PUP-19: Increase Validator Reward From 1% to 5% Immediately

Attributes

  • Author(s): Henry Habgood, Patrick Linden, PJ Forster
  • Parameter: ProposerAllocation
  • Current Value: 1%
  • New Value: 5%

Summary

Increasing the ProposerAllocation parameter from 1% to 5% will increase the number or rewards paid to validators by 500% while reducing service node rewards by 5.6%, creating an economic incentive for node runners to stake additional POKT to become validators.

This is an immediate change that we can make to the protocol that will serve as a token sink, strengthening the security of the network, while pushing the number of service nodes downward as node runners consolidate their current nodes into validator nodes, thereby increasing rewards (if this doesn’t happen, then price pressure from additional purchases should increase the price and similarly reward POKT holders).

Abstract

Right now a validator earns ~10.3 POKT per 15,000 POKT staked above their servicer stake, which is the allowable economic profit to become a validator that node runners have agreed on.

Increasing that reward by 500% (to 51.5 POKT per day) would make the economic incentive for being a validator high enough that more tokens would move to validators in order to profit from the short term outperformance of validators. This change would have an unknown effect on rewards for service nodes as the change in rewards would likely come with a similar reduction in total nodes.

Motivation

There are many great ideas currently in discussion on how to improve the protocol, and those discussions are complex and technical enough that they (rightfully) require time to discuss before being implemented.

Further, the more changes recommended that require an unstaking period to implement pushes back the timeline to implementation for any one PEP.

This adjustment is designed to occur quickly and to solve some of the immediate needs of the protocol, which are:

  • Increasing protocol security by driving up validator stake
  • Reducing node count to address over-provisioning

This proposal is not meant to be a permanent solution, but rather to be an improvement to the protocol that allows node-runners to exercise their economic freedoms to consolidate into validator nodes in a timely manner.

Rationale

The increase of validator rewards from 1% to 5% will create a natural economic incentive for nodes to consolidate. The value was selected as it creates a meaningful change without requiring an unstaking event which could delay the change further.

Dissenting Opinions

This Will Not Fix The Protocol Security Problem

No, it won’t. It will improve upon what we have and allow us to gather data on how to better improve upon the protocol further. Most importantly it will give us immediate results and allow for more time to design a more complex, long term solution.

Copyright

Copyright and related rights waived via CC0.

4 Likes

This seems like a relatively simple parameter tweak that would achieve an increase in validator stake and thus total TVL. Unless someone can point out something I’m missing, I support this proposal.

6 Likes

I’m for this from a security standpoint but struggling to see how it is going to have any meaningful decrease in infra costs/ node count given only 1000 nodes are in the validator set.

I think it needs to be higher to have a meaningful impact. And it will bring some disadvantages like I mentioned on PUP17 a race/ladder to the top, no one wants to be 1001 after chasing the validator spot.

I agree that this needs to be higher to fully secure the network, and the intention of the proposal is to be a step in the right direction, rather than solving the entire problem. It will also provide us data on what occurs when we adjust the validator reward that we can use to further longer term fixes to the protocol.

If we go too far with adjusting the rewards % now, then it will likely require an unstaking event. This is small enough to not require that event but large enough to provide some improvement to our current situation. If nothing else we will learn from the change.

Right now if the current equilibrium is that an optimized (read: as close to validator min stake as possible) validator earns 10.3 POKT in validator rewards per 15,000 additional POKT staked on top of a service node. If we increase those rewards to 51.5 POKT/day per 15,000 staked, it would have to immediately increase the minimum stake by at least 500% to reach that equilibrium again.

1 Like

I like the simplicity of this proposal and think the current 1% is way too low. I also like that it could be implemented quickly without code changes. For those reasons I’m in favor of this proposal.

I agree with @Andy-Liquify that it probably won’t have a meaningful impact on bringing costs down for most node runners. But I do think it’s a move in the right direction for some. I also like that the increase is not too incentivizing (only 5%) because I don’t think that’s enough to create the race/ladder described in PUP-17.

2 Likes

That’s exactly what we are going for, thank you!

The goal here is to make a simple change, monitor the effects of that change, and refine the system. It’s not perfect, and it isn’t meant to be.

2 Likes

Adding on here. We expect that increasing validator rewards will create a race, but that hasn’t been proven. This is a small step that we can take which will help us to validate that assumption and create some meaningful short term changes at the same time.

I’m warming up to the idea of just adjusting the validation rewards, and not adjusting the minimum stake (like placed in PUP-17).

The trade-off of this proposal vs PUP-17 is that node consolidation is not addressed to a large extent. From my estimation, this proposal has the potential to decrease node count by ~30%, which is a good start, but it’s not the impact that I see frequently discussed.

However, if the DAO/community is willing to just focus on network security, and address node consolidation down the road (with something like weighted stake or the lite client), then this proposal is a good step to take.

I lean on the conservative side when making network changes, so I do support this kind of approach. The question is will the DAO/community be content with addressing more serious node consolidation later on in the future? I guess this is where feedback comes in.

Thanks, @nfahenry for this proposal, and I look forward to the discussion it creates.

To contribute, I’ve modeled out what the impact of a 5% increase would be. Please check it out and drop any feedback: PUP-19 Impact Model.

I would support this proposal if we were also disabling the 21 days unstaking wait period to allow node operators to consolidate their stake.
In its current form, I’m afraid this proposal will benefit node operators that have accumulated POKT or the ones that can deploy capital quickly and purchase a large amount of POKT.

1 Like

I understand that you want this to be equal for everyone, but I disagree with adding a removal of the 21 day unstake to this proposal. In all likelihood, removing the 21 day wait will take another 2-3 weeks to implement as we wait for other PUPs to be passed to create a single unstake period, leaving us worse off than just passing this proposal as-is.

The purpose of this proposal is to create a simple economic incentive (as has been done before when validators were first limited to the top 1,000 nodes by stake). The point of an economic incentive like this is to help guide people’s behavior, and there is no economic incentive that creates a truly fair playing field.

We cannot truly quantify what the effects of this change will be in terms of raising the validator min stake and therefore we should not seek to allow node runners to skip the 21 day waiting period because we don’t actually know who will unstake to consolidate until the validator min stake reaches some level of an equilibrium. Why should we assume that a node runner with 5 nodes will consolidate their stake? We don’t even know that they will have enough POKT to meet the validator min stake requirements in the first place!

If you can tell me with some degree of certainty what the min stake will be, how many node runners will seek to consolidate versus those who will just buy more POKT on the open market, and what the net benefits to the protocol is of allowing nodes to consolidate immediately (with a likely 3 week delay on the passing of this PUP as a result of removing the 21 day waiting period) I would be interested in learning more and addressing it in a future proposal.

The vote as it stands is invalid because you’ve set it to 3 days.
The DAO’s constitution (6.8) states that all PUP votes must last 7 days. governance/constitution.md at 12949c5060638591accd2ba07f07626426723c26 · pokt-foundation/governance · GitHub
This is also noted in the documentation. Proposals - Pocket Network
And if you look at every proposal we’ve voted on before this you’ll see a 7 day period.

We enforce this rule because making a vote less than 7 days undermines the rights of voters to a reasonable timeframe in which to be notified of a vote and participate. Note that proposals can still be approved faster than this if 50% of voters vote yes.

I’ve gone ahead and re-published the vote for a 7-day period. This second vote is the one that will determine the results of the proposal.

https://gov.pokt.network/#/proposal/0x43423cb73e0ce445a06611c6108373e920670676e318bf2e12d5c2b02c11c58a

1 Like

I like the simplicity of this proposal. Small incremental changes should be preferred as to not create too much of a shift, while also being able to measure the effectiveness. We can make more changes later.

2 Likes

This proposal has been approved with 22 yes votes and 1 no vote. Snapshot

The change has also been executed. The validator reward is now 5%.