HIP-1: Setting 5% minimum fee on network level

Governance Validator DAO
1

Summary: This proposal is to introduce a base 5% fee for all validators on the network level.

Background: The validators in Harmony have always been competitive with their fee settings, resulting in numerous 0% fee campaigns that lasted for months. This has deterred other validators from actually setting a proper fee to pay for their expenses and get a little bit of profit out of it too. It has basically led to the race to the bottom, where every validator has had a low fee set so it didn’t lose much delegation. As a result, Harmony currently has one of the cheapest validators (in terms of fees) compared to other networks, while having a higher workload due to specifics of EPoS. Other networks such as Avalanche have already set a minimum fee, which currently stands at 2% for them.

Motivation: This proposal should release the race to the bottom in fees and kick start a healthy validator economy where validators would actually cover their expenses and earn a little bit. It will also help smaller validators as the bigger ones will now be able to move above 5% without much fear of losing delegators. The set minimum fee will be the new bottom, instead of current 0%.

Specification: The suggested minimum fee is 5%. This can be discussed further below.

Suggested voting options: Set minimum fee to 5% or keep minimum fee at 0%.

12 Likes
2

Agree to set up 5%minimum

Regards,
Enter Group Validator

1 Like
3

Agreed 5% minimum fee is a good idea :+1:

4

Yes, please! 5% fee!

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Validator.ONE plans to vote Yes for min fee of 5%, but welcomes community feedback if they feel strongly against it

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Any comment from the newer/smaller validator ?

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I’d like to hear more from new validators or smaller validators. In general, I agree to set a floor fee is healthy for the entire ecosystem.

Have you done any calculation on why 5% is a good number to cover the cost of validator given the current token price and minimal requirement of running validator nodes?

8

Definitely more analysis on the cost of currently running validators will help inform the parameter for the base fee.

And besides the benefits of base fee, what’s the potential downside. One I can think of is the reduction of power for new validators to compete or promote themselves with lower fees. But this is always a gradient in the effect, so finding a good parameter to set that balances these tradeoffs is important.

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We have actually discussed this topic a lot within the validator committee. At current prices, if we just take a look at covering HW expenses, then 5% is mostly above that yes. But we should also take into consideration the operational costs and managing due to EPoS election, which most other network dont have. At the same time, most other network have validators with commissions from 8-10%, so regarding that, we are on the lower side. The only comparable is Avalanche, which has 2% minimum fee set on network level, but their HW requirement are even lower than Harmony’s and also there is no EPoS or other management to be done, except upgrading node versions.

Regarding the smaller validators not being able to promote with 0% fee i agree, but at the same time we expect the bigger validators to more calmly raise their fees for a point or two, thus enabling smaller ones to market themselves staying on 5% commission.

1 Like
10

Coming from a brand new validator, I think the 5% fee is a great idea and I’m all for it. Those who are not worth their salt will lower their fees/commissions and live off crumbs. It’s a race to the bottom.

New validators, like myself, will simply have to think outside the box to bring in delegators.

4 Likes
11

Smart Stake is in support of 5% minimum fee. Agreed with the voting options of 5% or 0%.

12

From our side is not much to debate here, we had this discussion last year as well and we are in favor of a minimum fee of 5%. This might have to be adjusted based on market conditions. So keeping some flexibility in the code would be great.

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As a newly elected validator, we had difficulty attracting delegators when we were unelected even with 0% fees. It may benefit a large holder to stake with an unelected validator for 0% rewards, but the likelihood of attracting a large number of smaller balance delegators due solely to 0% fee is slim. Once elected, the 0% has certainly helped us attract delegates, but what’s the end game? We can raise our fees but at the risk of losing delegators or we continue to operate with no financial incentive. A minimum fee, whether fixed or variable, will allow validators to cover operating costs and also attract new validators who see more financial incentive. Last time we calculated it, the average fee weighted by number of delegates, excluding Sesameseed, was about 4.4%. Staking seems to have gained in popularity lately; enough to support a minimum fee, in our opinion.

1 Like
14

Hey Guys,

I don’t agree with the 5% min fee.

I like to be able to run my node at a loss if I need to gain some momentum, and this tactic is crucial for new nodes as we can see in the validators list. If we have nodes running at 0% it’s because they are able to sacrifice gains for a period of time, and I think it’s fair game.

Delegators win in this situation and they are a very important peace of the ecosystem, as investors they deserve to experience low fees while nodes compete for delegations.

Who’s not f***** tired of taxes anyway :stuck_out_tongue: ?

Going to vote minimum fee at 0% for the reasons mentioned above.
Harmony for one and all

3 Likes
15

I agree with everything you said, however, this ultimately hurts the smaller, community validators who cannot afford to sustain losses for extended periods of time to retain or attain delegators. There may be some who can sustain losses for longer periods than others, but even they will eventually determine the cost and effort isn’t worth the reward if they are unable to charge a fee. Validators offer a legitimate service and opportunity for delegators to earn a solid return, a minimum fee would support that notion.

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I’m not convinced this will help small validators in any way.

You are running right now your node with 0% fee, its your best way to get new delegators do you really want to give up on your best chance against bigger validators?

Seriously I think this will only help bigger validators, but I may be wrong time will tell

1 Like
17

Hi spitus,

one thing you might not know, but us bigger validators already decided off chain to not be at 0% anymore, rather 5% minimum, to allow smaller validators get in with lower than 5% fees. That said, 5% is still not that much, and while you say you hate taxes (yes we all do), validating is a job and has hardware and operating costs. This is why most chains dont even go as low as 5%, but rather closer to 10% which i think is quite fair since the delegator doesnt have to do anything other than delegate. Ofcourse any delegator not liking it, can start his own validator and see how much time and costs there are.

Bottom line is, this gives way for bigger validators to even go above 5% now, while the smaller ones can stay at 5% and still be the best choice for delegators searching for minimum fees, while not running at a loss at all.

1 Like
18

I am a new validator, not elected.

Competition is tough for sure and people tend to stake with established validators rather than new / unelected ones.

Even I did that!

I had 1.3 million staked, now 20,000 - people won’t wait forever, despite having 100% uptime and sync!

We have as many unelected validators as elected and I will admit it is discouraging that there is this disparity.

I pay nothing but my time to run it at the moment due to free trials in the cloud.

This would be good for 6-12 months minimum.

I am comfortable with that for now but in the future I would like costs covered and if I grow big then yes, some remuneration for my time would be appreciated.

At the moment though, I would be surprised if I ever get elected in that time lol.

To help decentralisation is it viable to look at a max amount that can be staked per validator?

It would mean that if you get to a certain point (albeit a point that makes it worth it!), you would in effect have to start again.

This may be more fairer for new validators. I would also be comfortable with that.

At the moment, a validator just has to gain new keys - add more infra, yes they might lose a bit in the short term but they will remain elected and still grow bigger.

Also, what if we end up with say 100 validators that hold all the coins? is that possible? there is no max stake. How decentralised is that?

I am new on the scene but I am an advocate of dencentralisation in general and it really appeals to me.

3 Likes
19

Giving my vote to - Set minimum fee to 5%

I obviously consider staking as an incentive model for all participants - validators and delegators. My guess, we should not appeal to an argument of covering the expenses for a validator, but let’s go further and build a mindset of the Staking community where everyone understands that fees are mandatory components of staking process. This is nothing weird if a validator sets fees above 0.

4 Likes
20

This proposal is a double-edged sword as others have expressed - potentially hurting the new and unelected validators while also affecting any elected validators who wish to run at a loss in exchange for having an edge over others.

At the same time, I feel a 5% minimum could work to our advantage. With a minimum applied to all validators across the board, we’re simply making 5% the new 0%. Delegates looking for the lowest fee will simply search for a 5%. But this, too, can have a negative impact on unelected validators. If a 5% fee is enough to operate without a loss, we’ll see more elected validators with fees matching unelected validators.

In response to mindstyle:
“this gives way for bigger validators to even go above 5% now, while the smaller ones can stay at 5% and still be the best choice for delegators searching for minimum fees, while not running at a loss at all.”

I certainly understand that aspect of it, but I think there’s a potential negative side to this as well. I can be wrong, but with a 5% minimum fee, I feel this “bottom” level will be shared by many more validators than we currently see at 0%, making competition even more fierce for those struggling to stay elected and nearly impossible for those falling short of median by millions of ONE. Validators content with a small fee of 5% might continue to stay there, crowding the lowest spot where typically only newer validators would be sitting.

All that said, I’m struggling to see a solution that actually works for both sides of the table. I would love to see a 5% minimum if there was a solution that allowed new validators to continue incentivizing delegates while standing out among the crowd. Perhaps I need to think on it another day or two.