This approach is certainly eliminates the race to 0 fee and would be great news for medium sized and big validators (50m+), but I don’t believe it will have a big impact on centralization, since it doesn’t address the core problem of low validation participation. Staking is still more attractive then validation, except if you’re a big holder with a holding of several times the median (very small group). Also I see a potential danger of centralization of on-chain value to big validators over time, as they profit the most from this change. Please take a look at following examples:
example 10% fee:
regular stakers (1000 One -just under median stake): Business as usual, their staking rewards are just slightly lower.
medium holders/self validators (median stake - just under 2x median stake): If you happen to hold the exact median, validating is just slightly more profitable than staking, but at a significant time investment. You also constantly face the danger of dropping out at the next median-rise.
If the holding is higher than the median (10%+), staking remains more profitable.
big holders/self validators (several x median stake): The higher the exact multiple of the median stake their holding is, the higher the incentive to spin up their own validator. There’s just very few wallets that fall into this category though, the potential for decentralization is low
big validators/staking businesses (50m+): The real winners, since fee competition is out of the question they reap guaranteed rewards at high fee rates while the core-mechanics that drive stakers towards big validators are still in place.
example 20% fee:
regular stakers (1000 One - just under median stake): Business as usual, but their staking rewards now noticeably lower.
medium holders/self validators (median stake - just under 2x median stake): If you happen to hold the exact median, validating is more profitable than staking, but at a significant time investment. At just a small deviation of the median, the profitablity starts falling of fast. Just 25% above the median, and validation ceases to be attractive compared to staking.
big holders/self validators (several x median stake): The higher the exact multiple of the median stake their holding is, the higher the incentive to spin up their own validator. There’s just very few wallets that fall into this category though.
big validators/staking businesses (50m+): The earnings are significant. Due to the high guaranteed fees and a structure that is still favouring staking centralization to big validators (they can offer effective staking while small ones often can not) there’s a big shift of on-chain value to a few big staking-providers over time. The biggest validators would earn close to 10m ONE a year.
To sum up: A flat fee, as proposed, disproportionally benefits big validators, and a dymanic fee, as proposed, fails to be effective as a staggered “income tax” since the next node could be simply spun up under a second validator with the same branding. It also doesn’t do enough to incentivize big stakers to spin up their own validators, as staking is still more profitable in most real world cases. A low fee doesn’t do enough to make self-validating profitable and a high fee poses significant danger of value centralization to the wallets of big providers over time.
It also fails to address the stake migration to bigger validators due to opportunity cost at all.
If you really want to incentivize staking participation and maximise your number of validators, you have to specifically incentivize potential small validators with a flat income that is not tied to any staking value and offsets their opportunity cost of not having the exact median stake.
Ideally you’d like to target holders that are hovering close to the median. They are the biggest pool of potential validators that could drive decentralization. For that you have to make validating more profitable than staking to them.
A proposal on how that could look like you can find here: