Are validator rewards too damn low?

General
1

Summary of a recent Discord comment regarding validator compensation:

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One highlight is that when considering validator compensation people commonly assume that validator rewards come from two sources: commission and dividend. The aforementioned member made a very interesting point that these must be considered separately. This didn’t occur to me before, as I also thought of it in very simple terms (“how much you make per day?”). But we shouldn’t look at it that way.

  • Reward for running a node is reward for running a node. It’s very easy to explain to all who’ve ran a Beta/Proto/Canary node. You don’t invest (nominate), you just run a node and get rewarded
  • Dividends come from capital investment i.e. nomination

At this time it’s impossible to say whether “x amount of xx” is too damn low. As validators we don’t know whether that can cover our expenses. But assuming 1 xx = US$1.5, a 5% commission and 200xx in node revenue per day, reward for running a node would be $15 per day or $450 per month.

For those who simply can’t run their node from home this can barely cover their expenses. So you must go with a higher commission, say 8%. But then the next problem is how to get elected as you don’t have “supplemental income” from staking (dividend) to rely on.

One detail interesting to me that I haven’t seen mentioned anywhere is that at present it’s not possible to analyze this because several markets aren’t yet functioning: the coin isn’t traded and wallet owners can’t invest surplus of their coins, the supply of validator slots is carefully managed, etc. Because of that there’s no way to make valid conclusions at this time.

My current thinking

  • validator rewards: given current estimates and situation, validator rewards are sustainable for residential nodes, mediocre for ISP-hosted, and unsustainable for hyperscaler-hosted nodes
  • old validator nodes with plenty of coins earned on BetaNet and ProtoNet don’t need to care about validator commission - they get a nice income from dividends and are unlikely to be interested in this topic
  • pools also primarily rely on dividend income: once you stack your node, commission isn’t that much of a deal as economies of scale make the cost of running a farm affordable

Tranche 4 and small independent validators may do fine if they run home-based nodes. Colo or cloud may or may not work, depending on variables which aren’t clear yet. But from other NPOS experiences we know it’s more likely to be challenging than not.

2

Things got worse since I wrote that. Reward economics is now distorted to the point there are barely any independent validators left.

It doesn’t make economic sense to nominate independent nodes. Take a look at Explorer and find a validator without Team Multiplier you’d like to nominate. You won’t find any.

4

Completely wrong.

“Most”? Yes, because “most” validators are Team Multiplier-backed. And why that is, I’ll leave for the readers to brainstorm about.

Have you ever thought why are “most” commissions set at the maximum? What does that tell you about competition among TM-backed nodes?

What are the commissions of “not most” validators - those who validate without the subsidy?

Here’s from “robvd” on XX Discord minutes ago:

I guess this makes it nearly impossible to run a node without TM (which I don’t have). Because to enter the active set again I had to attract a lot of stake. Now that I’m in the active set the returns are low due to the large stake. So nominators leave on day 2. On day 3 chances are I will drop out of the active set again. On day 4 I’m listed on top of the targets page again (not active) with hundreds of % return. And the cycle starts again.

6

:rofl:

No issue, I didn’t say it’s impossible, I said show me one validator without TM which is worthy of investing.

You have nominators (at any commission rate you set) simply because they haven’t yet figured out they shouldn’t nominate your node.

Let’s take these two nodes as an example. I’ll round the numbers:

  • node 1 - 400K stake, 200K by validator and external nominators; return rate >50%.
  • node 2 - 330K stake, 327K by the validator and external nominators; return rate <25%

Nominators in the second are getting 50% less and even so, the node is barely getting elected.

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Why would anyone who can understand these numbers nominate the second node? The moment your nominators figure this out or read this post, you’ll be out.

8

This proposal is for the Team to start collecting rewards for Team Multiplier stakes.

Earnings obtained this way are to be burned at an increasing rate after each era in order to limit duration and scope of the TM program.

The remainder from TM earnings would to the Foundation until burn rate hits 100%, after which such contributions would cease.

This proposal aims to ensure the following:

(1) Continue providing election assistance to TM-backed nodes

(2) Create fair environment for TM-backed and independent validators

(3) Address lack of competition among TM-backed validators

(4) Address the network’s inability to unelect TM-backed validators with consistently poor performance

(5) Restore proper network performance and quality of service for XX Messenger and other applications that depend on it, and provide better infrastructure support the network and coin

(6) Put an end on unnecessary and increasing monetary handouts that have resulted in steadily decreasing performance and hurt competition among within both TM-backed and independent validators

Implementation details are up for discussion. An example is provided below.

== Implementation Example ==

Earnings obtained this way are to be burned after each era in order to limit duration and scope of the TM program, with:

  • 50% burned on Day 1
  • an additional 0.15% percent burned each subsequent day

This ensures 100% of daily rewards is burned within approximately 1 year of this proposal taking effect).

TM program is terminated through a community vote or other decision making, or TM multiplier funds exhausted (which would start happening at burn rate > 100% and go on for less than 2 years given the increasing rate of burn).

10

???

Says who?

It doesn’t work well at all.

  • cMix success rate is below 85% and it’s been 82% in recent days - between 15% and 20% of all messages fail
  • network is doing less transactions for much more money - TM tokens are not wisely used and existing coin holders are being diluted
  • there’s no solution for the poor performance of network, as long as things stay the way there are, networks who’ve dealt with this problem will provide a better service
  • there’s no chance that independent validators will come on board, so any validator expansion will depend on continued TM giveaways

First, there’s no schedule for TM wind-down.

Second, why would they not continue to nominate me (as long as I have TM)? As long as there are no changes to the program (such as those suggested above), there is no risk of any independent validators coming on board to compete with me. And even if they tried, they’d just leave money on the table.

Validator economics already doesn’t work, it should be fixed for a successful coin launch.

12

No they won’t, and that’s been the main point of my recent comments.

Very astute.

Which is also why I don’t want to bother arguing about this in Discord where fellow xx candlemakers use the same sophisticated criteria to support network improvement proposals. So I’ve posted it here, as a warning for potential independent nominators.

14

Why would they decrease their commission when there’s no competition in validator fees? And why would competition happen when it doesn’t make economic sense to run a node unless the validator has a TM?

And until that magically happens cMix will have a lousy success rate and xx Messenger and xx coin price will suffer.

No, they have a low fee because there is no Team Multiplier, so there can be competition.

That’s the same as saying anything can be changed any way we want because it doesn’t matter since there’s no price. Why not allow TM-backed nodes to set commission to 88%? How does it matter?

Inter-validator competition isn’t fake and has nothing to do with the price of xx coin. It’s relative. One makes 100, another makes 90. As long as the coin value is more than 0, the first one is better off. The same goes for commission rate competition.

16

I’d propose a bet, but it’s probably against some stupid US law, so I won’t do it. I’m sure you won’t do better.

I’d like this to change, so that you can get your rightful rewards and the network can run better. I don’t care if somebody drops out or has to change their commission to 17% (oh, the horrors!) because they can’t check if their node is up and running more than once a week. (They’re too busy, and you aren’t!)

But it seems the Team is busy with other high priority things and the ethically challenged majority of TM-backed validators doesn’t want to complain about this situation.
“Oh, there’s a post about the problems with TM? Sorry, I didn’t notice, I was busy”. Yeah right…

17

As far as I am concerned, after the changes in Team Multiplier, this has now been fixed (and before that, the problem has been recognized by the Team).

Validators with Team Multiplier retain their advantages, but validators who don’t have it can compete with a lower commission.

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For some reason back then the forum was running at a different URL, but I can’t edit that old post. The link should be