Discussion: Reducing validator set or increasing the minimum validator commission?

Governance
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Hi Persistence Community, Dan from Cosmonaut Stakes here.

With the passing of proposal 109 which halved inflation (link HERE), inflation and thus staking APR will gradually and substantially decrease over the next months.

While this brings many benefits, it also brings drawbacks - one of which is validator revenue. As the staking APR decreases over the next months, validators will find themselves between a rock and a hard place: sunset their validators or raise their commissions.

As the proposal already passed a few weeks ago, we need to discuss what’s the best option for validators going forward.

During the proposal discussion, two options were given:

  1. Increase the minimum commission parameter (from 5% to 10%)
  2. Cut the validator active set in half (from 100 to 50)

Now, none of those two options are ideal. Some validators always have their commission at 5% (or similar) and increasing the minimum commission parameter will oblige them to have a 10% commission. On the other hand, cutting the validator set in half will oblige 50 of the current validators (spots 50 to 100 by voting power) and the services they offer for the chain to vanish.

As mentioned before, none of these situations are ideal, but I’m not sure if there are any other alternatives.

Something to consider is that the Persistence chain is home to the Persistence DEX (formerly Dexter) and pSTAKE. These 2 protocols generate fees which could be redirected to increase the staking APR. In addition to that, I believe there’s also another form of revenue such as MEV capture using Skip Protocol.

Unfortunately, as far as I’m aware, the current revenue generated using the 3 methods mentioned above is minimal and their impact on the staking APR would be minimal, too.

Thus, I’m asking you, the Persistence Community, what would the most ideal way forward be to fix this issue?

Thank you for reading. I’m looking forward to reading your comments!

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Do we have any insights in the size of revenue created by Persistence DEX and MEV capture?

That would be quite useful. My first feeling would be that upping the minimum validator commission would be bad for investors, because then they would have both the reduction of the inflation in general AND the additional validator commission.

So if we are “sure” that there is enough to go from the other sources, then that would be the preferred route to me.

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You can checkout revenue and fees numbers from Defillama.

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If you are so concerned about commission reduction, than my question to you is “did you vote against the reduction of the staking APR”, ? If you did then good, then your question here is valid. As an investor/delegator I will be moving my XPRT from any validator that increases their commission above 5%. Persistence.one should release more real rewards to validators/delegators before voting on a question like yours, else investors will unstake and leave for better returns elsewhere. Everyone is hurting because of the current low price, stick in there things will pick up I’m sure.

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Who are you asking if I may ask?

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Fees are averaging between $100 and $200.
If we split that over the 150 million XPRT that has been staked, you can deduct that the value per XPRT is quite negligible (just below 0.04% APR) and can’t nearly compensate the loss of staking rewards…

So the changes must be taken lightly, because it can also cause a wave of people unstaking and selling, since price is down as well as a reduction in rewards.
We have to face that a part of the crypto market is also speculating on the token value and accrueing more of the asset in the meantime.

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We discussed most of the ways to generate value in the previous discussion thread here.

While I believe there were strong arguments to not reduce staking until other XPRT value could be generated to make up for the reduced rewards, the people voted to reduce the staking rewards without any guarantees of additional value generation.

With that proposal passing, I don’t support reducing staking rewards further through a raise in the minimum staking fee for all validators. I think that past vote indirectly was a vote to also reduce the number of validators in the active set. So that is the path we are on. This was mentioned in the previous thread:

Validators economy
The inflation change impact validators economic situation where the cost vs payment ratio will be different. It could cause the situation where the business model would be no longer viable for all the validators (especially the ones in the lower half) but the impact of having lower set of validators can be balanced by additional BTC security.

So, that being the case on how people voted, in my opinion there is nothing to be fixed.

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Did the people vote or the validators? That is quite an important difference to make, since on 99.9% of the Cosmos-chains (or 100%) the validators decide on the outcome of governance. And the participation of delegators is negligible.

I do agree that validators still voted “yes” on this proposal, while they should have accounted for what would happen to their source of income. That being said it results in the question if anything should be changed at all? Because validators voted for it, and now they have the situation they approved.
If they are not ok, then they can wind down their validator.
If ok, then they can just remain operational as before the voting, but with a lower income.

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If you vote your own shares then the validators can’t vote them for you. If you fail to vote then the validators can and should be voting your shares, otherwise we would probably never reach quorum.

So, if the validators cast most of the votes in favor of the proposal to reduce the staking rewards, they did it to themselves and there is no one else to blame or any other action to take.

NOTE: One other thing to be aware of is that if you are Liquid Staking your tokens they are assigned to a set of validators and you lose your voting rights (they are no longer available in your wallet to vote). This is an important point to consider before participating in Liquid Staking.

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Exactly. And we know that the majority of “regular” holders don’t vote, so the current result is mainly validator votes.

That being said, that means we don’t need to take other actions ^^

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