SIMD-0123: Block Fee Distribution

Author: jstarry

proposals/0123-block-fee-distribution.md

@@ -0,0 +1,144 @@
+---
+simd: '0123'
+title: Block Fee Distribution
+authors: Justin Starry (Anza)
+category: Standard
+type: Core
+status: Draft
+created: 2024-03-10
+feature: (fill in with feature tracking issues once accepted)
+---
+
+## Summary
+
+A new mechanism for distributing block fees to delegated stake accounts is
+proposed to allow validators to share block fee revenue with their delegators.
+Validators will be able to specify a commission rate for block fees and the
+protocol will automatically distribute the remaining fees to delegated stake
+accounts at the end of each epoch.
+
+## Motivation
+
+Delegated stake directly increases the number of blocks that a validator is allocated
+in an epoch leader schedule but the core protocol doesn't support diverting any of
+that extra revenue to stake delegators.
+
+## Alternatives Considered
+
+Due to the lack of core protocol support for this feature, validators have
+developed independent ways to distribute block revenue which is not enforced by
+the core protocol. For example, the Cogent validator diverts part of its fee
+revenue to NFT holders. But it's up the NFT holders to audit and hold Cogent
+accountable to promised commission.
+
+Another alternative is Jito's mechanism for block "tips" (not fees, but the idea
+is similar). Jito's validator implementation includes a tip distribution program
+which it instructs validator operators to divert all of their tips to but cannot
+enforce perfect compliance. It's up to stakers and the Jito team to audit
+compliance by validator operators. This mechanism requires trusting a
+third-party (in this case Jito) to calculate reward distribution in an accurate
+and fair mannger. It also relies on using a merkle tree to distribute fees to
+all stake accounts and the distributed fees are not automatically staked in
+recipient stake accounts.
+
+## New Terminology
+
+- validator fee program: New core program which supports diverting a portion of
+block fees to stake delegators
+
+- validator fee account: New account type which supports setting a commission
+for collected block fees
+
+## Detailed Design
+
+Currently, all block fees, including both transaction base fees and priority fees,
+are collected into a validator's node id account. As of SIMD 85, the validator id account
+must be both system-owned and rent-exempt to receive collected fees. 
+
+In order to allow validators to set a block fee commission rate, a new validator
+fee program and validator fee distribution account is proposed below. Note that
+vote accounts cannot be used because there isn't a guaranteed 1:1 mapping from
+validator node id addresses to vote accounts.
+
+Since validator node id's are not easily changed and are predominantly used for
+paying vote transaction fees, this proposal introduces new fee distribution
+accounts whose addresses are derived from validator node ids at a derivation
+path proposed below.
+
+### Block Fee Collection
+
+After all transactions are processed in a block for a given leader, rather than
+collecting fees into the validator node id account, the protocol REQUIRES
+checking the existence of an initialized validator fee account derived from the
+leader's node id address. If no account is found at that path or the account has
+not been initialized, fees MUST continue being collected into the validator node
+id account balance in adherence to SIMD 85 fee collector constraints. If an
+initialized account is found, the account MUST be loaded and deserialized to
+determine the leader's fee commission. Then the protocol REQUIRES that collected
+fees are first split at the determined commission rate and then the commission
+fee MUST be transferred to the validator node id account and the leftover fees
+MUST be transferred to the validator fee account.
+
+### Block Fee Reward Calculation
+
+At the end of an epoch, validator fee accounts MUST be derived for all validator
+node id's in the epoch leader schedule. The protocol REQUIRES checking if an
+initialized validator fee account exists and has a lamport surplus above its
+rent-exempt balance. For every validator fee account with a lamport surplus,
+the lamport surplus is divided evenly by delegated stake weight across all vote
+accounts.
+
+TODO: Prevent vote accounts from changing node id?
+TODO: Prevent multiple vote accounts for one node?
+
+### Block Fee Reward Distribution
+
+Each fee reward calculated for a delegated stake account will be included into a
+list of reward entries which MUST be partitioned and distributed according to
+SIMD 118.
+
+
+### Validator Fee Program
+
+Created as an enshrined SVM program..
+
+TODO
+
+- `InitFeeAccount`
+- `UpdateFeeCommission`
+
+### Validator Fee Account
+
+TODO
+
+- `account_type`
+- `version`
+- `commission`
+
+### Validator Fee Derived Address
+
+TODO
+
+1. `"VALIDATOR_FEE"`
+2. Validator node id address
+
+## Impact
+
+Validators will need to initialize and set commissions for their new validator
+fee accounts.
+
+Stake delegators will receive additional stake reward income when delegating to
+validators who adopt this new feature.
+
+## Security Considerations
+
+TODO
+
+## Drawbacks *(Optional)*
+
+Why should we not do this?
+
+## Backwards Compatibility *(Optional)*
+
+Does the feature introduce any breaking changes? All incompatibilities and
+consequences should be listed.