Are validator rewards too damn low?

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.