"Retail" Nominators: The Foundation of DOT Demand Until Polkadot's Next Chapter

[Motif]

Here’s an explanation of why “retail” nominators are crucial for Polkadot (currently comprising 95 percent of them). Additionally, we have a new video about our nominator-focused tool, Motif, to provide a concise overview of our proposal. We’ve incorporated AI into the video to make it more engaging for you.

We are creating a tool that should benefit nominators by allowing them to work more efficiently within the ecosystem and reap its benefits. At its core, the tool is designed to stimulate retail demand.

Our extensive research revealed that life for retail nominators is challenging. However, there are nominators within the system who are thriving, though they are few. But this most most successful ones consistently absorb liquidity from the market. We propose a solution: to derive a common good from the actions of the best by using dashboards with comprehensive statistics based on their actions. This way, any nominator can easily benchmark, emulate the best practices, enhance their efficiency, and grow their stake just like the top performers.

Retail nominators: a majority in numbers but lacking adequate tools for daily activity.
Fast check: join the active Polkadot community. Every few days, a frustrated individual arrives asking, “I’ve staked, but it’s not working.” This sentiment is echoed even in English-speaking channels, including validators’ channels and Discord. Few samples: Polkadot discord, Polkadot discord, Validator chat, Watercooler.
As evident, there’s a lack of tools to help them identify problems or solutions, other than generic advice like “go to the wiki” or “research harder.” Moreover, everyone here sees that people invest their own money, lose rewards, and lack tools to assist them. And with a 28-day waiting period to retrieve their money. In total, it’s not motivating even to try.

What solidified our belief in the impact of this solution is the number of users:

Table 1: Nominators dispersion. Disclaimer: these numbers are dynamic, and the minimum reward/total stake/nominators number now differs, but the order is roughly the same.

In the target market of up to 10,000 DOT, there are almost ~40,000 users, and only ~2,000 above that threshold. These 40,000 users primarily purchased the token on the open market, moved it on-chain, and actively engaged with the system. A subjective analysis of public channels suggests that a significant portion of these users are non-English speakers. This represents the “decentralization” the system was designed for distributing tokens from the initial holders to retail. The impressive staking gamified framework of NPOS helps create organic demand, although it’s too strict to use directly, as our research indicates.

Importantly, retail nominators joined the system under a social contract, believing in its nascent stage, promising future, and a deep focus on developers and their experiences. Many even spent 5x/10x to dive in.

Retail nominators aren’t welcomed by major players.
When we received strong negative feedback about this solution from validators and major holders, we were taken aback. The main feedback we received suggests:

1. Retail nominators aren’t of interest to validators as they believe these nominators hinder their earnings.
2. Validators and major holders aren’t interested in improving the experience for this audience.
3. Inactive nominators (who invested only a few thousand dollars) receive particular disdain (“There are pools; study them yourself”). They are not welcome.

Despite the unfriendly attitude towards “retail” nominators, it’s hard to blame validators or major holders: they act in their interests, trying to extremely maximize profits today with minimal actions and risks. Their behavior is based on conservatism and prioritizing short-term absolute - that’s how their role in the system is structured. However, since the decision-making system is built according to the weight of the token in the system, such decisions begin to dominate.

Retail nominators are the only party that drives retail demand these days.
But the main thing is that retail nominators are the only one party who can absorb retail DOT liquidity these days.

Graph 1. Nominators stake dispersion

Retail nominators are the users who create demand in the retail market. More demand on the retail market → more liquidity can be absorbed. Even more – nominators will be only one liquidity destination for some time in case of the upcoming change of the concept. As far as liquidity is concentrated in the Major holders and validators, there is only one way to use it – have a retail market. No retail demand = illiquidity of the token with expected outcomes that will put down exchange market conditions.

Graph. 2 Nominators number dispersion

As we can see – there is huge space to grow retail demand. Retail staking is only one way to disperse concentrated liquidity through the community these in future days. If, of course, these holders will exist in the system they will be motivated to exchange this token in retail. This the why I was surprised by the received reaction.

How can this imbalance be addressed?
Imbalances are common in any governance system. In the case there are mechanisms that either inform parties about upcoming problems/outputs or legally regulate the system in such a way that it is resolved.
To address this in the case of nominators:

1. Major holders need to pay more attention to important user groups, like nominators.
2. Some government mediator (like Parity) should act as a guarantor of system balance.
3. In the future, other tools might be introduced to maintain a balance between stakeholders.

Fortunately for us, most of the whales in the current system are friendly and simply prioritize their topics. They act adequately from the point of view of their effectiveness, they can directly or indirectly receive feedback, and in my opinion, the system can be gently adjusted and other tools gradually implemented.

In conclusion
Polkadot is designed as a system that can maintain balance even during challenging times (even bear times), thanks to its internal liquidity redistribution system and NPoS. However, maintaining this balance requires active efforts from stakeholders. Nominating is one of the best tools for onboarding and immersing retail users in Polkadot. The better they succeed, the longer they’ll be part of the ecosystem, bringing more liquidity with them. Motif’s goal is to ensure this happens organically.

AI video about the Motif

Thank you for your attention. I’m happy to answer any questions you may have.
I would also appreciate your votes for our project!

[Motif]

Not agreed about kings and vocabulary - you can take a look here: Recognizing Alice und Bob and #stakeondot | Polkassembly

[Motif]

From what I understand, you’re highlighting the stagnation in development support/process.

However, this stagnation in development support is a form of the underlying imbalance among stakeholders as well. To simplify the decision-making system, we can categorize stakeholders into innovators and conservatives. Achieving a balance between these two groups is essential for the system’s sustainable growth. The “councilor” system leaned more towards the innovative absolute, while the current setup tends more towards max_conservatism.

Being conservative isn’t inherently detrimental. It’s often synonymous with stable business models that encounter minimal innovation, such as those of plastic manufacturers or food store chains.

Is it beneficial for Polkadot to lean so heavily towards this conservative extreme? (/IMHO) While conservatism is a hallmark of cash-flow-based businesses and thrives in that environment, it seems ill-suited for Polkadot, particularly since a successful use case is yet to be realized. Persisting in this conservative mode, even briefly, can have adverse effects. The innovation process doesn’t just stall; it comes to a standstill and must be restarted from scratch. Therefore, while the present situation is conceivable, its consequences are less than ideal.

The answer isn’t to eliminate conservative strategies but to integrate innovative opinions with proportional weight. This can be rectified in two ways:

• An existing Big party evaluates the potential long-term outcomes and dedicates time to address them.
• Alternatively, Parity steps in to compensate for this imbalance as a mediator.

To give credit where it’s due, Parity has already attempted a form of mediation with the Fellowship. It balances out the extremes, but primarily in the realm of technical actions. This is a step in the right direction (IMHO). Same solution can take a place in the ecosystem paradigm.

[kianenigma]

You are identifying a very correct and timely problem, but in my opinion the solution is not the right fit.

The problem is: Nominators are stale. Those are in the active set, as you pointed out, don’t have all the great tools to make good choices. Those that are not in the active set don’t even seem to know about it, and someday they come back with anger.

Some good tools exist out there (eg. Algorithm Integration, but I am sure there are many more) to encourage these nominators to make better choices, but they don’t react.

For example, while almost a year has passed since the launch of nomination-pools, the number of inactive nominators has only decreased from around 25k to 20k. This was much slower that I hoped for. I wish we would have 0 inactive nominators by now.

As another example, if you look at the nomination data, I believe you will find that most nominators are not changing their nominations as frequently as NPoS wished for.

These are social and communication issues, not technical.

We need a solid “nominator forum” where nominators are encouraged to hang out, discuss their choices and status, and ask for each other’s help. We need Wallets and DApps to warn nominators if they are inactive, if one of their validators has signs of getting slashed, or if in general they have not changed their nomination in months.

I have tried to reach out to wallets to implement the above message in the past, but to no avail. Most importantly, polkadot.js/apps still holds a massive market share over stakers, and the main maintainer has resisted any such suggestion in the past. Example in this forum and in PJS-apps.

Another idea, we need a solid awesome-polkadot-nominators that is the one stop shop for nominators to know all the great tools that they possibly have in their disposal.

Another idea, we need a “Polkadot stakers newsletter” that will send a weekly digest of staking news to nominators.

This is why I think “yet another tool” will not solve anything until the greater social problem is solved. This tool needs to reach the hands of the right people, and we should first solve that problem.

Once the above social problems are solved, I expect:

1. The number of inactive nominators will drop to a few hundred.
2. Existing nominators will be more active.
3. More and more nominators will offboard into joining or opening a pool, because the “Minimum DOT Threshold” for active nominators is only ever-increasing.

At this state, we should invest research into more advance nomination strategies, such as the ones suggested here. Although, I would note that the correct future-proof thing to do is to target these into pool-operators, not nominators. As noted above, in a long enough time span, all nominators will be pools, except for perhaps a small number of whales who wish to remain direct nominators.

[PolkaGate]

Another potential option could involve transitioning inactive stakers (nominators) from solo staking to staking pools, based on the alignment of their chosen validators with existing pools. An advance notice could precede this change to allow stakers to take action voluntarily.

[Motif]

Thank you for the extensive feedback, Kian!

Yes, researching the problem was not a straightforward quest, but it has been done. The complexities turned out not to be where we expected them, to be honest.

I’ll start my response from the end:

1. It turns out that everyone is so engrossed in validator issues that there are no solutions for nominators (apart from initial onboarding). It’s almost comical: if a nominator reaches out with an issue now, there’s no place to direct them to where they can simply input their address and figure out the problem or what to do next. So, the idea of “yet another tool” doesn’t work in the case of nominators.

2. Consequently, the proposed solution isn’t implemented in existing tools: no one was interested in complete data about nominators. Some information can be gathered in fragments, some are simply missing. Some tools have already stopped working, and some are inconsistent. You can’t assist a nominator who is trying to support a validator, especially when that validator consistently slash them manually.

3. Proposed solutions are great! But they require raw data/aggregates and a clear dashboard that allows at least basic information to be accessible (to make/check/improve). There’s no problem in distributing bounties to the best nominators of this era; you can send out engaging data newsletters. But there’s no source for this data. There could be courses on how to best choose stakes with practical examples. Kusamarian could analyze the best nominators during a live session and discuss their strategies, but where would one get this information? How community will verify this?

4. And don’t forget that among retail nominators, English might not be the predominant language. Moreover, I’m confident it’s not. I can clearly see that they don’t want to learn English. Products can be localized or come with language options.

5. This solution (from our proposal) can’t be perfect, as its goal is to provide a platform (which is currently absent) to further develop this segment. What surprised me even more was that there’s some resistance “against” rather than collaborative support.

[Motif]

An example of a typical situation (the link is provided in the post).
The user can’t analyze their stake, nor compare it with the best ones, nor understand the events.

[PieWol]

Aside from your project the screenshot you shared of the user’s issue makes me think that there should be some UI code of honor that ensures that before someone is doing nomination staking he needs to either tick a few checkboxes with the “downsides” (e.g. your validators might drop out of the active set, you might be replaced by bigger individual stakers for a validator, etc.) or be given the chance to switch to nomination pools which delegate these managing efforts to the pool operator.

[CoinStudio]

With all the respect to the Motif team and their energy and work put into the proposal, I need to agree with Kian here and repeat the feedback I provided to Nick before.

The foundation upon which the proposal is built is simply not correct and is based on the wrong assumptions:

1. Retail nominators aren’t of interest to validators as they believe these nominators hinder their earnings.
2. Validators and major holders aren’t interested in improving the experience for this audience.
3. Inactive nominators (who invested only a few thousand dollars) receive particular disdain (“There are pools; study them yourself”). They are not welcome.

1. I am really not able to see the foundation of these claims. The only two on-chain actions one could associate with this are either the validator blocking the new nominators or the validator kicking the nominators. A quick 5-minute check can easily confirm none of these claims are true. I would rather say the opposite, we as validators cant operate without nominators as they are our primary ‘customers’.
2. This claim is also a wild guess. Every validator (with set identity) has social links associated with them. In many cases, validators show their positive behavior and return the wrongly sent DOT to the sender.
3. There is a network set minimum stake limit and is defined by certain technical limits. As the solution nomination pools are created and they are working as intended. Saying that nominators are not welcomed is just an assumption and a really wrong one.

Not only the the problems from the above are wild assumptions, but also I am having a hard time understanding and seeing how the proposed solution is supposed to solve any of them. As Kian said, all of this relates to the common problem seen in most of the POS networks, stale nominators.

The full proposal is also based on the claim that the provided solution will provide the insight to nominators to choose the validators that are providing the highest reward. The provided graphs are based on the network state where the 297 validators were getting 200 random paravalidator assignments so the points and rewards were random at the time. This whole premise was cancelled with the proposal [Whitelisted Caller] Referendum #110: Update Parachain Validation Config which increased the paraslots to max meaning rewards become much more stable. This is a very important factor that is not mentioned in the proposal as it contradicts several items mentioned.

When you take all of this out of the equation, we are down to the 2 metrics - validator commission rate and minimum stake amount. I do appreciate the work and energy put into the research and proposal but my opinion still stands that you are trying to create the problem to fit the solution rather than addressing the real one.

PS. As in the original feedback, really cant support this level of GPT-generated content as it may look insightful, but upon closer reading, it makes little to no sense in the majority of cases.

[PieWol]

@CoinStudio

This claim is also a wild guess. Every validator (with det identity) has social links associated with them. In many cases, validators show their positive behavior and return the wrongly sent DOT to the sender. Really dont understand the assumption about the role mentioned in this claim

I would like to add that the 2. claim looks economically sound to me. Under the assumption that the network is sufficiently secured the current stakers have no interest in increasing the total amount at stake by babysitting the retail as the payouts to the current stakers would decrease as defined by the staking yield curve.

[Motif]

gm.
You’re right in saying that there’s a problem with stale nominators. However, it’s incorrect to state that this is a problem for all POS systems (in POS, nominators don’t even exist). And even discussing stakers (even) in most POS systems, the staker’s role is passive.

In NPOS, the staker’s role isn’t just active; it’s proactive. The failure of a large cluster of users to perform a certain task indicates a problem, leading to negative results. To clarify, this article focuses on the problem of “retail nominators” who are in the system and are struggling. In the case of Polkadot, this leads to a decrease in market liquidity (simply because there’s no demand, and none of the major whales will exit their positions) and a drop in price, which is generated by retail.

The peculiarity of a closed market is evident: if you want to sell something, someone should want to buy it. If you don’t nurture the buyer, there will be no market. This can be nurtured as we proposed or with other tools. The task is to engage retail investors in active actions and make them increase demand in the market.

A few fact checks based on your message:

1. “Retail nominators aren’t of interest to validators as they believe these nominators hinder their earnings.” This is feedback from Paradox, which he voiced to me at AAG, and it’s fragmentarily found in the referenda comms. You can go to the comments and read it, so you don’t have to take my word for it.
2. We need to distinguish between retail nominators and Major holders. And large nominators are of interest when others are not. Again, you can look at the reviews of Paradox. All other points you read should be updated with this concept.
3. …
4. …

I’d like to particularly address this: “As in the original feedback, really cant support this level of GPT-generated content as it may look insightful, but upon closer reading, it makes little to no sense in the majority of cases.”

This is simply offensive. It’s surprisingly become the norm to be offensive towards those who come with a proposal. Yes, English is not my primary language. Yes, I use human-based proofreading or LLM tools to enhance the quality of my language so that the essence of my speech is conveyed more fully. For some reason, I feel the need to apologize for this. It’s unfortunate that a community member can come and say this to someone’s face.

[Motif]

Hi!
Could you provide this more detailed? I didn’t understand this, sorry

[Motif]

Yes, that’s correct. Moreover, not every nominator may be suitable for every validator.
I know validators who drop nominators below a certain size. There are validators who don’t drop anyone. Ideally, a recommendation system (this is what we a talking here) should operate based on the behavior of the nominator (their stake size, frequency of actions).

For this, as we i address Kian before, a specific dataset is needed, along with the ability to dynamically update aggregates, understanding not only the actions of the user but also the superposition of the entire system. This can be implemented using such a system (by us or someone else cause it opensource).

[Motif]

While the solution may seem simple, it has two drawbacks:

1. Political. When moving to a pool, the owner loses their voting rights in the system. This isn’t quite appropriate.
2. Economic. By transferring to a pool, we remove an educated user from the system, one who has even brought token on-chain and staked it. Overall, the system potentially benefits more from solo-nominators than from pool participants.

Therefore, in my opinion, before relocating a user, it’s essential to first re-engage them and inquire about their actions.

[kianenigma]

@Motif

While the solution may seem simple, it has two drawbacks:

1. Political. When moving to a pool, the owner loses their voting rights in the system. This isn’t quite appropriate.
2. Economic. By transferring to a pool, we remove an educated user from the system, one who has even brought token on-chain and staked it. Overall, the system potentially benefits more from solo-nominators than from pool participants.

Therefore, in my opinion, before relocating a user, it’s essential to first re-engage them and inquire about their actions.

While I think it is good to take such actions with care, I disagree with both points:

1. Pools will eventually (read: soon) support governance participation: [NPoS] Nomination pools: Allow funds to be used for democracy · Issue #454 · paritytech/polkadot-sdk · GitHub
2. Opinion: the future is pool members, not direct nominators. NPoS will never be able to handle millions of direct nominators. A direct nominator role should only be for those who have a unique opinion which is not represented by any other pool. The current disparity between pool members and direction nomination is mostly an implementation imperfection. If given the opportunity again, I would rewrite the entire staking code such that everything is a pool. One who wishes to never change their nomination would join what we call a “Robot Pool”, which is fixed. Others join pools that are controlled by an operator and subscribe to the opinion of that operator.

@Motif

• Proposed solutions are great! But they require raw data/aggregates and a clear dashboard that allows at least basic information to be accessible (to make/check/improve). There’s no problem in distributing bounties to the best nominators of this era; you can send out engaging data newsletters. But there’s no source for this data…

I have not read your exact proposal yet, but my high level understanding is that it is a new tool that is focused around gathering data about nominators and represent it to them.

I am not against such a tool, but I wanted to emphasize that if the communication issues are not solved as a part of your proposal, the tool itself will not be useful. I am worried that it will be yet another tool out there that is not used, and the level of activity remains super low. Consequently, the issues you pointed out such as lack of support also remain.

I suggest taking a bold claim here: The successful outcome of your tool is to quantitatively increase nominator activity across the board. I argue that this is the end goal, and it should be stated as the main goal of the proposal. If this proposal is rephrased in a way that this is the main OKR, I would highly support it.

This reminds me of the mindset explained in https://www.youtube.com/watch?v=V0n_8odYquU (shoutout to @agyle), that a proposal should be objective-based.

…What surprised me even more was that there’s some resistance “against” rather than collaborative support.

I understand the feeling, but the intention behind having discourse before committing to a funding is purely positive and hopefully will lead to better outcomes for everyone.

[CoinStudio]

Hi there, I had no intention to offend your proposal. This is feedback on an 82-page document that is very heavy to read due to the mentioned fact. Regarding the other points, I stay firmly with them.

Since your proposal is already onchain and it is passing, I hope you will take the given feedback in this thread and use the funds to re-focus the aim of your proposal.

[Motif]

Pools will eventually (read: soon ) support governance participation:

I was basing my thoughts on the current setup.

Opinion: the future is pool members, not direct nominators

From the data I see, pools aren’t growing as fast as one would hope. This is despite the fact that many wallets default users into them without a proper explanation (I have no illusions about disclaimers). And I don’t see pools creating a demand that would significantly impact the market.

I’m afraid there’s no calculation on how much pools cannibalize from the growth of nominators and the final demand (and price). If there are such calculations, I’d love to see them. But for now, people, albeit not optimally, receive their rewards and might go on to purchase an additional 100 DOTs.

Therefore, I can’t definitively say that Pools will create MORE demand than the current gamification of nominators. However, Pools are an interesting hypothesis.

[Motif]

But regarding nominators:

I come to the doctor and say - my arm hurts, what should I do?
And he replies - here’s a subscription to our newsletter.

Did I get that right?

[gpestana]

@Motif

As evident, there’s a lack of tools to help them identify problems or solutions, other than generic advice like “go to the wiki” or “research harder.”

I think that a lot of this could be improved by setting up public spaces (dedicated forum, newsletter, tutorials, etc) where the community provides support to nominators. The ideas outlined by @kianenigma’s are great IMO.

The dashboard and other tools would be a good complement to that initiative, but I think it may not be enough. I’d expect nominators who face the problems mentioned in this thread to potentially have i) issues finding the tools ii) issues turning the data into actionable insights. However, a mix of community support dedicated to nominators and tooling sounds exciting.

Wallets and other teams could also tap in these resources and public spaces to understand the hurdles of their users and improve their product – sounds like a win-win.

I wish there was a community’s Nominators task force that would push these initiatives forward