[Research] Alternative rewards models for validators

:rocket: Hi NEAR Family.

TL;DR :zap:

  • UBI make possible to have a more fair model of rewards.
  • UBI allows small validators to have enough resources to run.
  • Validators with big stake still can take advantage of this.

Current rewards model motivates to have centralized nodes and put small node runners in a complex situation where they don’t have enough to payment hardware costs.

Based on the work done on the NEAR Validators Working Group and in the experience from Meta Pool I want to propose the rewards model to a Universal Basic Income rewards model, where every node receives an equity from the total of rewards.

Based on this model we can ensure that bottom validators with at least 5% of fee have enough resources based on current market conditions, that are properly of a bear market. This is a simulation of how much fee will be covered by bottom validators with a UBI of 10% of the rewards from the whole network.

Other rewards models explored: Taxed rewards model
The Taxed rewards model cover a tax to centralized nodes and distribute that into small validators.

Also a mixed version of taxed + UBI can be done:

Final notes

  • This solution is not a final solution and can evolve, any comment is welcome, that’s why we are here :slight_smile:
  • Centralized nodes can still take advantage of this making multiples nodes if they have a way to automatize the node operation.
  • Even then, if our target is to support small runner we can achieve that goal with this model.
  • Is this possible? To change the rewards model. CCP Pagoda Team @Bowen @george_NEAR
  • Would be a problem to have multiple nodes being runned by the same entity? Thinking on big validators that could split their staking in multiple small nodes to request UBI/Rewards from taxes

Tagging some people that could be interested on this: @satojandro @denysk @bchurn @DDeAlmeida @illia @David_NEAR @blaze

Documentation: Presentation and sheets with simulations

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Excellent proposed models, I have been talking since the early days about any models for a more efficient stakes distribution and this is crucial in the long term for the viability and decentralisation of the network.

But I would still like to see some direct cost-effectiveness for delegators to select smaller pools, as implemented in polkadot

So that stakes are naturally distributed from users to smaller pools and not concentrated in the largest pools as is the case now.

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Hello @cloudmex-alan congratulations for your proposal; I think that in the way for descentralization we need to make more improvements like this, personally I think that the UBI can be a good alternative and adding some requeriments like fee <=5% will be good for stakers an node runners.

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  • Would be a problem to have multiple nodes being runned by the same entity? Thinking on big validators that could split their staking in multiple small nodes to request UBI/Rewards from taxes

This proposal incentivizes large pools to split the pool in two, effectively having two (or more validators) controlled by the same person. This will increase the level of centralization by keeping smaller validators outside of the system since the number of seats is limited.

If all validators act greedy (i.e., they try to maximize profit), the best action they can take is to split their pool into as many pools as possible with an equal amount of stake, such that each pool is still eligible to be a validator.

Inspecting today’s stake distribution, the top 64 validators can split their pools into 180 pools so that each has at least 1,961,559 N. The next 116 validators (on the current set) won’t have enough stake to be a validator (unless they merge, centralizing the system more).

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I think the bright proposal by @cloudmex-alan is a step the right direction.

Chunk only producers are critical for a true decentralized NEAR and so its survival and short term profitability is really necessary, otherwise under the current market conditions they will quickly fade out .

Please see my attached post Economic analysis of Chunk only producers analyzing current Chunk only producers economics which further demonstrates the need for such a proposal.

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I agree here that allowing big validators to split it’s pools may have undesirable consequences for the network.

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In fact having a network of 300 nodes is still an small network. I think in the future the # of validators have to be open and unlimited.

Still on that way, what we can do is assign UBI only to those who have <10% fee, in order to prevent abuse.

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If the large pool splits in two - this would increase their compute costs (as they would have to basically run 2 nodes).

So as long as the UBI is just below the cost of running the node, they would not really benefit from splitting.

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An interesting proposal, but the way NEAR operates to date so far is based on “quality” and “sustainability” not decentralization, so if we want something like this to work, then we’ll have to pay proper homage.

So, both the UBI and the Centralization Tax must have the requirement to have the validator fee set at exactly 10% – no more, no less – to be eligible to receive both. This will prevent the ongoing race to the bottom in validator fees, especially with the new Chunk Producers, that benefits no one except the existing Validator kleptocracy. It also aligns with the requirement for the Liquid Staking Pools to delegate.

Using the Namakoto Coefficient is a superior metric to base the UBI/Centralization Tax upon vs some kind of stake-based weighting. But it also needs to be dynamic (percentage-based) so the market value of NEAR doesn’t render it overexpensive or underexpensive in the future and requiring revisiting the issue.

TL;DR Requiring or encouraging Validators to set higher minimum fees but Chunk Producers lower minimum fees is patently stupid from a quality, sustainability and decentralization standpoint. Decentralization at all costs is what the failed & validator-egalitarian Harmony blockchain looks like – a race to the bottom in fees, a lack of validator differentiation, trashy low cost validators en masse, temporary foundation delegations not based on quality, as much ongoing employee turnover as NEAR/NF has and… no traction. Let’s not repeat the mistakes of others.

Also, please get real, people! Chunk Producers are not going to take away any meaningful amount of market-share delegation from the Validator kleptocracy, regardless of fees. Delegators care about security and that is conveyed through simplistic jingoism, appearances, sizzle and incentives all helped tremendously by having a huge marketing and customer support warchest enabled by humungous NF delegations and 100% fees.

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Great post @JoeSixpack ! Thanks for supporting

Can you detail more? I got a bit lost here.

This isn’t a centralized database? That we should avoid… :face_with_raised_eyebrow: AWS Managed Blockchain is there for the people who is looking for this.

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@mm-near:

If the large pool splits in two - this would increase their compute costs (as they would have to basically run 2 nodes).

So as long as the UBI is just below the cost of running the node, they would not really benefit from splitting.

Not really, you can run two (or more nodes) in the same server by having different public IPs on the same server and running multiple instances of neard in the same server. Need some tweaks and additional space for each instance but it can be done.
So it would be just the opposite.
It will really decrease node costs.

UBI for validators?

This is a complex subject and in my view hasn’t been properly addressed by the most of the blockchains. How do you propose UBI is sponsored? How is it different to NEAR Foundation incentives with delegations?

Lets put delegators into 5 groups:

  1. NEAR Foundation - an official body which can perform staking operations based on blockchain needs, for example, it is possible for NF to incentify chunk-producers and other node runners with delegations, which will generate rewards based on certain rules, such as max allowable fee validator charge, uptime, etc. This can make sure overall network health by adding / incentifying more nodes, but is permisson-ed, custodian, and may have some legal challenges.
  2. Funds and investors, who received lockups or liquid tokens in return to their contribution - they usually stake in top 10 validators, low fee, or have their own 100% fee, private pools - more often.
  3. Projects on NEAR, which received grants in form of tokens or delegations in - they usually own pools and only stake into themselves
  4. Average NEAR user, an individual who purchased NEAR tokens during ICO, or on exchanges
  5. NEAR team member: now Pagoda, Aurora, Proximity and other spinouts team - they will likely stake in low fee top 10 pools, or pools they have personal connection too.

Now let’s review who can actually provide UBI? In my view it’s just group 1. You can’t force group 2,3,5 to stake in certain pools. And you can’t force them to share their rewards to contribute to UBI.

According to NEAR Whitepaper the 1% of inflation/rewards is going towards NEAR treasury, this can be used as source for UBI, but in reality, how is it different to Group 1 simply re-index their contributions based on NEAR price.

Look how other chains for example doing that, Solana, for instance: its foundation program, stake into participants from stake pool, which is automated in runs every epoch, so no delay, efficient, of course, when bot is working :slight_smile: It also incentify testnet by paying for the server with locked tokens.

As we can’t in any way make group 2,3,5 select when’re to stake, and group 4 is very small to make a difference, I think we have only one option short term: Is to improve NF delegation process by automating it, efficiently adjusting to market conditions, and introducing locked incentives for running testnet.

No matter how we call it UBI or simply NF delegations it is still the same.

Thought?

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My concern about this comments is the thinking that the benefits should come from a central entity like NF, in order to a UBI model to work it should be permisionless and without middle man.

Putting clear rules as follow, and based on the conversation as far:

10% of the rewards generated by the protocol every epoch will be given as UBI to small validators. All the NEAR validators that are in the active set would receive UBI if they met the following criteria:

  • Not be centralized (Above Nakamoto coefficient)
  • Have a fee below 10% during last 4 epochs
  • Has produced rewards during last 4 epochs
  • Be above seat price.

This rewards should be given directly at the end of every epoch from the protocol to validators.

How do you propose to achieve it?

Can’t disagree more. That is a HUGE difference. Is not just the money, it’s where it comes from :slight_smile:

Aren’t we talking about decentralization and permissionless blockchains after all ? @cloudmex-alan set the point quite clearly.

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Agree on decentralisation, but the reality is - there is a little decentralisation in POS networks, give me even one example where network is fully decentralised? Even ETH2 is mostly owned by liquid pool providers such as Lido or others

NEAR is in fact making an effort to become more decentralised that other with NDC initiative, and social aspects. So in the future NF role in delegating to node will be replaced by DAO or other governance body which can make decisions on how and who to stake with, and moving that role to MetaPool, Everstake and Linear is a start I think, next step would be to automate the process and make it efficient.

But the suggested approach will require near-core economics revamp, NEPs, a lot of research and a lot of effort from near-core team. This may take years.

How else @mariozito do you propose to make it happen? Are you happy to start NEP discussion and take an active role in it?

@cloudmex-alan am I right saying your approach will require near-core redesign?

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Significant changes to the NEAR Protocol’s economic design may be risky and take time to implement correctly, as well as requiring careful research and analysis. It is important to consider short-term solutions that can be quickly implemented and adjusted over time, instead of drastic changes to the protocol’s economy.

The hypothesis that I raise is a similar approach to Bitfinex’s 2016 hack, more details of this episode here. Briefly, Bitfinex created a “BFX” token for users who suffered losses, designed in a way that the company could buy it back from the users later.

The creation of a second token to reward the costs of Chunk-only producers may be a viable solution to the financial losses in this sector.

Following this hypothesis, we could create a second token that would present the advantages of trading and repurchasing them when the market condition improves. Let’s say that in this hypothesis the buyer is NF, this option may be interesting for two main reasons: 1) No need to get rid of amounts in $NEAR in a low market. 2) No need to analyze a near core redesign.

I understand the comments about centralization concerns of decision-making, whether the idea of UBI or second token, but the issuer of the tokens does not need to be the same buyer, in this hypothesis NF. The issuer of the token can be a DAO that has the technical and legal ability to issue these tokens, is autonomous and independent from NF and has sufficient neutrality to execute the best repurchase agreement possible.

If this hypothesis is acceptable, I have some suggestions for candidates who can play an active role in it and initiate these discussions.

Recently, we also had the case of $USN where there were significant losses for NEAR, perhaps this instrument that I am suggesting could also be an alternative to address other challenges.

The creation of a second token can have an impact on users’ trust in the NEAR Protocol, depending on how it is implemented and communicated. If carried out in a clear and transparent manner, it can increase users’ confidence in NEAR Protocol’s ability to deal with challenges and protect the interests of its participants.

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I think that we must seek BOTH long term solutions for this problem and short term solutions:

  • Long term solutions will improve the “technical” and trustless decentralization of NEAR. A goal in which (I guess) we all agree.

  • Short term solutions (within next six months) will allow Chunk-only producers to survive this bear market and set a stable platform for it’s long term survival, without changing the protocol.

On the long term and @cloudmex-alan proposal

I mostly agree with this in the sense that it may require a NEP and a change to the protocol.

BUT not necessarily it needs to take years. Maybe 18 months is a reasonable guess. That will depend on two factors:

  1. The importance the community gives to have profitable and long lived Chunk-only producers.
  2. Given that importance, the priority that Pagoda may give to developing, auditing, etc such change once approved.

If it is considered key it may be implemented fast. Pagoda has a great team :slight_smile:

Of course I am, I am just doing it now. Why do you think I am taking the time to setup an Economics analysis and participate in this discussion ? Cant’t you see it ?

This is a total misconception, the NDC initiative may or may not imply more “decentralization”. It is quite a different scope and environment . To what I have seen up to the moment, it may just mean centralization under some selected “projects” and “friends”.

Just look at this post Introducing the Ecosystem Influencer Roundtable - #10 by Niall and how “influencers” have been proposed and selected :frowning:

In my view (and I have more than 10 years of cooperative experience to atest so) this is not the way to build “collective” consensus at all.

Also, when I decided to start contributing to the NDC I see that contributors participation is now closed. This is simply unacceptable. When trying to do collective work and in the spirit of full participation, contributions must always be opened, at least for a reasonable time period (this is not the case, the NDC call was not more than six months ago) to allow all members of the community to have a voice.

BUT this is another topic for another post.

On short term solutions

It may require some creativity for the Community members to find an acceptable solution that considers:

  1. The NEAR Foundation. As you mentioned before, I agree that the NF must be involved in some way in a short term solution. At least until the NDC takes a useful, valid, transparent and democratic governance struct (and this may really take years !).

  2. The Liquid pools are a valuable and critical component of the validators ecosystem, so their interest and participation must be considered. BUT it is incorrect to delegate to them the responsibilty of a full solution to this problem. As I have shown there may be conflicts of interest at play.

  3. The Chunk-only validators which have quite different conditions and staring point than Block validators. I am refering here strictly to the Stake Wars III winners ( (some 100 winners over more than 1000 participants), who have been battle tested in a quite challenging, aggresive and disorganized shardnet and have demonstrated the technical and organizational hability to survive it.

  4. The Block validators which are also a critical component of the ecosystem, but have have quite different conditions and staring point than Chunk-only validators.

Up to the moment, two proposals have arised and am sure more will come as this is a relevant topic:

I am currently working on a short term proposal too, which will post in next days.

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