Proposal: Minimum Validator Commission Rate - 5%

Governance & Proposals
1

Summary
As part of the Orbital Command validator team, this proposal could benefit me.

The idea is to set a minimum validator commission rate, e.g. 5% so that validators compete on the value they bring to the community rather than on who has the deepest pockets and can operate at a loss for the longest period of time.

Motivation
Setting a minimum validator commission rate could be argued to be against free markets and decentralisation. However, typically the only validators who can offer 0% commission for any prolonged period of time are huge validator operations validating across multiple chains and running 0% rates on Terra as loss leader. This sucks up huge amounts of delegations, and offers nothing to the community other than a marginally better staking rate.

Proposal
Previous threads on similar topic (related to Terra Classic)

By setting the minimum commission rate at 5%, delegators would have the opportunity to delegate to a validator, or validators, they truly believe in, that actually provide some kind of value to the community, rather than being seduced by a 0% commission rate.

Currently there are a number of 0% commission validators, including Orbital Command (until July). Some don’t even have a website link on their staking page in TerraStation. Literally taking the #LUNAtic community for fools!

We went with 0% commission as a test to confirm our suspicion, that when a community validator competes on an equal footing with the big boys, it is the validator that brings the most value to the community that wins!

I believe that every validator on Terra 2.0 should be offering something to the community, e.g.

Orbital Command, Danku, Terra Bites, Galactic Punks, Imperator - Educational content
Smart Stake, Flipside, Coinhall - analytics
Craig, PFC, SCV, Reality Flux - dev tools, security
Sorry to any genuine community validators I have missed.

Validators should be judged by delegators based upon the value of our contributions to the community, not by how long we can continue running a validator business at a loss!

A 5% commission rate will allow most validators to cover their costs and hopefully run at a profit. This will incentivise us to all to contribute to the community in a meaningful way. This will strengthen the Terra 2.0 network for us all.

15 Likes
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Very interesting. I imagine most don’t know what a validator would actually bring in for each, say, 1 million Luna delegated or what it costs to run a validator.

Can you share more information on the costs and rewards involved and why 5% is the right number?

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What if a validator only wants to offer “just a very low Commission, no fancy stuff” and that’s it?!

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In agreement with this proposal.

A minimum commission rate should be implemented to prevent land grabbing during the initial period of Terra 2.0. I do however think that the minimum rate should only be temporary.

There is also risk of “young” or “smaller” validators falling short because they cannot afford to compete with 0% commission validators. The goal here is to drive decentralisation of validators, as per the vision of Terra 2.0.

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1,000,000 LUNA X 10% staking rewards = 100,000 LUNA rewards per year

Validator commission of 5% = 5,000 LUNA per year per million delegated @ $5 LUNA = $25K per year.

LUNA price and validator setup determines profitability.

Costs roughly $3K per month = $36K per year.

So would need 1.5M LUNA delegations, staking rewards to remain at 10% and LUNA to remain at $5 for a validator to break even.

We have 9 members on OC team and would like to earn something each month, so need substantially more than 1.5M LUNA delegations. Also our commission rate is 4%.

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I am in full agreement with this proposal.

0% commission is not always malicious in nature but enables predatory and intransparent behaviour.

5% minimum comission allows the node operators to rely on a minimum treshold of income and ensures that:

  • the public cant be deceived easily (setting 0% comission only to increase it drastically later)

  • new Validators dont have to overcome additional costs by being forced to set 0% and attract delegations as a promotion method

  • Validators running on better and more costly infrastructure dont have to compete as hard with validators running on cheaper setups

  • with 0% comission unavailable, validators have to be more creative (and ideally contribute more in other avenues of community life re: tooling, education, gov discussion engagement) to attract delegations

Any downside in terms of user APR is inconsequential when weighting the long term advantages above

I additionally suggest we discuss a maximum possible vote weight for a single validator. I do not believe any Validator should be able to accumulate more than 5% vote weight. A max cap on delegations to a single node seems worthy of discussion to encourage decentralisation of governance.
As I previously often suggested, when entering Terra station staking interface, a popup (or a tooltip) with short explanation of how to evaluate validators would be useful for the new crowd.

While we all love community validators, and I cannot stress their importance enough, the definition of them is nearly impossible, and will remain nebulous. Increasing the interface with available description when one clicks on a validator in terra station would allow for longer description and maybe an “additional contributions to the community” section or such.

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I fully support this proposal.

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We are in support of this proposal, and have a long history of fighting for minimum commissions. Example: Minimum Validator Commision - Discussion - #2 by dylanschultzie - Secret Governance - Secret Network

We are also willing to help implement this in code, as we’ve helped done so on other networks.

For what it’s worth - we run relayers and fighting against a 0% commission when we’re already sucked dry by relaying is a tough ask.

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I am in complete agreement with this proposal, as a validator, having to compete with loss-leader validators is pretty hard.
For people who don’t really understand how commission works and seeing an attractive 0%, theyll stake with them.

I fully support the 5% minimum commission. Start on a level playing field with all…

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this rule can be circumvented easily by the validator distributing the 5% commission they made, so this is a useless rule

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I do not think that is the case. Not as useless as one might think. This will prevent everyday people just seeing the 0% and staking with them. If they have more choice, will force them to make a much more informed decision than just “ah yeah, this looks good”

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LUNC DAO has conferred and will not support this proposal - Status C (rejected with comments).

In order to receive LUNC DAO support, the proposal should be submitted with the following amendments:

  1. Incorporate burning of LUNC into the proposal.

Thank you.

LUNC DAO

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I am against this proposal for several reasons. Rebel_Defi raises some interesting points, but
this governance proposal as written should be rejected.

First, the motivation is murky. Even if the only validators who can offer 0% commission for a prolonged period are “huge validator operations validating across multiple chains” this is not per se bad for Terra. Our community should seek to make connections across multiple chains and imbed ourselves into the entire ecosystem. Silo-ing ourselves off, especially at an embryonic stage is counter-productive.

Second, even if 0% is bad for the community long-term, there is no justification provided for going straight from 0% to 5% as a minimum. If a delegator is able to break even or provide its services while receiving only a 2 or 3% commission, it should be allowed to have that opportunity. A minimum commission set at 5% stifles the incentive to innovate. The proposal doesn’t explain why 5% was chosen. As a community, we must require a rationale for proposals based on facts; not random numbers.

Third, we should lead by example, not by words. If Orbital Command wants other validators to set at least a 5% commission, it should set its own commission at, at least, 5%. This community is currently crying out for trust. Asking others to do something that we ourselves are not willing to do can be perceived as disingenuous.

Finally, the proposal in no way addresses the outstanding 6.9 trillion $lunc in circulation. At a bare minimum, the proposal should be amended to require that at least 1% of validator commissions be used to burn $lunc. See LUNC DAO’s reply. Proposal: Minimum Validator Commission Rate - 5% - #13 by LUNC_DAO

In conclusion, let us be much more careful about governance than we have been in the past. I wholeheartedly agree that “Validators should be judged by delegators based upon the value of our contributions to the community.” However, the proposal has not justified that mandating a 5% commission will make a valuable contribution to the community.

Accordingly, I will be voting NO on this proposal.

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I also suggest the validator community run a liquid staking service and the liquid staking only delegates to those who abide by the minimum commission besides other things like uptime etc.

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Righto… I’ll take that bet.

Support this proposal, and I’ll burn 1 LUNC for every 1 LUNA staked to the Angel Protocol validator when the vote passes. :slight_smile:

There is currently 4.1million LUNA staked to Angel, so if you want more $LUNC burnt… encourage people to stake to Angel Protocol:

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Totally agree! 0 commission will lead to skew in VP.

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As a fellow validator, I support this proposal.

Mainly from a decentralization standpoint.

At launch we had a Nakamoto Coefficient (how decentralized a crypto is) of around 49-50?
to read more about this: The Nakamoto Coefficient (You may see Terra on here, this is from Luna Classic, not 2.0)

Over time as delegators move to their preferred validators this coefficient goes down and the network becomes more decentralized, which is bad for validators, delegators / stakers, and the ecosystem as a whole. Having a minimum commission allows for validators to cover costs of operation and allows delegators to focus on other important factors of a validator such as uptime, reliability, community engagement, etc rather than just commission rates.

I would also add that some of these delegators with low commission are being a bit nefarious in that they have a 0% commission rate but have a 20% max commission (max they can ever charge) and a daily commission change of 20% (rate at which they can change the commission per day). This means that some of these delegators will either operate at a loss or once they get a bunch of delegators up the commission to 20% in one day, not giving delegators alot of time to react and move their Luna to another validator. This is inherently bad imo, as not only is it disingenuous but it can cause distrust among the community and validators.

My validator, Moon Platoon, is at 5% commission as many of us agreed to start with 5%…some are a bit higher however, some validators decided to go this route with 0% which really imo is a power grab / they just want more rewards but they are doing it in a dishonest way, and this isn’t good for the community.

If anyone has any questions feel free to ask and I will try to answer to the best of my ability.

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Eclipse is in support of this proposal.

This is required to allow small community validators to compete. This lessens the focus on commission price, and brings more focus on other factors such as engagement with governance, securing the network, providing a high uptime, avoiding slashing, and creating tools and products for the community. All of these are extremely valuable.

We support a 5% minimum but we would also support a slightly lower rate.

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Over time as delegators move to their preferred validators this coefficient goes down and the network becomes more centralized*

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I created another proposal with an alternative approach to solve this problem:

Please let me know your opinion!

1 Like