SIMD-0123: Block Revenue Distribution

proposals/0123-block-revenue-distribution.md

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+---
+simd: '0123'
+title: Block Revenue Sharing
+authors: Justin Starry (Anza)
+category: Standard
+type: Core
+status: Review
+created: 2024-03-10
+feature: (fill in with feature tracking issues once accepted)
+---
+
+## Summary
+
+A new mechanism is proposed to allow validators to share part of their block
+revenue with their delegators. Commission rates from validator vote accounts
+will be used by the protocol to calculate post-commission rewards that will be
+automatically distributed to delegated stake accounts after an epoch is
+completed.
+
+## 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.
+
+## Dependencies
+
+This proposal depends on the following previously accepted proposals:
+
+- **[SIMD-0180]: Use Vote Account Address To Key Leader Schedule**
+
+    Necessary for looking up a block producer's vote account
+
+- **[SIMD-0185]: Vote Account v4**
+
+    Introduces version 4 of the vote account state, which adds new fields
+    for block revenue commission and pending delegation rewards
+
+- **[SIMD-0232]: Custom Commission Collector Account**
+
+    Necessary for looking up a block producer's commission collector account
+
+- **[SIMD-0291]: Commssion Rate in Basis Points**
+
+    Introduces a new instruction type for setting commission rates in basis
+    points
+
+[SIMD-0180]: https://github.com/solana-foundation/solana-improvement-documents/pull/180
+[SIMD-0185]: https://github.com/solana-foundation/solana-improvement-documents/pull/185
+[SIMD-0232]: https://github.com/solana-foundation/solana-improvement-documents/pull/232
+[SIMD-0291]: https://github.com/solana-foundation/solana-improvement-documents/pull/291
+
+## Alternatives Considered
+
+### Distribute Rewards as Activated Stake
+
+The runtime could ensure that any distributed stake rewards get activated as
+well but it would require extra complexity in the protocol to support that
+feature. Instead, stakers will receive inactive SOL in their stake accounts that
+they will have to manage themselves. [SIMD-0022] aims to make this experience
+better for stakers by allowing stake accounts to separately delegate any
+unstaked balance in their accounts.
+
+[SIMD-0022]: https://github.com/solana-foundation/solana-improvement-documents/pull/22
+
+### Out of protocol reward distribution 
+
+Due to the lack of core protocol support for distributing block revenue to
+stakers, validators have developed their own solutions which are 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 a specific commission rate.
+
+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 manner. 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
+
+NA
+
+## Detailed Design
+
+### Runtime: Block Revenue Collection
+
+After all transactions are processed in a block for a given leader, rather than
+collecting all block revenue into the validator identity account, the protocol
+will look up the block producer's vote account as described in [SIMD-0180]. Then
+it MUST check if the validator's vote account has specified a block revenue
+commission rate and collector addresses in the new vote account version
+described in [SIMD-0185]. As described in [SIMD-0232], the latest block revenue
+commission rate and collector address MUST be loaded from the vote account state
+at the beginning of the previous epoch. This is the same vote account state used
+to build the leader schedule for the current epoch.
+
+If the block revenue commission rate and collector account aren't set (e.g., the
+vote account state version has not been updated to v4 yet), all revenue will be
+collected into the validator's identity account as before. If the block revenue
+commission rate and collector account *are* specified, the rewards MUST be
+distributed according to the commission and delegator rewards collection
+sections below.
+
+#### Commission Collection
+
+The commission amount MUST be calculated by first multiplying the amount of
+revenue by the lesser of the vote account's block revenue commission rate or the
+maximum of `10,000` basis points. Then use integer division to divide by
+`10,000` and discard the remainder. If the commission amount is non-zero, the
+block revenue commission collector account MUST be loaded and checked for the
+following conditions:
+
+1. account is system program owned AND
+2. account is rent-exempt after depositing the commission.
+
+If the conditions are met, the commission amount MUST be deposited into the
+block revenue commission collector account. If either of these conditions is
+violated, the commission amount MUST be burned.
+
+#### Delegator Rewards Collection
+
+The delegator rewards amount MUST be calculated by subtracting the calculated
+commission from the block fee revenue. If the delegator rewards amount is
+non-zero, the vote account must be loaded and checked for the following
+conditions:
+
+1. account is vote program owned AND
+2. account is initialized with vote state v4 or later
+
+If the conditions are met, the delegator rewards amount MUST be added to the
+vote state field `pending_delegator_rewards` and added to the balance of vote
+account. If either of these conditions is violated, the delegator rewards amount
+MUST be burned.
+
+### Runtime: Delegator Rewards Distribution
+
+When calculating stake delegation rewards for a particular completed reward
+epoch, construct a list of all vote accounts that were initialized at the
+beginning of the reward epoch and had a non-zero active stake delegation. For
+each vote account, retrieve its state at the end of the reward epoch and check
+the `pending_delegator_rewards` field in its vote state. Let this value be `P`.
+If `P` is non-zero, use it to calculate rewards for each of the stake accounts
+delegated to the vote account as follows: 
+
+1. Sum all active stake delegated to the vote account during the reward epoch
+epoch. Let this total be `A`.
+
+2. For each individual stake account, multiply its active stake from the
+reward epoch by `P`, and divide the result by `A` using integer division.
+Discard any fractional lamports.
+
+After calculating all individual stake rewards, sum them to obtain `D`, the
+total distribution amount. Because of integer division, the full amount `P` may
+not be distributed so compute the amount to be burned, `B`, as the difference
+between `P` and `D`.
+
+If no blocks in the epoch following the completed reward epoch have been
+processed yet, subtract `B` from both the vote account’s lamport balance and its
+`pending_delegator_rewards` field and store the updated vote account. Finally,
+the burn amount `B` should also be deducted from the cluster capitalization.
+
+#### Individual Delegator Reward
+
+The stake reward distribution amounts for each stake account calculated above
+can then be used to construct a list of stake reward entries which MUST be
+partitioned and distributed according to [SIMD-0118].
+
+When reward entries are used to distribute rewards pool funds during partitioned
+rewards distribution, the delegated vote account for each rewarded stake account
+must have its `pending_delegator_rewards` field and its balance deducted with
+the amount of rewards distributed to keep capitalization consistent.
+
+[SIMD-0118]: https://github.com/solana-foundation/solana-improvement-documents/pull/118
+
+### Vote Program
+
+#### Withdraw
+
+Since pending delegator rewards will be stored in the validator's vote account
+until distribution at the next epoch boundary, those funds will be unable to be
+withdrawn.
+
+The `Withdraw` instruction must be modified so that if the balance indicated by
+the `pending_delegator_rewards` field is non-zero, the vote account will no
+longer be closeable by fully withdrawing funds. The withdrawable balance when
+`pending_delegator_rewards` is non-zero will be equal to the vote account's
+balance minus `pending_delegator_rewards` and the minimum rent exempt balance.
+
+#### UpdateCommissionBps
+
+The `UpdateCommissionBps` instruction added in [SIMD-0291] must be updated to
+add support for updating the block revenue commission rate.
+
+When the specified commission kind is `CommissionKind::BlockRevenue`, update the
+`block_revenue_commission_bps` field instead of the previous behavior of
+returning an `InstructionError::InvalidInstructionData`.
+
+Note that the commission rate is allowed to be set and stored as any `u16` value
+but as detailed above, it will capped at 10,000 during the actual commission
+calculation.
+
+#### DepositDelegatorRewards
+
+A new instruction for distributing lamports to stake delegators will be added to
+the vote program with the enum discriminant value of `18u32` little endian
+encoded in the first 4 bytes.
+
+```rust
+pub enum VoteInstruction {
+    /// # Account references
+    ///   0. `[WRITE]` Vote account to be updated with the deposit
+    ///   1. `[SIGNER, WRITE]` Source account for deposit funds
+    DepositDelegatorRewards { // 18u32
+        deposit: u64,
+    },
+}
+```
+
+Perform the following checks:
+
+- If the number of account inputs is less than 2, return
+`InstructionError::NotEnoughAccountKeys`
+- If the vote account (index `0`) fails to deserialize, return
+`InstructionError::InvalidAccountData`
+- If the vote account is not initialized with state version 4, return
+`InstructionError::InvalidAccountData`
+
+Then the processor should perform a system transfer CPI of `deposit` lamports
+from the source account (index `1`) to the vote account. Lastly, increment the
+`pending_delegator_rewards` value by `deposit`.
+
+## Impact
+
+Stake delegators will receive additional income when delegating to validators
+who adopt this new feature by setting a block revenue commission rate less than
+the default of `100%`.
+
+## Security Considerations
+
+NA
+
+## Backwards Compatibility
+
+A feature gate will be used to enable block reward distribution at an epoch
+boundary.