Network Level Validator Fee

[RB_1010]

Fuse holders can delegate their tokens to a validator. Current Fuse contracts allow validators to specify a % fee that delegators pay from their Inflation Reward earnings to their validator. The setting is 0-100%.

There are a maximum number of validators allowed in a particular cycle, currently 100. The 100 nodes chosen are those validator nodes with the highest combined stake (validator stake + delegator stake).

Therefore there is a benefit to gain delegators to stay in the top 100 staked validator nodes.

If a validator themselves owns 1% or more of the circulating supply (~120M by 2021 - therefore 1.2M tokens) then they are guaranteed a place in the top 100 nodes.

Once a validator has secured 1% they will only grow their % (unless they sell tokens) as the network inflation rate is 5% of all tokens (~330M) which results in an effective ~15% growth rate.

Therefore a validator in such a position has no requirement for delegators, unless there is a financial benefit.

These validators could easily drop their own fee% to 0 to attract delegation, thus starving other nodes who need delegation from obtaining it, and/or driving all nodes to setting delegation rewards to 0%.

It will quickly become “a race to the bottom” where the individual validator fee becomes irrelevant as all nodes set their fee to 0%. Anyone with 1+% will not be delegated to.

With the low hardware overheads and stable software of the fuse network, there are no (or very limited) hardware/software optimisations that delegators need to pay for to ensure stability in their node.

Therefore delegators will stake with the lowest fee nodes.

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At 0% fee, there is no financial benefit to having delegators, and no capital generated from them to create financial products (fixed term rewards, abstracted tokens, investment bonds etc).

This effectively stifles the potential for secondary markets in Fuse and limits the potential of validators to grow and diversify their business. The validator fee becomes redundant.

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A solution to this is to set a fixed network level validation fee.

Voted on by validators every year, potentially along with the network inflation rate and max transaction fee as well. The idea here is to look at current global economic conditions and set these variables to meet market conditions.

I won’t discuss the Inflation Rate or Maximum Transaction Fee in this topic.

Fixed Validator Fee

By fixing the validator fee there is no competition between validators on the easy to change contract level fees.

Validators by default will receive a good return. Delegators by default will always get a known return whichever node the delegate to.

However, validators can offer a better fee through token abstraction, smart contracts and other financial products built on their nodes. Better fees will bring in delegators. And different products will appeal to different people. A whole financial market can grow from the Fuse validator network.

E.g. Network Validator Fee = 35%
Node 1 offers 25% fee for 12month lock in
Node 2 offers 20% fee for 36month lock in
Node 3 offers -2% fee for the first 500k delegated to it.
Node 4 offers -1% off fee for every 10k delegated up to 1M
Node 5 offers 15% of its tx fees back to delegators who stake for 12 months
Node 6 offer 3 abstracted tokens that mature after 12/24/36 months offering fixed returns.
etc

There are limitless financial products that can be built on nodes where delegation brings capital into the validator. This could be a large and interesting part of the network as it grows, and bring dedicated companies who specialise in these investments into the validator network.

None of this is possible if validators can chose their own fee directly on the contract.

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Please comment and discuss the pros/cons of such a proposal.

FIP8 does not contain a fixed fee, so individual validators will still be able to set their fees at present.

A change to the network would require voting by the validators, which after FIP8 (October 1st 2020) will be weighted by their stake.

[MegaChad_Simland]

100% agree with this.

A great way to build services around delegation is to use custom parity code to have one’s validator node work with a contract address rather than a wallet address (as it is now). This way we could use contracts to handle payouts, delegations, etc. (not to mention more secure).

[RB_1010]

A 250k min and 5M max stake has been suggested by @marksmargon for validators.

My view is that 250k min stake with a validator defined fee (not a network level set one) will mean easy entry for anyone wishing/planning to go to 0%.

It’s going to be impossible to increase that figure/set a network level in the future as no delegator (delegators will hold the majority of fuse) will vote for it.

Once it’s at 0% it will be stuck there and no validator will be able to gain any revenue for their services to delegators.

Additionally, any validator will simply withdraw from delegation, as it offers no benefit to them.

(The need to have 1% circulating supply to guarantee their place in the top100 is probably not required.)

This may mean that there isn’t any space for tokens to be delegated into.

The only option then is to reduce the minimum stake, as there is no incentive for validators to open nodes for delegators.

A further reduced stake will bring with it bad actors and exploiters who may cause undue harm to the stability of the network.

Furthermore, a low stake means more validators, which means more bridge fees and costs.

A network level fee can always be removed, but once FIP8 is active, it would be impossible to put on. And without it, it will be straight to 0% in a very short time.

[adrianl3d]

Hi. I am new to fuse and very interested in the network and what it promises.
I am reading this thread and trying to understand the concepts and the possibilities, please forgive me if I misunderstand something or ask difficult questions to gain a better understanding.

Having read this thread a couple of times I am finding a couple of things not sitting well and and some of it downright hard to swallow. I need to get clarification please.

The OP states in one sentence:

“There are a maximum number of validators allowed in a particular cycle, currently 100. The 100 nodes chosen are those validator nodes with the highest combined stake (validator stake + delegator stake)”

.
This means its pointless for those other stakeholders to be running hardware for a validator node if they are not within the top 100 as they wont get any payments for running their node, correct?

Also quote

“Therefore there is a benefit to gain delegators to stay in the top 100 staked validator nodes.”

Benefit is too weak a word for this, it is absolutely essential, because to miss the top 100 means one is largely out of the game, as it is pointless to run a node and not see any returns. All these holders will be forced to delegate and forced to pay whatever delegation fees are imposed. We would then be looking at the lower players as fodder for the bigger players.

Extrapolating this to a position where only the top 100 validators will ever be in a position to handle any delegations at all and the rest become superfluous because its not like the top names will ever change. The top will stay at the top as they have cemented their position and unless someone dies or sells out, the lower players will never see the chance to get to an active validation position… (just thinking out loud, correct me if I am wrong)

So I’ll just leave that there for correction and clarification.

What troubles me most about the suggestions made in this thread is the ‘not so obvious’ contradiction offered.

1. Only validators with the top 100 levels of stake stand to benefit, this means some validators will bid to attract delegators, as they need these delegations to make up their numbers, in fact these delegations are critical as mentioned above.
2. Quote:

“Therefore a validator in such a position has no requirement for delegators, unless there is a financial benefit.”

I have just proven this to be incorrect and I think it is misleading.

So there’s your contradiction as it was just established that the benefit is in validators cranking up their numbers by way of delegation, and players will use whatever tools thay have at their disposal to gain traction, fixing the fee is in effect removing the only tool the lower level players have of ever getting into the game, and yes “fixing” is such an awful word. I am sure most players in this platform want to see a balanced and level field not tilted towards the biggest players. It is actually healthy to have a situation where the biggest players have little to no incentive to accept delegation and the smaller players have the ability to bid for these delegations to get a piece of the pie.

3. Quote

“These validators could easily drop their own fee% to 0 to attract delegation, thus starving other nodes who need delegation from obtaining it, and/or driving all nodes to setting delegation rewards to 0%.”

The only reason a validator would drop his fees to 0% is if he needs the numbers to get into the game, and why would you deny him this ability. This would not cause other validators to drop their fees also, if they already have the numbers then they can afford to have a moderate fee for extra delegation, after all it is extra, like bonus gravy, to be shared, remember sharing? No I believe this argument is scaremongering. Not a good argument.

It is scary to think that the the top position comes with little to no competition and also be able to dictate maximum fees for being there. Not to mention raising the minimum stake to 250K is yet another way of reducing the competition and effectively reducing the number of people to share in the prize by making it even harder for new investors to get a piece of the action without subordinating themselves to a whale.
Because everybody below the top 100 line is forced to delegate to one of the top validators, and be locked into fixed fees? (BTW 35% is outrageous IMHO) AND be locked into fixed terms of some years. These suggestions are extraordinary.
Please remember just how risky all this is for new investors? Are you biting the hand that feeds you? Will such an unbalanced field drive away new investors considering the success of the entire network depends on new investors coming in. I know it will drive me away.
It seems very unbalanced to me, again please correct me if I am wrong.
It has also come to my attention that one single player carries more than 50% of the votes which means that one person stands unopposed to any changes he/she deems fit. This is a dangerous position. (Too much power in the hands of too few people, or in this case one person) If it happens that any proposals stand to benefit the biggest holder then it is quite obvious how that person will vote and at this point casting any vote is pointless. I dont mean to offend anyone I just call it as I see it.
I would think very carefully about exactly what proposals are allowed to be tabled in such an unbalanced voting arena.

[RB_1010]

Hi @adrianl3d, Good to have your feedback.

I’ll answer in bullets as it’s easier to read.

No validator has more than 50% at the moment, and when FIP8 goes live all existing validators will be minority holders of Fuse token. The private and public sales is for 100M tokens, current supply is ~10M, so at best all existing validators will hold ~10% of the circulating supply in a few months.

No existing validator (I include myself here) will be a whale in the future, so all network discussions are with the understanding that other private/public stakeholders will have large shares in the future.

Fuse is still not a fully live product, and there are changes planned to the way things work, and things will no doubt change as the product grows.

There is a balance between decentralisation and accountability. For a financial network, accountability and stability are required, so Fuse have (at this point in time) set the number of validators to a number that is partially decentralised but manageable - 100. There is no benefit to the network having 1000’s of validators at the moment.

You can invest in Fuse by buying the token, holding, trading or delegating it. You don’t have to validate to benefit or invest in the network. To enter as a validator Fuse have set a min token stake, which includes delegation. So you could get 10 other investors to contribute and share the inflation rewards between them. There is no requirement for a validator themselves to stake the required minimum amount.

@adrianl3d

This means its pointless for those other stakeholders to be running hardware for a validator node if they are not within the top 100 as they wont get any payments for running their node, correct?

Correct, you have to be in the top 100 to earn inflation or transaction fees.

@adrianl3d

All these holders will be forced to delegate and forced to pay whatever delegation fees are imposed

No one is forced to do anything. If you wish to delegate you can, and earn extra tokens by doing so. Delegation doesn’t cost anything. Validation does.

@adrianl3d

What troubles me most about the suggestions made in this thread is the ‘not so obvious’ contradiction offered.

1. Only validators with the top 100 levels of stake stand to benefit, this means some validators will bid to attract delegators, as they need these delegations to make up their numbers, in fact these delegations are critical as mentioned above.
2. Quote:

“Therefore a validator in such a position has no requirement for delegators, unless there is a financial benefit.”

You missed the part where I said validators with more than 1% of the circulating supply do not need delegators to stay in the top 100. Not all validators. The only reason 1%+ holders would benefit from delegation is if they earned something from it.

There is no contradiction.

p.s. Another reason for wanting delegators (not mentioned in the original post) is to gain voting power, although that hasn’t been discussed yet.

@adrianl3d

players will use whatever tools thay have at their disposal to gain traction, fixing the fee is in effect removing the only tool the lower level players have of ever getting into the game

Agree, players will use whatever tool. My argument is that holders with 1%+tokens (guaranteed in the top 100) would easily push out smaller players by dropping to 0% fees.

@RB_1010

These validators could easily drop their own fee% to 0 to attract delegation, thus starving other nodes who need delegation from obtaining it, and/or driving all nodes to setting delegation rewards to 0%.

It will quickly become “a race to the bottom” where the individual validator fee becomes irrelevant as all nodes set their fee to 0%. Anyone with a 1+% fee will not be delegated to.

@adrianl3d

The only reason a validator would drop his fees to 0% is if he needs the numbers to get into the game, and why would you deny him this ability. This would not cause other validators to drop their fees also

Delegators will choose the lowest fees.Therefore as soon as 1 node goes to 0% others will follow. The validator fee then becomes pointless and there is no competition. Most delegators will then stake with those nodes who are guaranteed in the top 100, the large holders, so making smaller holders even more redundant.

A fixed fee means that can’t happen, and nodes have the option to compete for delegation by services offered, not just on 0% fee.

Hope that answers your questions. Happy to discuss more.

[adrianl3d]

Thank you for your response. It has answered some questions.
I am glad to hear that no one has a majority vote, and that as time goes on this will become even more balanced.

"All these holders will be forced to delegate and forced to pay whatever delegation fees are imposed"

“No one is forced to do anything. If you wish to delegate you can, and earn extra tokens by doing so. Delegation doesn’t cost anything. Validation does.”

Of course I meant if one wants to gain the maximum benifit of reinvesting their tokens back into the fuse network.

My biggest fear is that the larger players will have the ability to prey on the smaller players and I am never comfortable with that situation. Having a high fixed rate seems a bit predatory towards smaller players and benefits large players. If you must fix it then why not consider taking one for the team and fix it low, the result is the same but with less disparity.

[RB_1010]

Any fee is likely to be lower than I suggested. As Mark said in the AMA the aim is to de-incentivise validation, so there’ll likely not be much benefit in validating over delegation. But validators should be paid for their services, so there should always be a fee.

[RB_1010]

Another way to stop a “race to the bottom” is to set a minimum validator fee (say 10-15%). This allows validators to set whatever fee they like, as long as it’s 10% or greater.

This way there is still competition between validators, and also some headroom to allow them to build financial products.

[MegaChad_Simland]

@RB_1010

is to set a minimum validator fee (say 10-15%).

I would say a bit more than that… 20-25%… or maybe base it on the return rate at the moment. Returns are huge right now and if there is a maximum to staked amount then there is no motivation to allow delegators on every node, which means people will want to run more than 1 node. This is what is causing the problems in the first place and is just putting off a solution for a bit longer until it needs to be fixed again (100 signatures causing extreme end of cycle fees). The solution is to remove max stake. If there is no max stake then a lower fee is more appropriate because then validators dont have to worry about full nodes sucking away the profit of their own stakes due to delegators taking up room on their nodes (and locked in so they can’t even kick them if they wanted to).

What happens when a validator needs to clear his node of delegators to make room for his own stake? Delegators are locked in so the validator can simply destroy the node and make a new one to stake on, screwing all the locked delegators in the process.

So yes higher delegation fees unless max stake is removed.

[RB_1010]

Certainly the apr is way above other coins,
which seem to offer ~6-10%.

Even with 110M staked it’s ~15%APR. A validator fee of 35% would give a delegator 10% APR which is still very good and more than most other reputable chains.

I understand the node max stake is there to promote more nodes, to aid network resilience and spread things round a bit. This is good if these nodes were on different servers. In reality most multi-node validators will run from 1 dedicated box. Which doesn’t really aid network resilience.

Also 5M max will mean at minimum of 20 nodes at 100M staked, and likely more than double that as most won’t be full, and many new ones will start up as the min stake is low. So mainnet fees will go up again.

It’s probably OK for the time being, but I’d prefer a higher cap, maybe aim for a minimum of 10% of the total staked once we get past 50M staked.

[MegaChad_Simland]

@RB_1010

Also 5M max will mean at minimum of 20 nodes at 100M staked, and likely more than double that as most won’t be full, and many new ones will start up as the min stake is low. So mainnet fees will go up again.

Yeah thats a good point too, there is no reason to have one user running multiple nodes, it does nothing for decentralization so max stake is a bad idea.

I think someone said there needs to be a max stake because of code requirements. I say set max stake at 300mil and be done with it.

[adrianl3d]

@adrianl3d

The only reason a validator would drop his fees to 0% is if he needs the numbers to get into the game, and why would you deny him this ability. This would not cause other validators to drop their fees also

Turns out I was wrong. I have changed my position and I now support fixed fees for validation, this is the only way to ensure fairness across the board.
It seems the sooner this is implemented the better, as for the rates, I dont really have a suggestion yet, I will go with the majority.

[RB_1010]

Yes, when large holders drop their fees to 0% it takes delegation away from everyone, but has much more impact on smaller holders as they lose more as a % of their earnings, and also don’t gain delegation stake to keep them in the top 100.

It’s classic monopoly behaviour of using your resources to push out competition.

The solution is a fixed lowest fee, and validators should stick to that to create a fair playing field, which supports decentralisation.

[leonp]

Hey everyone,
interesting discussion, for my shame didn’t have the time to go over everything.

We’ve been slow with rolling that,
I personally wanted to have the FIP8 live first

I’ll open the vote for a minimum fee of 15%,
need to see how to handle the existing validators that got less than this.
The delegation is round the corner !

[adrianl3d]

Yes I agree with 15%