Change Minimum Commission Rate

Summary :

This proposal is to change the network wide commission rate minimum to 5%. No more 0% commission rate. Increase commission rates for validators over the 100 epochs to 7%.

Background :

Validators that are new to the ecosystem can have commission rates at 0%. Currently it is done to incentivize investors to delegate with these validators. The issue that is arising is that the increasing file size of Shard 0 (over 700 gb), validators have incurred more expenses by getting more storage space and bigger servers to stay eligible to be elected and continue signing. Most of the new validators that work hard and get elected cannot receive a return during the first 100 epochs. Those that change the commission rate from 0% risk undelegations. This is also the case for validators at 5% that have past 100 epochs that are still around the 0.01% (250K) - 0.11 (5.2M) Stake Weight. Harmony is growing at a rapid pace and I believe validator should be paid for the hard work that they put in when they get elected (New & Legacy).

Motivation :

Only 40 validators out of 240 (as of 1/07/2022) have 0% commissions. Implementing 5% commissions minimum across the network I believe is necessary to incentivize more validators to join the Harmony Validator Ecosystem. Now as I stated before, validators that are passed the 100 epochs should be increased to 7% in order to keep the incentive for investors to delegate to new validators joining the Harmony Validator Ecosystem. I choose 7% to keep things to a minimum but we can discus and come to a compromise.

Specification

  1. Set Minimum Commission rate to 5%

  2. Change 100 Epochs commission rate change from 5% to 7%

Suggested voting options :
3 options to vote.

1 & 2 options should be the most popular.
3rd option to “Abstain”

Additional Notes:
This is not a cap on the maximum amount a validator can add to commissions, only on minimum.
I did have some suggestions to add levels of increased commission rates such as 100M = 10% and 150M 15%. I do like this idea and I would like to hear what our community can come up with.

7 Likes

Overall, interesting idea, I just want to add this to the discussion:
Every time a delegator undelegate-redelegate, he/she will lose the 1 epoch reward, so you’ll need to make sure that the commission discount is enough to make up for his loss.
According to my calculation on your numbers (5%-7%), if I’m correct, a delegator earning will be multiplied by a factor of 1.01-1.02 by switching to the 5% validators every 100 epochs (not taking into account the “extra APR boost” of small size total staked validators).

1 Like

I have been playing catchup for the last 3 days on the incredible amount and quality of work the VDAO has done and have had the pleasure to read a ton of discussion and opinions on the EPos incentive system. Rarely is an economic theory implemented at this speed and scale so there will be much discussion to come as the community figures out what works best towards our mission of decentralization and longterm network stability.

I have never been one for caps or minimums as I believe the free market should be the ultimate decider of who wins and loses. Of course this is based on rational behavior by market participants and sometimes that just doesn’t pan out.

Although I think a minimum might be required to squash a race to the bottom scenario and ultimately a loss of validators, I don’t think we should cap rewards. Harmony is the only blockchain I have found where short-lived bouts of centralization may not be a problem due to the trust and communication we have with our validators, especially the large ones.

For sake of discussion I would like to propose a minimum fee of 20%. Would this have an effect on the amount of staked capital by delegators/investors or are other motivating factors like price appreciation outweighing a smaller yearly rate. What then would be the advantages / disadvantages of doubling or quadrupling the min rewards for validators?

2 Likes

Hey thanks for reading and sharing your insight! I really appreciate it!

We already have most of the network at 5% commission. 55/240 validators do not have 5% and this is counting inactive validators. The changes delegators will experience is after 100 Epochs their validator will charge a 7% commission and those validators that were at 0% going to either 5 or 7%. It will depend on what strategy the validator takes. All the new validators moving forward will start at 5% or more if they want.

For the most part we do have the data for 5% commissions.

1 Like

Hey Kenny! love that you are crunching in all of this! Please take your time :grinning_face_with_smiling_eyes:

As far as the 20% commissions from my understanding you mean across the whole network? It might be a big change for delegators and they might not be to enthusiastic about it. As validators the more commissions the more profitable we become but there is also a balance that we would like to maintain. This is my personal opinion of course and I believe it might be a bit too early for 20%. Maybe once Harmony is around the 1$ price range or so. Now if the delegator won’t mind it and the validator community is for it. I don’t see a problem with it.

3 Likes

Oh yea, definitely a phase in type program. A 15% jump in fees would be crazy for delegators all at once. I guess you can always get around minimums though by sending you delegators a share of your rewards.

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Hi @BrotherOne! It’s a good proposal. Unfortunately I believe it would just make it more difficult for new validators to get elected. The 0% introductory rate really helps get new delegates. There is nothing saying that new validators can’t start out at a higher commission rate. This is one of the reasons why I didn’t want a commission limit on the bootstrap initiative. Forcing bigger validators to a higher commission would be counterproductive in my opinion as well. Increasing the the minimum to 7%-10% and allowing a 100 epoch period of 2%-5% would still give new validators an edge to gain delegates.

Thank you for everything you do!

3 Likes

yeah I understand, I’m one of those validators who are still at 0% commission fee haha (VietStaking)

2 Likes

Hey buddy! Thanks for joining the conversation!

I personally think 10% is too high for today’s validators. 0% is a huge incentive for delegators but I don’t see it benefiting any validators in the long run if when they hit the 100 epoch mark and has to go to 5%, then suffering from undelegations. They risk falling out of election from that jump. I believe raising it up to 5% across the network will help support these new validators when they get elected and having legacy validators at 7% will have new delegators picking the new validators at 5%. I don’t believe it is the perfect plan but I do believe it is a start. Even a 4% to 7% can work,

3 Likes

Hey congrats on 10 being elected for 10 Epochs! That’s awesome! :blush:

Happy to see you participation on discussions as well. Yea 0% fee got me to 40M but after I went to 5% I went down to 25M and now I’m at the 17M mark :grinning_face_with_smiling_eyes: The community is just amazing and I am very thankful for them. Super blessed and I encourage you to keep grinding and helping out the community :blush:

1 Like

That makes sense, and I agree that 10% is too high. 4% to 7% sounds good. This will definitely help cut down on validators shutting down due to operating costs, which I’ve seen happen a lot more often lately. It seems that a lot of the time when a validator reaches 100 epochs, they are stuck in upper bounds as well.

2 Likes

What about getting vouchers from different server providers to be part of the bootstrap initiative to help with server costs and to ensure decentralization in hosts. Just an idea.

1 Like

So how is it possible for new validators to be elected if they cannot even offer 0% commission?

I was thinking about my suggestion with the 100m = 10% and 150m = 15% and may instead of a fixed term using the variable stake weight and an increase by size?

5% commission in general
1% stake weight (acutal 45.3m) = 7% commission
2%stake weight (actual 90.5m) = 10% commission
4%stake weight (actual 181m) = 15% commission

3 Likes

It is incredibly difficult for new validators to become elected. It’s a well know issue. There are many discussions but little is ever agreed upon or implemented

1 Like

I do not rent a cloud server but think off the cost for the time till getting elected and then you earn 0% to attract people but still have to pay the cloud rental.

I guess my concern would be, what’s to prevent the minimum commission from increasing again 2-3 months from now?

It was raised to 5% just a couple months ago. Shard0 hasn’t improved any. It doesn’t seem like validator costs are going away or reducing anytime soon. Is this a cycle that might keep repeating itself? If so, at some point I think it will lead to a reduction in “total network stake”. People will find more profitable ways to use their $ONE. I’m not saying this proposal would get us to that point, but it concerns me that the only button available to press is “increase commission”

If this is approved, I think the current 5% gap should be maintained. So instead of the current 0 and 5%, it should be 5% and 10%, not 5% and 7%. I’m not sure decreasing the gap to 2% wouldn’t potentially inflict harm to newer/smaller validators by way of their delegators choosing larger, “safer” validators when the difference in commission rate is relatively small

Also, I don’t think we are being consistent in our decision-making. If there is going to be a limit on the minimum commission, there should also be a limit on the maximum commission. And if there is no limit on one, there should be no limit on the other

I don’t have a vote, but my vote would be NO on both items listed under “Specification”

3 Likes

I think keeping a 0% commission for new validators is essential. We need decentralize and offering a 0% fee as a bone to our delegators is a very good way to kindle a validator. However, I also agree with the 7% minimum after 100 epochs. It is getting increasingly expensive with the disk space requirements for validators to run their nodes. I also think the idea @ben2k_Stakeridoo had; a rate that changes as the total stake changes.

2 Likes

There is a lot to think about here. Don’t get me wrong I am not set with the initial idea proposed. It is being used as an idea to start the conversation. If we all come to the conclusion that it is not the time to change the commission rates than we can end it. I just wanted to give a chance for validators and delegators to talk this out.

I do like the 5% gap that is currently established from 0% - 5%. The issue with doing it with 5% - 10% is that the bigger (safer) validators may see it as an incentive to leave them for the 5% validators and they will see it as a punishment. Unfortunately with out their support to the idea, it won’t even pass.
On the other note we can do a 1% or 2% minimum and keep the 5% gap. Example (1% - 6%) or (2% - 7%)

We should not limit the Maximum commissions because there are a few company validators that are using 100% commission rates to fund their business model. An example of this is Openswap. It’s an interesting way to use a validator and ideas like this should be encouraged.

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Just to be careful with this kind of suggestions. Some of us might have set a quite low limit for max commission. There’s a risk for a conflict if minimum commission is forced above that.

1 Like