Referendum proposal - Increasing the Validator minimum commission rate
Dear Community,
This proposal seeks to adjust validator minimum commission rate and keeps all other staking configurations unchanged. In the current market (last several months) validator income from the minimum commission can cover less than 50% of the server rent costs. In order to maintain a sustainable environment and prevent the network degradation, I would like to start discussion and hear community opinion before moving this proposal to the onchain referendum voting.
Majority of these things are not new and have been discussed before. I would like to invite all participants in previous discussion to provide their feedback. Majority of the information used for this proposal is taken from the following proposals, discussions and referenda:
https://kusama.polkassembly.io/proposal/108
https://kusama.polkassembly.io/post/1899
This referendum seeks to increase the minimum commission from 3.0% to 10%.
Validator earnings and effects on staking rewards
A fully active validator operating at 3% commission can stand to earn (485.2/1000)* 4 * 30 * 0.03 = 1.75 KSM/month. With KSM priced at 25$ this equates to ~45 USD/month.
The proposed configuration allows validators to earn (485.2/1000)* 4 * 30 * 0.1 = 5,82 KSM/ month which equates to ~ 145 USD/month.
At KSM at 30$, earnings above are ~52 USD/month and ~175 USD/month.
At KSM at 50$, earnings above are ~87.5 USD/month and ~291 USD/month.
Effects on nominator staking rewards
Assuming a total stake of 6600 KSM, at 3% commission a nominator earns ~10.42% APY whereas at 10% commission a nominator* would earn ~9.7% APY, a 0.72% difference.
Validator operational costs
There were several topics regarding to the validator infrastructure expenses and operational costs that can be found here:
https://kusama.polkassembly.io/post/1980
https://kusama.polkassembly.io/post/1306
I tend to agree with majority of what is being said in these two topics. With the recent rise of the energy prices and the datacenter costs, together with increasing hardware resources I would say that most Kusama baremetal servers are rented in the price range of 100-200$ a month. I also think that every validator puts a minimum of 2 hours a month on operation maintenance.
This would put most of the validator operational costs between 300-500$ a month.
Summary
The proposed increase of minimum commission to 10% is trying to create a better and more sustainable network environment. With the numbers given above it is clear this is a small step towards this goal. Beside the commission, we would need KSM price to double and reach 50$ in order to earn ~291 USD/month which is a bare minimal operational cost.
With this proposal we are not influencing KSM inflation rate. We are asking the nominators to steer 0.72% of their staking APY towards the network. We need to have strong, reliable, secure and redundant blockchain network in order to process and secure multimillion $ assets on it.
Comments (22)
I believe that the increase of max validators happened a little too quickly on Kusama. It seems economically we've entered a situation of damned if you do, damned if you don't. Either you're going to take the loss and try to make it up down the line to obtain nominations, or you're going to have to give up on nominations completely and just accept a 15% fee on 50% inclusion. I think an increase to the minimum fee would do a lot of good for the network given the state of validator economics.
I am an obvious supporter of this proposal, however, I disagree that a conservative position should be taken. We should try to establish a reasonable commission given our cost of operations. With this in mind I am inclined to believe that 15% commission is much more reasonable. This would equate to 8.73 KSM/mth or $218/mth; under current market conditions I don't expect to see any major upward shifts in token price, we can only hope for better staking rates.
Tom has also raised a good point, it is a situation of our own doing. A larger active set is desired but if rewards don't support sustainable operations then it leaves the chain open to centralization. The ones who would win during current circumstances are the ones who can afford to operate at the lowest possible commission.