How to Win Friends and Reduce Validator Set
Polkachu Intern | 2023-08-30
We all know that there are too many validators on all Cosmos chains in this market. However, the validator set reduction seems a taboo topic. Every time I tweeted about it, I got piled on by "hey intern, it is easy for you to say, but you are a heartless bastard who care little about small independent validator's livelihood."
Fair enough. Truth is always uncomfortable. Rather than making an argument about why a chain should primarily be concerned about validator's livelihood, you can just attack me on my character. Now I have nothing to lose, I might as well give you the whole playbook to squeeze out those pesky small independent validators without violating unspoken social norms.
Chains Do Not Care About Your Feelings
The whole point of PoS validation is to serve the chain security, not the livelihood of the validator set or your feelings. If a chain's security budget only allows it to feed 50 validators, then the livelihood of Validator No. 51-100 is none of the chain's business.
"BuT DeCeNtRaLiZaTiOn!" you cry out loud. Yeah, I have heard this story so many times. In the bull market, "decentralization" is a magical word to push through all those proposals to increase the validator set. Now the situation changes and it turns out it is all about your feelings.
"But soylana manlet has 2000 validators!" you make a last-ditch effort. Yeah fine, I will listen to your plea if your shitchain evolves into a Solana-like powerhouse.
Validator Reduction Playbook
To reduce the validator set, it is important to use the social acceptable rhetorics. It is not good to be against "decentralization", even though a diverse set of 25-50 validators can do the job effectively. Instead, we use magic words like "sustainable tokenomics" to address the problem while winning friends. Here is the full playbook:
- Reduce Inflation: Many Cosmos chains started out with very high inflation. It was fashionable in the last full market while every protocol had to compete with the 20% stablecoin yield of Archor. Now it is time to reduce the selling pressure with more sustainable tokenomics. If Ethereum's token emission is 3% and the Fed's interest rate is 4%, then let's keep inflation rate below 10% for all Cosmos chains. We can even do 0% inflation like Kujira.
- Charge Community Tax: Bear market is the perfect time to build up a healthy community pool. Many Cosmos chains currently charge 0-20% community tax. That's not enough. While we all like to trash-talk Kava, one thing it did right is to charge 95% community tax. All Cosmos chains should copy this.
- Burn Baby Burn: Burn is the best meme that ever happens to crypto. While it is mostly useless relative to other tokenomics tricks, people seem to like it. We will use this powerful meme to further squeeze validators by burning 50% of transaction fees.
- Repeal Minimum Commission Rate: Why does any chain need a minimum commission rate while the market can decide on an equilibrium? If validators want to race to 0% because they truly believe in a project and want to stay in the set for the long term, so be it. If delegators get fooled by 0% validators who later manipulate commissions, then they learn a lesson.
If we do all the steps in the playbook above (10% inflation, 95% community tax, 50% transaction fee burn, and no minimum commission rate), I expect that we can reduce the validator income by more than 90%. This will make many validator's business unsustainable. They will voluntarily bow out of the validator set even though spots are available.
Bright Future
A bright future always require sacrifice and trade-off. We all want many good things, and blockchain technology promise all of them to us. However, when the time is tough, a chain's primary goal is its own survival and everything else is secondary.
As you can hopefully tell, this post is not really about squeezing out validators. Rather, it is a call to action for app-chains to experiment how much it can get away reducing the security budget. A chain is more likely to survive and thrive when it can maintain its security and operation while minimizing the security budget. As long as we can achieve that, it is perfectly acceptable if delegators are pissed because they get fewer nominal tokens or validators get squeezed out of the active set.