Enforcing a Minimum 5% Commission Before the Namada Mainnet Launch

General
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Following the advice of Gian from Heliax and several validators, we are creating this forum post to discuss enforcing a minimum 5% commission for the Namada protocol before the mainnet launch:

  • The enforcement of a minimum commission parameter was overlooked and only when the pre-genesis phase 2 of bonding txs started some validators realized that there was no minimum commission enforced. Given the known harmful effects of 0% commission in many PoS networks and that 5% has become a common minimum commission, the community agreed that a minimum 5% commission should be also enforced for Namada.

  • Following several discussions, Brent from Heliax suggested as the best solution to update the code so that at mainnet launch the 5% minimum commission would be enforced. Brent also claimed that the code to enforce the minimum 5% commission was basically ready.

  • The goal of this forum post is to gather consensus from the Namada community and users and if the general consensus is to enforce the minimum commission of 5% before the mainnet launch then the code to enforce the minimum commission should be tested and included in the latest Namada release

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I fully support enforcing a minimum 5% commission for the Namada protocol before the mainnet launch. There are several key reasons for this:

  1. Preventing Exploitation of Delegators: Without a minimum commission, some validators may lure delegators with 0% commission, accumulating a large amount of voting power. This could be misused or result in a sudden increase to 100% commission, effectively scamming delegators.

  2. Mitigating Centralization Risks: Allowing validators to accumulate excessive voting power can lead to centralization, A minimum commission helps distribute voting power more evenly, promoting a healthier and more secure network.

  3. Ensuring Fair Competition: A 5% minimum commission sets a fair baseline for all validators. This prevents undercutting tactics and allows smaller or newer validators to compete .

By enforcing this commission, we can protect delegators, promote decentralization, and ensure a fair environment for all validators in the Namada network

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We also fully support the enforcement of a minimum 5% commission on the protocol code before mainnet launches.

  • Our reasoning

We have seen several times undesirable scenarios in the Cosmos ecosystem in which validators leveraged having low commissions, such as 0%, as a ā€œmarketingā€ strategy to attract delegations and extract voting power. After that, the usual behavior is to raise this commission to ā€œalleviateā€ running at a loss during such a period of time - sometimes resulting in exorbitant raises and leaving delegators in an undesirable situation.

On this specific case, if we launch without enforcing a minimum commission (5% in this case, as proposed), it will basically be a validators race wanting to have a low % to stay competitive until a governance proposal to enforce it goes live.

This would indeed be a chaotic scenario and is precisely what needs to be avoided. Our reasoning is that this should be enforced from the beginning in the protocol before mainnet launch, not proposed via governance proposal afterwards, because thereā€™s a potential risk that validators that extracted voting power through this method, plus delegators wanting to have more profit by having validators with less than 5% commission available, vote against such a governance proposal. This is a really risky approach for network integrity and sustainability in the long term.

  • What do we propose to address this issue before the mainnet launch?

To make an announcement, an X/Twitter post, to get the attention of those validators that set a commission rate less than 5% in their pre-genesis transactions - and to urge them to redo those at their early convenience before a precise deadline set for Stage 2 of Pre-genesis. After the deadline, Pull Requests on GitHub with less than 5% commission (init val tx+bond txs staking on them) should then be removed - in case a multiple bonding transaction affects validators with no less than 5% commission, then there should be a grace period for the delegators to remove the specific bonding txs (not sure if this could be done without Pull Request author action - if so, those should be removed).

After all, this enforcement is not a big deal. The big deal is the other way around, letting these PRs be merged, launching the mainnet with those validators onboarded, and then trying to enforce it afterwards with a chaotic scenario to be addressed.

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Thank you for raising the issue @CosmicValidator - it would be prudent to address this before genesis if there is support for minimums. Others have covered the reasoning well; a race to the bottom on commission concentrates economic power over time rather than disseminating it.

We are at 4% but willing to change that prior to genesis if possible and would support a minimum threshold that indexes for a large, economically viable set.

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Thanks everyone for sharing your thoughts on enforcing a 5% minimum commission. While I respect the concerns raised, Iā€™d like to express a different perspective on the matter, especially regarding the portrayal of 0% commission validators.

Itā€™s troubling to see 0% commission validators repeatedly framed as if they are engaging in shady tactics or scams. In this discussion, and even in the broader conversation on Discord, there have been some biased conclusions and accusations that simply arenā€™t based on facts. Letā€™s remember that decentralization thrives on a diversity of strategies, and using 0% commission is just that - a strategy to attract external stake.

1. Enforcing minimal commission removes the delegatorā€™s choice. Forcing all stakers to pay 5% without exception limits their ability to make decisions about where to delegate, moreover, it loses them money from the genesis. In a decentralized ecosystem, itā€™s important to preserve competition and choice, not mandate one-size-fits-all solutions. Imposing such restrictions fosters centralization by dictating terms rather than allowing free market dynamics to play out.

2. Safeguards already exist. Validators have a max commission (Ā«max_rateĀ») parameter that is clearly visible to delegators. If a validator currently has a 0% commission but a max_rate of 10%, they canā€™t suddenly raise it to an unreasonable number without warning. The potential for rug pulls is not linked to the current commission but to the transparency around the max commission settings. A rug pull could just as easily happen with a 5% commission if the max is set too high or undefined.

3. Small validators lose out. Enforcing a minimum commission discourages new or smaller validators from competing fairly, as one of the competitive avenues is simply eliminated. Validators with external stakes are vital for keeping the network decentralized, but with a 5% floor, it will become harder for them to attract retail delegations. Instead, weā€™ll see all the stakers moving to the top 5-10 validators, and smaller independent validators will be pushed out.

4. 0% commission is a valid long-term strategy. Validators offering 0% commissions often do so to build long-term relationships with their stakers, establishing trust and collaboration that could benefit everyone in the long run. Not every business or validator seeks to be profitable from day one.

5. Centralization risk. By enforcing a minimum commission, weā€™re inadvertently increasing centralization. Validators with foundation stakes or those closely tied to major funding sources will dominate, while independent validators who rely on external delegations will find it harder to compete.

In conclusion, while the intent behind the 5% minimum commission may be to ensure fairness, itā€™s essential to consider the broader implications on decentralization and validator diversity. We should understand that all validators are working for stakers and the team should ensure Namada stakers with a variety of choices and an opportunity to decide whether they want to stake with 0% validators or not.

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I am not a validator but I totally agree to this point. We as a delegator should have a option to chose 0 percent providers.

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This was one of the arguments in the Cosmos hub and initially the governance proposal to enforce the minimum 5% fee was rejected. However, plenty of valid arguments were presented and finally earlier this year the minimum 5% commission was enforced. Other projects like Injective or Akash which previously allowed any commission finally also enforced a minimum 5% commission. So, if many projects without a minimum commission finally decide to enforce a minimum commission this indicates that having a minimum commission is preferred

Scamming delegators by suddenly raising the fee from 0% to 100% is just one of the issues. The main problem is a race to the bottom of commission and hence validators using cheap and bad quality infrastructure and spending fewer resources on the protocol. Moreover, it leads to centralization of stake in 0% commission validators which most of the time are unreliable, late for upgrades, etc. Given the cubic slashing on Namada, if several 0% validators are slashed at the same time, then the delegators could get most of their stake burnt which would be a much serious issue

The opposite, large and wealthy validators can afford to offer 0% fee for a long time because they have the resources. While small validators cannot afford to pay infra and other costs and offer validating services for free and this then leads to more centralization in the largest validators

Why having a minimum commission increases centralization? The opposite actually because the stake doesnā€™t get centralized in 0% or very low fee validators but more evenly distributed and hence more decentralized

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We also agree with the proposal of enforcing a minimum 5% commission.

Itā€™s true that there are lots of pros and cons in this topic. Obviously, this proposal will not benefit everyone, however, when thinking about the long term sustainability of the chain, itā€™s clear that we should set a minimum commission.

Most of the pros have already been said, so I wonā€™t repeat myself on that. Iā€™d just like to share that avoiding any kind of 0% commission race between validators would make the whole community focus on other important metrics/contributions when delegating to a validator.

Given that thereā€™s currently no valid means of accurately representing the community for decision-making, the logical path forward seems to be enforcing a minimum commission before launching. Once the chain is launched, we can put forth an on-chain proposal to see what the governance decides. Those in favor of a 0% commission, be they validators or delegators, stand to benefit the same whether the commission is set at 0% to start with or not. However, the same cannot be said for those who advocate for a non-zero commission.

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A number of people have been discussing whether or not there should be a way of enforcing a minimum commission rate in this discord hot topic. Whether or not you agree with enforcing a minimum commission rate, itā€™s a matter of when:

  1. a) Decide now, and b) if yes, implement the protocol change before mainnet
  2. a) Discuss now, and decide and implement after mainnet

We (Knowable) are advocating for this to be after mainnet. Why?

tl;dr

  • implementation seems problematic
  • re-implementation will delay mainnet

We do not like the proposed code implementation

A governance proposal should not be able to change an individual validatorā€™s commission rate. For example, if I set my validatorā€™s commission rate to 4% and the stakers/validators vote for a 6% minimum, this proposed implementation would change my validatorā€™s commission rate to 6% after the governance proposal executes.

We agree that there should be a parameter that can be used to set a minimum commission rate, but our preferred implementation would have validators below the minimum commission rate fail to qualify for the active consensus set (same as what happens if their delegation total is < 1000 NAM).

The difference is subtle, but important: validators should be free to decide and change their own settings, and (if we accept that on-chain governance is legit,) the voters should be free to decide the protocol for participating. But the voters should not be able to use the governance mechanism to change a validatorā€™s commission rate.

We do not want to delay mainnet

We think that the way this new parameter is implemented deserves more consideration and consultation, and while we understand the value proposition for this feature, we think the benefit of prioritizing the new parameter is not greater than prioritizing mainnet.

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It seems that now the voting is broken after changing the tally types so maybe the code to enforce the min 5% fee could now be added in the next namada release? @brentstone @cwgoes

If the minimum 5% fee is enforced from the mainnet launch then there is no need for any governance proposal. Not enforcing the minimum 5% fee before the mainnet launch leads to several serious issues:

  • During the pre-genesis phase 2 for bonding txs, validators offering a fee below 5% including 0% have an unfair marketing advantage for several weeks

  • At the very beginning when staking rewards are activated most NAM holders will choose validators and stake, and afterwards the stake is sticky and they wonā€™t likely change validators. Hence, if during this initial period the minimum 5% fee is still not enforced those validators with a 0% or very low fee will accumulate unfairly a large amount of stake. This implies that the timing to enforce the minimum 5% fee is critical and should be done before the mainnet launch, ideally also during the pre-genesis phase 2 for bonding txs

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Why make the same mistakes again?

Where have you seen a single chain where enforcement of commission has done any provably verifiable good?

None. 0.

Stop enforcing things. Commission is a free market competition tool + sometimes a defense tool of validators from attacks on the chains.

The latter isnā€™t happening. And as for free market tools. Stop it. Just let it go people. Let validators, and the market, decide what commission is good.

Stop trying to make proposals for nothing, please.

Sorry for the rant. But just getting tired of seeing these types of props being proposed chain by various people with 0 evidence to relevance, apart from ā€œwe should make a proposal that sounds like it will be usefulā€.

Itā€™s not. Enforcing commissions is the mos anti-free market thing possible to do

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We have seen recently several major PoS chains such as the Cosmos Hub, Injective or Akash enforcing a minimum 5% commission. These major chains had no minimum commission enforced and all of them found enough reasons and evidence to support the enforcement of a minimum commission, and the community supported and approved those governance proposals to enforce the minimum 5% commission.

Also, major new PoS networks that launched recently such as dYdX v4, Celestia, Sei or Dymension had directly a minimum 5% commission from the mainnet launch. Previous major chains such as Osmosis also launched with a minimum 5% commission. So not only it is now the standard to launch new major chains with a minimum 5% commission but also major chains which didnā€™t have a minimum commission from the launch have been also enforcing a minimum 5% commission.

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Cosmos hub is an anti example in this =) It made things worse as I predictedā€¦

Celestia and Dym have like 1% of supply on the market (Iā€™m being non-literal here, I hope itā€™s obvious Iā€™m referring to the supply on the market) - not good examples.

Im a bit puzzled, how is it possible to give them as examples, just because they have it. They are all different chains, with different supplies, metrics, stages of evolution, etc. Not something to look up to.

As for the restā€¦ I have seen people give away Jews to Nazis in the 1930s and 1940s. Was legal. So was slavery. Doesnā€™t make it good.

Enforcing commissions, just because other chains do it (and it doesnā€™t do anything for them, no evidence, literally), IMO, isnā€™t an argument to repeat it. But rather an argument not to.

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What evidence you have that enforcing a minimum commission of 5% in the Cosmos hub ā€˜made things worseā€™ and what do you exactly mean by that statement?

Celestia and Dym, especially Celestia, has the biggest value of staked tokens, even some tokens are locked they can still be staked. And what is the relation between a minimum commission and the amount of circulating token supply?

This honestly is out of place, comparing serious topics with a minimum commission in a PoS chain. It is not because other projects have a 5% minimum fee that make it good, but because of extensive reasons of why a 0% fee is harmful: scamming delegators, centralization risks, unfair competition, and many other reasons

Have you read the discussion above presenting many reasons of why 0% fee is very harmful?

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  1. Why do you assume i propose 0%?
  2. Why cant i compare what has led to those atrocities (bad ledgers, greed and stupidity) to whatā€™s happening now in my digital nation?
  3. Enforcement on cosmos and other chains, led many small validators to flee. Just what the bad practices, currently run on Celestia do too, such as enforced KYC by foundation. Enforcement is bad

I think you are not understanding cause and effect here, alas. Cause is enforcing. Everything else is effect.

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If you advocate for not having a minimum commission, this also includes the option of 0% commission which is very harmful for plenty of reasons extensively discussed

You said that we were suggesting a 5% minimum fee just because other projects enforced it, and I replied that this is not the case, but because there are many harmful issues with 0% commission. In 2019 just after the Cosmos Hub launched a governance proposal asked whether 0% fee is harmful and the majority voted yes. Some like Sikka (Sunny, Osmosis co-founder) who used the vulnerability of the 0% fee to accumulate a lot of stake then enforced a minimum 5% fee in their own project Osmosis, this is because they were aware themselves of the harmful effects of 0% fee given they had themselves used the 0% fee previously

Delegators should choose validators based on contributions, performance and other relevants metrics, not based on a 0% fee. And it makes no sense comparing a minimum commission enforced at the protocol level with some off-chain KYC requirements for certain delegation programs

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Could you please stop twisting the argument towards discussing whether 0% fee is good or bad. Iā€™m assuming thatā€™s what you have in your head. Nothing to do with my argument. Thanks in advance.

I really dunno what else to add if you donā€™t understand why enforcing anything is bad. Or how enforcing anything, regardless of what you are enforcing, is bad.

TBH, I feel sorry for people that find it hard to understand that values come above a lot of other things. But, in the light of my own argument:
It is really up to you to choose NOT to see how enforcing rules leads to centralization of stake, of power, multisigs, whale voting, corruption, etc

Free market thinking is about finding solutions. I.E. rather than beat someone with a stick (enforce) I will work with or against the free market to see if the entities (validators) in question can find benefit in raising or lowering commissions. The same goes for inflation, CP, etc

Delegators CAN choose validators as they see fit, including based on fee level. In fact, thatā€™s including 100% fee. It makes perfect sense to compare it when the center of the argument is enforcement.

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PS. Technically, in terms of MY argument. This would sound like this:

Ok, we donā€™t want to enforce anything. We know 0% coms leads to technical issues. We can prove it. Hence, we will come to a consensus (for example using testnet governance) to have NO possibility of having 0% commission.

This is very different from:

ā€œLets enforce 5% cause 5 is a cool number and I think it works somewhere else. If someone doesnā€™t agree with me, they are a advocate of 0%. Destroy! (insert some thick eastern European accent for the lolz)ā€

Solutions are always more interesting to find than enforce physical or digital violence

PPS. the prop, probably more than 1, should be a number of signaling props, to establish the minimum number for the coms.

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The reality is that delegators want to maximize their profits, so they just mostly look at commission and choose the lowest commission. But if there is a minimum commission, then and only then they need to consider other metrics to make their decision such as governance participation, uptime, contributions, educational content and so on. By introducting a minimum commission delegators are incentivized to study other metrics to select validators rather than solely the lowest commission

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So all of the text above that you write about how one should choose validators isnā€™t as important as you were highlight it?

Delegators want whatever they want. And thats their choice indeed.

Desires such as greed, curiosity, etc, come from education an free choice. You cant, and should not (in theory) influence free choice. Yet, one can educate and build and shape.

Build and shape on greed and you will get delegators that are only interested in maximizing profits. Start enforcing things, thats who you will attract. People that think enforcing is great. Start attracting audience via zealy, get very low quality followers. I dont see it as surprising, i see this as cause and effect.

But thats what i propose above too. How did we get to the point that im against it again?

PS. We are building an open source tool that will help to make those decisions, until then. Hopefully we can educate people on the evils of enforcing and propose solutions.

PPS. i can tell you that stripping away subjective ideas from explorers, that lead to the damage of this industry long-term, has been the hardest part of building logic

1 Like