coreum

Prop 26: Coreum Proposal #XXX: Set Minimum Validator Commission to 5%

Summary

This proposal seeks to enhance the long-term security, health, and decentralization of the Coreum network by introducing a 5% minimum commission rate for all active validators. This change will modify the MinCommissionRate parameter within the staking module.

III. Abstract

Currently, Coreum allows validators to set a commission rate as low as 0%. While this may initially attract delegators, it creates several risks, including:

  • "Race to the Bottom": Encourages unsustainable practices where validators may not cover operational costs, leading to instability or centralization pressures.
  • "Rug Pull" Risk: Low-commission validators are often associated with quickly raising commission to 100% after accumulating delegation, harming delegators.
  • Security and Sustainability: Ensures validators are adequately incentivized to maintain high-quality, secure, and redundant infrastructure necessary for a robust enterprise-grade blockchain.

A 5% minimum is a widely accepted standard across the Cosmos ecosystem that balances delegator rewards with validator sustainability.

IV. Details of the Proposed Change (Parameter Change)

Impact: Any existing or new validator attempting to set a commission rate below 5% will be prevented from doing so by the network protocol. Existing validators with a commission below 5% will be required to update their commission to at least 5% or risk being unable to participate in the active set or being penalized (depending on the exact SDK implementation upon migration/enactment).

V. Justification

  • Validator Sustainability: Operating a secure, high-uptime validator node requires significant time, technical expertise, and financial resources (servers, maintenance, security). A 5% minimum commission ensures that dedicated validators can cover these necessary expenses and remain financially sustainable.
  • Increased Network Security: Financially secure and profitable validators are incentivized to invest in better infrastructure and more robust security measures, directly improving the overall security and resilience of the Coreum network.
  • Mitigating Malicious Behavior: Establishing a minimum commission discourages the common "zero-commission bait-and-switch" tactic, protecting delegators from commission "rug pulls."
  • Promoting Fair Competition: It moves the basis of competition from unsustainable rates to legitimate value-adds, such as uptime, community involvement, and governance participation.

VI. Conclusion

Adopting a 5% minimum commission rate is a pro-active measure that safeguards the long-term health and decentralization of Coreum. It aligns Coreum with best practices in the Cosmos ecosystem, ensuring a sustainable and secure environment for all participants. Following a passing proposal validators are to update their nodes within 48 hours.