Proposal: Quadratic rewards for validators

yes. an individual is better served by voting themselves. (and it would be a way to ‘game’ the system, by having lots of little accounts instead of a single large account.

I’m hoping someone from TFL will weigh in on the technical ability to do this… I plan on putting this up as a ‘proposal’ to vote for in 2-3 weeks if TFL is able to actually code this kind of thing in their voting Smart contract.

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I am bumping this.


while I am in favour of the intent of this proposal, I’m not sure this formulaic approach would prevent existing validator-whales from creating smaller validators to get around this reallocation algorithm?

For instance, it looks like we already have Protoss One and Zerg One affiliated to the larger validator Terran One so this proposal, if passed in its current form, may still result in largely the same outcome if the larger validators continue to find a ways of attracting delegated stakes to their affilitates.

As I don’t have a better proposal however, and since this is still better than status quo, I will support this proposal

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I received some good feedback to consider here. How will making these awards more evenly distributed effect the delegators?

There are some who delegate to the big names, because they trust those particular validators to vote for them, and are often able to reap larger rewards due to proposed blocks. They might also (Staking Fund stands out here in particular) desire to delegate due to a community factor. They want to say “hey. I use your tools, and I want to make sure I contribute to your success.” In this way the quadratic system limits the free market in making a choice.

Just food for thought. Maybe there are some creative solutions to these issues.

Hey Jared

About voting: the goal of this proposal is to make validation more decentralized, not user/beginner friendly (although this is also important)
More importantly, I don’t believe its the case that a large portion of users who delegates to big names do it because they trust their vote, or not that its relevant enough to deter from going forward in discussing quadratic (or curved) rewards:

  • any beginner doesn’t really care about the voting aspect but simply wants to stake for the apy, and + there is no easy way to know what your validator is voting (BTW: an easily accessible validator voting history is VERY needed) so I doubt they would decide on a validator based on this.
  • all advanced users that I know of vote themselves rather than rely on their validators (for important decisions at least) as they are delegating to more than 1 validator, who might therefore make different voting decisions.

About the community factor, the higher the voting power the validator has, the less need to delegate to them to contribute to their success → they are already successful!
Any good community validator that truly cares about decentralization should tell you to diversify and stake parts of your holdings to smaller validators if they were to become the largest validator as that is what will truly help the community in the long term.

On another note, I dont understand how such a prop limits the free market when the current rewards allocation systematically favors larger validators

I am very open to hearing other creative solutions as well though

so people can still delegate with whom they like. they just just as much rewards/risks for doing so.
but the effect becomes less and less … so they still can support their favorite validator, but it doesn’t count as much.

I wouldn’t be using the words ‘fair’ or ‘free market’ … it’s just a different way of allocating with different pros & cons.

if we do this correctly, it might encourage individuals to actually vote and participate more

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I favor encouraging delegates to stake with validators in lower rank by making rewards relatively more attractive to their delegates. However, the formula proposed here is way too aggressive in rewarding the lower ranked validators and takes out way too much disproportionately from the higher ranked validators. The formula proposed by 0xlarry on twitter or another variation may be a better fit. if the network was starting today, quadratic rewards would have been a perfect fit but with so much skewing in delegation, penalizing delegates retroactively for the choices they made isn’t that good in my opinion.

Also, don’t forget that the staking fund and several other validators have huge amounts of delegation because of anchor protocol luna bonding. if you suddenly introduce quadratic rewards and affect their returns by 50%+ to 15%, that will have a direct impact on the rewards generated from bonded luna. This means it will have a direct impact on the platform’s ability to pay the Anchor earn and may need to rely even more on the treasury.

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I just re-looked at the calculations, and it looks like 5% has moved from the ‘top 5’ validators into the rest of network already (I’m guessing due to the change to airdrop mechanics alluded too in Do’s tweet), and has increased the number holding 50% from 11 to 12 validators.

maybe, when evaluating curves we need to come up with few metrics

  1. #of validators required to hit 50%
  2. size of loss to those validators compared to today.

(if you could link 0xLarry’s formula I will try and include it on the sheet so we can compare)

I would support a move towards more decentralization of the voting power across the network, but as per @SmartStake quoted message, I’m unconvinced that penalizing financially the validators sitting in the higher ranking tiers is a long-term solution.

You would at least want 0% commission delegators to not see their rewards bumped to a higher level than those of a validator that provides value to the community and took the risk to apply a commission in order to monetize this value

no matter what method you choose, you will penalize the top-N validators. it’s a zero-sum game
otherwise you will need to charge more fees, which I don’t think people like either.

The aim of this proposal is to create a more decentralized environment where the top 10 validators don’t hold half the votes, and also don’t get half the rewards. The problem is due to the large disparity between the top & bottom validators you are getting large penalties using a basic x^2 method.

if you’d like a lower curve… perhaps x^1.5 or x^1.3 might make it less pronounced

The only risk would be that a malicious individual could spin up many validator nodes with smaller stakes each making its stake count more than it should, but given the limitations of Tendermint one can’t really perform this Sybil attack so I don’t see why one wouldn’t want to implement something like this.

Honestly I don’t really have a problem with penalizing the top validators, don’t know how the overall community feels about it but I’d rather have ‘fairness’ than ‘equality’ if you see what i mean, the way we get there needs to be discussed though

Let me rephrase: is there a risk in applying this quadratic distribution only to voting power ?

I’m not seeing how a similar distribution method for rewards helps further with the decentralization issue described in this thread, but happy to be proven otherwise.

you could apply it just to voting…

BUT you need to find a way to reward validators at the end of the tail, otherwise they will disappear, and you will be in a bigger pickle.

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Hi @petes-fan-club ,

I am thankful that you actually took the time to explain the situation that current validators are facing (particularly those that are not in the top spots).

However, I think the proposed idea would change fundamental principles behind the very notion of proof-of-stake.

Can you explain why incentives, as well as the ideas in proposal 4080 may not be enough to offset this (I am asking sincerely)?

I hope you have a great day today (and thank you for serving as a validator) :slight_smile:

4080 (splitting fees into the community pool) has really nothing to do with this.
Quadratic voting is more about “equalizing” validator’s voting rights, so that validators with say 10% of delegations don’t have 10% of the voting power.

Hi @petes-fan-club ,

Thank you for taking the time to respond.

4080 (splitting fees into the community pool) has really nothing to do with this.
Quadratic voting is more about “equalizing” validator’s voting rights, so that validators with say 10% of delegations don’t have 10% of the voting power.

You mentioned two aspects in the governance discussion at the very top:

  • The challenge as I see it, is that the current validators on the list are not able to generate enough income to pay the hosting bills. Which can lead to good validators exiting, or taking shortcuts to make ends meet, as well as having a few key individuals able to control the governance of the network.

  • The other challenge we currently have is that the 5 validators currently make up 33% of the staked luna, (50% is controlled by the top 9).

I have to be honest that in regards to point 1 listed above from your discussion - proposal 4080’s discussion mentioned transaction fees would raise for validators, which at least partially deals with providing a more stable financial environment for validators:

With staking disabled, the current distribution of transaction fees 190 is as follows:
5% to validators/proposers
95% to delegators
0% to the community pool

50% transaction fees to go to validators and delegators in the following ratio:
15% to validators/proposers of the block
35% to the existing delegators
The remaining 50% transaction fees to go to the community pool to be utilised as follows

The second point, that percentage of staked LUNA “classic” is in direct proportion to vote control / distribution, and therefore financial rewards (whether we are talking voting in regards to governance, or validator node votes as regards to acceptance of a block) - they way these are currently setup are central to proof of stake. In my estimation, you touch these, even though I am sure it is being proposed with noble motives, it undermines the network. The validators vote, at least for governance, is based off of the individuals votes that are delegated in the form of stake - so this would also affect the vote of the individual who delegates, this would also affect their voting rights as well.

To be honest, a change that further violates key aspects of proof-of-stake, particularly for those of the community who watched as validators, along with TFL, orchestrated (or at least went along with) an actual governance attack. The validators, who are tasked with protecting the network, allowed TFL to violate protocol, and have since participated in that violation. Although the governance documents state that protocol would only change with a proposal that has carried, the validators allowed it to happen.

I can sympathize in that smaller validators may have felt forced between upgrading to an illegitimate version of the code, with no proposal that had carried from the community (again essential to change protocol), in order to protect their ability to keep their validator(s) online (and the financial hardship it may present to them). But, at minimum, you should have been the portion of the community that called out for a return a few days later, and since then, and minus @mcf-rocks , who actually attempted to engage this portion of the community, until recently, it seemed that others were content to block governance.

However you would like to see it, LUNA “classic” is a security in the U.S., and what both TFL, and the validator community, did, even if not intentionally, was to block security holders from their legitimate right to participate in governance (with the same article III standing, and merits that would easily be a slam dunk case for an executive board blocking shareholders of a company from legitimate exercise of governance).

At the same time, I am at least hopeful for the fact that there have been validators who have now (albeit a bit on the late side), have decided to finally attempt to right the situation of governance, staking, and voting, in proposal 4095, and for that I give you all credit.

I believe, whether it is for current, or future, validators, that they need to operate on the current proof of stake model. As I am understanding your proposal of quadratic voting to be, it would be a red flag (for whatever my two cents may counts for) - but, feel free to correct, or help me further understand, anything I may be missing, since I freely admit that I have not run a validator, and you have, and therefore you have experience in real life situations affecting validators.

I also believe, whether it is for current, or if for future, validators, that there should be a model that is both community driven, but also profitable for validators (and encourages validation in the active set).

One incentive that I see for LUNA “classic” owners (whether pre-crash or post-crash that are not currently staked) to stake with smaller validators (and hopefully some larger ones), is that in the discord channels it is apparent that people are ticked at what has happened (and quite frankly, they have a legal reason to be ticked - maybe not at all validators, but definitely the validator community as a whole). From their discussions they are willing to stake their tokens on those who support proposal 4095, those who are willing to return back to protocol (at minimum reopens staking for voting purposes), and therefore they will see those validators as community validators (and are willing to stake with them, at least for some time, even if it means they make less on the staking side).

I once saw a comment to Do Kwon that said something like, fix this thing and be the hero rather than the villain. I think I could iterate that same thing to the current validator community. This quadratic reward system seems to fit in the latter category (even while I can appreciate what it is attempting to address).

I hate to say it, but this quadratic reward for validators appears to break with the very ideology of proof-of-stake, and while I am for putting validators on firm financial footing, this seems to go beyond that. Please feel free to help me understand where this is the essence of proof-of-stake that I am missing, and is not about maintaining control, because if it is not about putting validators on firm financial footing, as proposal 4080 would have partially done by raising the transaction fees going to validators, thereby at least partially addressing firm financial footing, then I am having a hard time seeing how this is not then about control. I am, however, sincerely open to understand this issue further from the point of view of validators (as I think others are as well). Please be the hero (not take another swipe at an aspect that could affect the underlying voting and stake).

With the caveats mentioned above, I thank the validators who have finally sought to put the real governance attack to rest by supporting proposal 4095. I also thank each of you for being willing to validate for the network and the community.

Note: To be fair: I do recognize that validators believed they were actually protecting the network from an attack by coordinately installing 0.5.19 of classic-core, and have been cautious in going forward.

Here is an explanation of why these were not actually an attack. In addition, in terms of Byzantine fault tolerance (BFT), this is the very idea behind not only blockchain (to optimize against it), as well as Tendermint ( What is Tendermint | Tendermint Core ), which underlies Terra.

Hi @petes-fan-club ,

I just realized why you may have responded as you did:

4080 (splitting fees into the community pool) has really nothing to do with this.
Quadratic voting is more about “equalizing” validator’s voting rights, so that validators with say 10% of delegations don’t have 10% of the voting power.

I had not recognized that this governance discussion for a proposal was actually made in July of 2021, and someone responded to it the other day which brought it to the top (where I responded). I took it as a new proposal to a current situation for validators in regards to financial stability and incentive to maintain validation. Sorry about that.

I hope you have a great day :slight_smile:

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