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

Motif
Wed, 11 Oct 2023 15:07:07 +0000
Ecosystem

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!

19 posts - 6 participants