:
- burned treasury funds get allocated to validators who earned points during that spending period (First suggested by bLd)
- minimum required block tip on all transactions, 'merica style 🇺🇸
- treasury-subsidized programs that actively pay validators (e.g. TVP gets a quarterly grant to compensate its participants, nominator pools receive grants to actively pay the validators they nominate)
Also suggested
- It was also suggested that as an intermediary step a lower rate of commission be proposed.
- Generally there are concerns that if the commission rate goes up then it may never lower.
To note with the last point that it is possible for us to schedule a decrease (return to 3%) as part of a batch.
Independent Validators within the 1KV
In light of the decreased rewards on chain and market conditions, the 1KV allowed an increase of commission by 50% . This has helped shield members of the programme as they can now operate at 15% commission without any risk of not being elected into the active set.
I believe that the rationale behind the decision to increase the maximum commission has merit outside of the 1KV. I am a proud member of the 1KV but I was discouraged to hear some members vote Nay because they're not affected.
Comments (4)
Comments (4)
Thanks for writing this Paradox. I think it is very well written. I particularly like the idea of sending funds (that are being burned anyway) back to the validators. Although many of the options provided are good. At the end of the day the independent validators are an important part of the Kusama ecosystem and a core tenant of decentralization. We should do everything in our power to maintain this pillar.
Thanks fot the comprehensive post.
First, let me address my opinion on ref 238. Initially, I would have been in favour it, but having seen the outcome and and thinking about it more, I think might be a flaw with it. While min-commission is a good way to combat market fluctuation, we could have designed it differently. The problem is that if all commissions are raised to 20% due to a market downturn, once the markets return, the path to reduce commissions again is rather unclear. As a nominator, you would prefer a clear guarantee that this temporary jump is reverted later on. we can always assume markets will adjust accoudingly, and validator HAVE TO reduce their commissions back again, which is not a bad argument.
An alternative would have been to introduce a "mandatory commission" which is set by `root` and is applied to all validators. If this existed, the validator's existing commission wouldn't really need to have a `min` or `max`. this mandatory commission is set and removed by the governance. This is more or less like the UIs showing you `commission - min.commission` in the existing model. So to be honest, it is not particularly fancy.
Thinking a bit further, the issue seems to be that some big operators don't care about running at a loss even at low commission for the goal of attacting users. This then begs the question: why should Kusama try and bail out all validators if only a subset need help? While it is manual and cumbersome, we can think of using other governance mechanisms to financially aid validators who actually need it, and let those who wish to run at a loss do so. Tips, or normal treasury spends can be used for this. We can build a mechanism where if the treasury pays a cetain account, the funds are automatically given to a subset of validators (similar to paying a DAO).
With all that siad, I am less keen on taking this discussion to the next level and increasing the overall staking rate. I don't have strong opinions on that yet and, if we only want to fix the issue for validators, I think we can do it in simpler ways.
Thanks for writing this Paradox. I think it is very well written. I particularly like the idea of sending funds (that are being burned anyway) back to the validators. Although many of the options provided are good. At the end of the day the independent validators are an important part of the Kusama ecosystem and a core tenant of decentralization. We should do everything in our power to maintain this pillar.
Thanks fot the comprehensive post.
First, let me address my opinion on ref 238. Initially, I would have been in favour it, but having seen the outcome and and thinking about it more, I think might be a flaw with it. While min-commission is a good way to combat market fluctuation, we could have designed it differently. The problem is that if all commissions are raised to 20% due to a market downturn, once the markets return, the path to reduce commissions again is rather unclear. As a nominator, you would prefer a clear guarantee that this temporary jump is reverted later on. we can always assume markets will adjust accoudingly, and validator HAVE TO reduce their commissions back again, which is not a bad argument.
An alternative would have been to introduce a "mandatory commission" which is set by `root` and is applied to all validators. If this existed, the validator's existing commission wouldn't really need to have a `min` or `max`. this mandatory commission is set and removed by the governance. This is more or less like the UIs showing you `commission - min.commission` in the existing model. So to be honest, it is not particularly fancy.
Thinking a bit further, the issue seems to be that some big operators don't care about running at a loss even at low commission for the goal of attacting users. This then begs the question: why should Kusama try and bail out all validators if only a subset need help? While it is manual and cumbersome, we can think of using other governance mechanisms to financially aid validators who actually need it, and let those who wish to run at a loss do so. Tips, or normal treasury spends can be used for this. We can build a mechanism where if the treasury pays a cetain account, the funds are automatically given to a subset of validators (similar to paying a DAO).
With all that siad, I am less keen on taking this discussion to the next level and increasing the overall staking rate. I don't have strong opinions on that yet and, if we only want to fix the issue for validators, I think we can do it in simpler ways.