Finding a resolution for the 100% commission validator army

Ecosystem
,
1

The recent statistics from the Polkadot network shed light on an urgent issue:

  • Total validators: 297
  • Validators with 100% fee: 132 (44.44%)
  • Active nominations from smaller holders for validators with 100% fee: 462
  • Total Polkadot under these nominations: 5.82M DOT

These numbers reveal that nearly 44% of all validators are operating at 100% fee, affecting nominators with a stake below 1,000,000 DOT and diverting funds away from ecosystem agents.

Potential Security Risk

We don’t know who all of these validators are or if they’re working together. This lack of transparency could potentially put the security of the network at risk. Supporting known actors involved in development is a safer practice.

Addressing the Issue: Is a Maximum Fee the Answer?

Setting a maximum fee could protect nominators unknowingly trapped on 100% fee validators but doesn’t directly help ecosystem agents needing funding. It also doesn’t encourage the alignment of validators with those working within the ecosystem.

The Expansion of the Validator Set

Expanding the validator set could seem like a solution. However, without introducing a maximum fee, this increase won’t necessarily decrease the proportion of 100% fee validators. It must be a concerted effort with other measures to be effective.

A Call to Action for Large Stakeholders

In addition to the existing challenges with 100% fee validators, it’s been observed that several large stakeholders within the Polkadot ecosystem currently do not nominate anyone. This untapped potential offers an opportunity for positive impact.

To the Large Stakeholders in Our Community:

If you are among those with significant holdings and are not currently nominating anyone, please consider directing your support to small companies and individuals within the 1KV (1000 validators program). These agents are the backbone of innovation and growth within Polkadot, often working tirelessly on projects that benefit us all.

By nominating and staking with them, you are directly enabling them to continue their vital work. Your support could be the difference in ensuring the sustainable development and diverse contributions that make Polkadot unique and robust.

Conclusion

The Polkadot ecosystem requires thoughtful solutions:

  1. Setting a Maximum Fee and Expanding the Validator Set: These combined measures could protect nominators and balance the validator landscape.
  2. Engaging Large Stakeholders with Small Operators: Encouraging support within the 1KV program fosters growth and innovation.
  3. Mobilizing Existing Large Holders Who Are Not Nominating: Involving these stakeholders can strengthen the network’s resilience.

These approaches align with Polkadot’s principles and ensure the network’s integrity. Let’s embrace them collectively, working towards a decentralized future that values collaboration and understanding.

You can find a list of active 1KV members here (Note: Identities are not processed so some seem generic)

5 Likes
2

This is sadly a situation where the rich get richer to the exclusion of poorer DOT holders wanting to stake. The rotation of validators attempts to deal with this, but it cannot fully deal with it as you pointed out, there are so many 100% commission validators compared to the rest.

If I have understood the mechanism correctly I think that limiting the fee will not solve the problem, because the wealthy can simply fill up all the nominator slots with high staking addresses, thereby achieving the same thing - exclusion of low staking participants and keeping all the rewards.

1 Like
3

Setting a Maximum Fee

This doesn’t make any sense. If I operate a validator myself, I should have 100% say on who can nominate to my validator and I should have the right of privacy.

Expanding the Validator Set

That’s always a goal but currently due to various technical reasons we cannot do that. I believe the staking team already have the reason explained somewhere.

Engaging Large Stakeholders with Small Operators

Agree but still with the cautious to ensure the validator quality. Small operators can operate nodes as good as large operators but certainly not EVERY small operators run their infra with a same high standard. Large operators have their reputation at the stake and new operators don’t.

Mobilizing Existing Large Holders Who Are Not Nominating

Yes and no. We do have an ideal staking rate as a target and we are 48% out of 50%. It is not a good idea to ask large holders to nominate if we are above the ideal staking rate.

4

The 100% validator commission phenomenon is due to centralised exchanges running their own validators and allowing their users to stake via their platform as an in-between that then delegates user funds to their validators. In this respect it is not realistic to assume that 100% commissions will disappear over night.

This ultimately can be combatted by improving UX of staking directly without a middle-man, with clear messaging. We have already resolved some of those issues with nomination pool inclusion, its support on the staking dashboard, and with some web extension UIs following suite.

It is very unlikely pools will be nominating 100% validators (no payouts to members), unless again, that pool is owned by a platform.

Trends are showing steady increases of pool members, and I believe as pools become the dominant form of Polkadot staking, they will gain more influence of the active validator set. For this to happen though we will really need to push pools hard in future market up-ticks and bull markets.

In a long term vision of pools dominating staking, there is little room for 100% commission validators.

On another note, it is also important to give pools the means to operate as a service in the same way platforms do, e.g. offer their members rewards as soon as they become available. This was part of the motivation of nomination pool commission and permissionless claiming, which are both now live on the network. So now pool operators can claim rewards on their members behalf using its commission. This requires a bit of scale but it closes the gap between pools and platforms.

3 Likes
5

This doesn’t make any sense. If I operate a validator myself, I should have 100% say on who can nominate to my validator and I should have the right of privacy.

Why?

Agree but still with the cautious to ensure the validator quality. Small operators can operate nodes as good as large operators but certainly not EVERY small operators run their infra with a same high standard. Large operators have their reputation at the stake and new operators don’t.

When I first started validating, Coinbase nodes were regularly in the C-D range and completely under performant. This went on for months and people still nominated them anyway losing out on almost half (or more) of their staking rewards during this time. My experience has been the exact opposite of what you describe.

Yes and no. We do have an ideal staking rate as a target and we are 48% out of 50%. It is not a good idea to ask large holders to nominate if we are above the ideal staking rate.

Pushing them out of the set is the only real viable path. The ideal staking rate can and should be adjusted anyway with the inception of core time sales. The ideal staking rate with core time is going to be much higher.

6

I really appreciate that you started this discussion and raised a very important point - almost half of the active set is controlled by a few big entities which obviously undermines the decentralization of the network.

There are various solutions proposed

  1. Expanding the set - of course, that’s all of us wish for but there’s currently nothing we can do about it
  2. Engage with stakeholders - this is certainly a great idea and as a validator community, we should actively talk to institutions engaging with Polkadot and push them to act more in the interest of the ecosystem. Polkadotters can definitely help to make this happen!
  3. Mobilizing large holders - I think @xlc has a certain point with the staking rate which is there for a reason. However, we can definitely handle a few million DOTs flowing into the staking and temporarily having higher staking rate than desired is IMHO a good trade-off for more decentralization
  4. Setting a maximum commission - this one is actually a bit controversial in my point of view. Obviously, this would definitely help the validator set to be more decentralized - on the other hand, it could have unforeseen consequences like people delegating only to Binance because this is the entity they know and trust. Also I am afraid it’s undermining the original idea behind participation in the consensus of the network - there should be as few limitations as possible and anyone should have a fair degree of control over their validator. On the other hand, ETH also requires you to hold 32 ETHs which is beyond the reach of 95% of people and everyone’s fine with that so this is a tough questions to answer.
7

It’s kinda the opposite…

Why does staking exists? Polkadot wants honest competent distinct non-colluding validator operators, so Polkadot pays nominators for information about who should be validators. Ideally, nomination should be the labor of assessing those qualities, performed with tool (DOTs).

In principle, if all stakers were human then 100% fees give us perfect information about who controls the node. We do know roughly the original token distribution, and that old whales sell tokens, so 100% fees make us safer. It’s messy however because exchange stake for their customers, but overall 100% commissions benefit security.

It’s low fees that scare us!

If nominators select validators for low fees, then those nominators have done zero work assessing their validators honesty, competence, distinctness, or collusion risks. In essence, nominators are cheating the network when they select for low fees.

I’ve always said you should only nominate operators who’ve you’ve met in person. I’ve also proposed “honey pot” low fee nodes who’d run for months with low fees, but never present themselves as real humans, and then later reveal a commitment in their secret key, which slashes all their past nominators.

What about exchanges? In theory, an exchange owes you a fiduciary duty, but does this make exchange staking okay? I think no… Ideally nominators’ duties to Polkadot go beyond fiduciary, although slashing aligns them somewhat. Also nobody really trusts exchanges, nor imagines them being competent.

What about pools? Again, if users join a pool purely due to low fees, then the pool harms Polkadot and ideally should be shut down.

Anyways…

We do need some minimum commission that’s high enough so that validators choose stability over short term gains, maybe like 10%, but if market prices go down then this number goes up.

Arguably, validators with 100% fees should receive higher rewards, because they give us better information. We’ve obvious issues here like stake centralization, but maybe doing so becomes practical if you first ensure they’re people, not exchanges, so slightly higher rewards for validators with 100% fees who publicly identify themselves.

Around this…

I’ve always felt nervous about capitalism being a security assumption, so maybe one should ditch transferable tokens all together, but then we’d be trusting government ids or worse for personhood, unless someone makes Bryan Ford’s proof-of-personhood parties work.

I’ll also conjecture that bitcoin miner whales shall double spend their tokens eventually, so yeah I’m aware whales could represent a risk, but the reason it’ll happen in bitcoin are nuanced, not relevant here.

8

Relying on secondary sources here (no time to check the exact up-to-date numbers) but if they are correct, this is not a significant issue.

According to the recent summary by Composable (DOT - Inter Protocol Vaults Collateral Onboarding Discussion - Vaults Collateral Discussion - Agoric Community Forum) staked DOT makes up 616.486 million DOT.

Here we are talking about 5M DOT (0.8% of all staked DOT).

1 Like
9

The way some projects on Cardano are using the 100% fee is to give some of their own tokens in exchange.

That is a good way to launch and build a following for a project. Participants are only risking their staking rewards, much like in Crowdloans.

10

Important take aways…

There is zero security risk from high or 100% commission. Yet conversely, there is an absolutely massive security risk from low commission, so polkadot really needs a minimum commission, maybe like 10%.

It’s good if large stake holders charge 100% commission. It’s fine if smaller operators charge less but gain nominators through diverse relationships too.

It’s also fine if large stake holders farm out their operations to diverse operators via legal relationships, ala 1kv, but they should do this themselves, not trust 1kv. Ideally W3F would make 1kv nominations secret, so others cannot blindly trust 1kv, but this winds up technically impossible.

It’s otoh extremely dangerous if large stake holders run nodes with low fees, which then accumulate even more stake behind their nodes. We’d ideally ban this behavior, except doing so looks technically impossible.

Interesting so they really do not matter much. In this case, could we mildly incentivize 100% commission, without tempting validators to pay nominator under the table? We could pay validators slightly more if both they charged 100% commission and all their nominators behaved identically maybe?

As an aside, Tor has debated their MyFamily setting for like a decade, which vaguely feels like 100% commission. It’s odd that paying rewards makes their hard problem so simple for us.

11

As an aside, we intentionally have no maximum commission for two reasons:

First, if validators screw their nominators by raising fees then clearly those nominators were not properly doing their job of selecting trustworthy validators. We keep their interests better aligned with the network by not providing a minimum commission, which also reduces their slashing risks.

Second, we already have a problem on Kusama with validators not being profitable because they feel they cannot raise their fees to cover their operating costs. We know nominators would set maximum commissions too low, which would make this worse.