Research Possibility of tiered minimum commission on validator to ensure decentralization

[nghuyenthevinh2000]

Allnode case has left me with much thoughts about a possible governance attack.

Especially after reading this: https://decrypt.co/38050/steem-steemit-tron-justin-sun-cryptocurrency-war. Same fate can happen to Terra Classic if Justin Sun decides to incorporate Terra community into his own empire.

Vitalik has some great thoughts on this matter: https://vitalik.ca/general/2021/08/16/voting3.html

A quick solution would be to implement a logic that enforces minimum commission on top validator to discourage people from delegating into them and encourage people into delegating into lower ranked validator.

top 10: min 20% commission
top 50 - 10: min 10% commission
100 - 50: min 5% commission
Outside of active set: no enforcement

Implementation

1. An ante handler that check EditValidator msg for commission. It will fetch Validator Set to determine position of validator that sends Msg, and check if editted commission is allowed
2. An ABCI logic BeginBlock() in custom staking that checks for violation in commission and auto - update commision to reflect validator position.

Thoughts? @ZaradarBH @inon-man @edk208 @StrathCole @fragwuerdig

[fragwuerdig]

There is a ongoing discussion about this between Rexyz from TCV and LLL69. Let me poke them and point them to this discussion.

[fragwuerdig]

The main concern I have with a tiered min. commission, is that due to the noise in delegations the validators that are close to the tiers are going to see heavy flipping with their min. commission rate.

So I discussed with TCV and LLL an option, where we would tie the min. commission rate to a function of the voting power. That curve could be a high power polynom that essentially runs flat for small voting powers and goes steep for higher voting powers:

MINCOMMISSION(VP) = PARAM * VP^12

The PARAM could be subject to governance to tweak/scale the curve in the y-direction. PARAM=200_000_000 would cause Allnodes to have around 11% commission.

I don't know exactly what a curve implies regarding determinism of floating point operations. Maybe @nghuyenthevinh2000 or @inon-man can elaborate more on that question?

[nghuyenthevinh2000]

So I discussed with TCV and LLL an option, where we would tie the min. commission rate to a function of the voting power. That curve could be a high power polynom that essentially runs flat for small voting powers and goes steep for higher voting powers:

MINCOMMISSION(VP) = PARAM * VP^12

I see your point, that would make a lot of sense to have a curve so as not to shock validator

[LunaticLunaLover69]

Hello @nghuyenthevinh2000 and the others, thanks for opening this issue.
In general I like the idea of enforcing a minimum commission with higher VP, it would encourage people but not force them to redelegate, also wouldn't enforce a VP-Cap, instead gently introduce a natural cap due to delegators natural desire to get the most rewards for their delegations.

I would agree with the min commission tiers which you proposed: 0%, 5%, 10%, 20%.
I would however (and if technically possible) not enforce the min-commission based on the relative position of each validator in the set, instead enforce it based on the absolute VP of a validator.

My thought process is as following:
Assume a fairly even balanced set with some "spikes" in the top ranks (1: 8%, 2: 8%, 3: 2%, 4: 2% etc. ). In this set the 3rd and 4th validator would have to quote a 20% commission, which doesn't seem right to me, since it takes their competitive advantage. This becomes even worse the more balanced the set becomes.

I would therefore propose tiers similar to this where VP is the absolute VP percentage regardless of position in the set:

• 0 <= VP < 2 => 0% min com
• 2 <= VP < 5 => 5% min com
• 5 <= VP < 10 => 10% min com
• 10 <= VP => 20% min com

Also @fragwuerdig mentioned that tiers might be an issue, so maybe something like this could be implemented as a curve. My main point is, I wouldn't make it dependent on the relative position in the set rather than the absolute VP %.

[fragwuerdig]

@LunaticLunaLover69: please correct me. I am trying to rephrase what you said to get a better understanding. You are proposing: "Validators that accumulate top 10% voting power get 20% min. commission". Or do you rather mean "Top 10 validators by voting power get 20% min commission"?

[LunaticLunaLover69]

@fragwuerdig Basically what I am saying is the min-commission enforcement should be only based on the absolute VP they have, not based on their relative position in the set

Having more than 10% voting power would in my example enforce a 20% min commission.
If the validator coming next in the set only has 2% VP, it would (imo) be not justified to enforce the same 20% min commission on him (which would happen if you enforce the min commission based on the position of Validators in the set aka enforcing it on the top 10 e.g.)

[fragwuerdig]

@LunaticLunaLover69: But the curve I presented earlier is based on the absolute voting power. Not on the relative position in the set. However, I think we would be able to fit a curve into the tiers you presented, so that we have a smooth distribution.

Also, if I look into a graphical representation of your tiers and I draw a smooth curve trough it, then I see a fundamental imbalance: With your tiers the smaller validators by VP have a steeper slope into a higher min. commission. Which basically means: "smaller validators compete by commission" and "bigger validators compete by service quality". But I would actually like to see it vice versa.

[LunaticLunaLover69]

@fragwuerdig my comment on the absolute VP was in regards to the initial post of @nghuyenthevinh2000 ( he mentioned the "top 100, top 10" etc. )

If the curve is based on the absolute VP and allows small validators to run with a vey low or even zero commission, I am fine with any solution.

"smaller validators compete by commission" and "bigger validators compete by service quality"

That was the idea behind the tiers: I think it's fair to let smaller validators compete by commission and not interfere too much as long as they don't outgrow the healthy (as in healthy for a balanced set) VP range.

[edk208]

Can we move the adjustment to trigger at the end of the epoch? I don't think it is worth the computation to do every block.

[StrathCole]

I see an upcoming conflict with the unchangeable "maximum commission" setting of the validators. Which would either have to be also adjusted or the minimum / actual commission might be higher than the configured maximum for a validator.

[nghuyenthevinh2000]

I see an upcoming conflict with the unchangeable "maximum commission" setting of the validators. Which would either have to be also adjusted or the minimum / actual commission might be higher than the configured maximum for a validator.

I will take maximum commission into account and recaculate minimum commission

[StrathCole]

I see an upcoming conflict with the unchangeable "maximum commission" setting of the validators. Which would either have to be also adjusted or the minimum / actual commission might be higher than the configured maximum for a validator.

I will take maximum commission into account and recaculate minimum commission

So what if a validator has set maximum commission to 1% (some have). And they get to 5% VP?

By the way, the dynamic min commission idea is not really a new one: https://twitter.com/Sephiroth/status/1571281321363902464?s=20
But it didn't get approved by many validators until now.