Alternative Validator Rewards Mechanism

[SerGo]

Introduction:
As the staking rewards for validators in Oasis blockchain are projected to reach zero in the next year, according to the official Oasis documentation (Token Metrics and Distribution | Oasis Network Documentation), it is crucial that we explore and implement alternative reward mechanisms to maintain the participation and security of the network. During the Oasis Community Town Hall (Oasis Network Community Town Hall — 2023, Q2 (June) - YouTube) Oasis explained that at the end of the current staking rewards schedule, there will be a significant amount of tokens remaining in the Common Pool account (Staking | Oasis Network Documentation).

Staking rewards are subject to be changed by network governance. So here we would like to propose and discuss possible alternative mechanisms such as:

1. Extending the rewards schedule using the remaining tokens from the Common Pool. When rewards drop to 2%, they stay at this level until the Common Pool is exhausted.
2. Transaction fees rewards
3. Providing rewards from the project’s own funds for a specified period or as a combination of them.

This proposal is intended as a starting point for discussion and should be adapted and refined based on the specific requirements, circumstances, and governance structure of the blockchain project. We invite the community and Oasis Foundation team members to join the discussion, share opinions about the proposed changes and/or add other suggestions.

1. Extending the rewards schedule
   By extending the rewards schedule utilizing the remaining tokens from the Common Pool, we can ensure continuity. Once the rewards decrease to 2%, they will be maintained at this level until the Common Pool is entirely depleted. A 2% staking reward is sustainable for a while.

2. Transaction Fee Rewards:
   Validators will be rewarded with a portion of the transaction fees collected on the network. This incentivizes validators to process transactions and ensures their continued participation in securing the network. The transaction fee rewards will be distributed proportionally based on each validator’s stake or contribution to the network.

3. a) Rewards from Project Funds:
   To bridge the transition from staking rewards to transaction fee rewards, the project will allocate a portion of its own funds to provide rewards to validators for a defined period. These rewards will be distributed to validators based on their stake or contribution, similar to the staking rewards mechanism.
   b) Time-Limited Reward Period:
   The rewards from the project’s funds will be provided for a predetermined period, such as six months or a year. This allows the network to adjust and adapt to the new reward mechanism while ensuring the sustainability of validator participation.

Community Proposal and Input:
The community is encouraged to actively participate in shaping the alternative reward mechanism. This proposal serves as a starting point for discussion, and community members are invited to provide their own ideas, suggestions, and improvements to enhance the reward system. The community’s input will be considered in the final design and implementation of the alternative rewards mechanism.

Governance and Voting Process:
Once the alternative rewards mechanism is refined, a governance and voting process will be conducted to determine its implementation. Validators, token holders, and other network participants will have the opportunity to vote on the proposal, ensuring decentralized decision-making and community consensus.

Conclusion:
Transitioning from staking rewards to alternative reward mechanisms is a critical step in maintaining the participation and security of the network. By combining transaction fees, providing rewards from the project’s own funds for a specified period, and incorporating community input, we aim to create a sustainable and fair reward system that aligns with the goals of our blockchain project.

Community members are encouraged to provide their feedback, suggestions, and additional ideas to further enhance the proposal and contribute to the design of the alternative rewards mechanism.

[Opal]

Using whats left in the common pool is such a short term fix, why not make something more drastic if rewards and tokenomics are to be reconsidered anyway?

The Oasis team had years to think about this and came up with the most unaspiring solution.

If transaction fees are to cover it and there are no pools left to fund validators, why not just ditch emerald and fork to $sapphire with better tokenomics tied up to $rose somehow?

[Blayde (Blayde [Kumaji])]

Allowing the 2% reward to continue is a good short term solution only, however if we also begin distributing transaction fees to stakers, it effectively buys us some additional time for transaction throughput/fees to pick up a bit more.

Network activity would need to pick up quite drastically for the transaction fee distibution to be worth it to stakers though.

[Opal]

Genuinly hope that long standing validators are having a serious dialogue with the Oasis Foundation, and that this forum discussion is purely for the sake of pretending there is a “community”. Validators have put up with a ghost chain for years now, why would they commit with their voting power to the least rewarding alternative aside of purely transaction fees?

Unless this is all just theatrics and validators have no choice but to accept the solution put forward by the foundation, why shouldnt validators make a serious governance vote that would drastically be in the favor of them and not VCs / Founder rewards still remaining and staked?

Do something drastic! At this point a change in tokenomics would be a great way to gain exposure in the context of oasis being “reborn” with Sapphire.

[Amaya (Rizan Magdalena Anca)]

Based on the the available options, in my opinion that transaction fees could be a viable solution for the alternative reward mechanism. However, it is essential to carefully consider the implementation to ensure that validators are adequately incentivized while maintaining a balance to prevent excessive fee increases. It is crucial for users to experience a fast and cost-effective blockchain with low transaction fees. Striking the right balance will require thoughtful planning and consideration to create a sustainable and user-friendly ecosystem.

[Opal]

Nice ChatGPT response, this place is turning into a cesspool for ambassadors.

[amela]

Kudos to SerGo, for starting this thread, and hello to all minds who dived into the discussion!

Unless this is all just theatrics and validators have no choice but to accept the solution put forward by the foundation, why shouldnt validators make a serious governance vote that would drastically be in the favor of them and not VCs / Founder rewards still remaining and staked?

No drama here! It would be great to hear different opinions and have an actual discussion. Big or small, drastic or reserved, toss in your two cents on what’s best for our network.

If transaction fees are to cover it and there are no pools left to fund validators, why not just ditch emerald and fork to $sapphire with better tokenomics tied up to $rose somehow?

Let me decode this: you’re suggesting we dump emerald and cook up some fresh tokenomics for sapphire? Got a recipe for that in your mind?

[Opal]

Well its the reason Nhynes quit the project after all, so it cant be impossible to get $SAPPHIRE

[Opal]

Still zero response from the foundation on what is arguably the most critical issue to adress for the future of the network, I guess the fdn thinks Oasis somehow is immune to scrutiny / critical investigation by journalists?

Ending validator rewards but still having 3bn+ tokens to be unlocked exclusively for founders and VCs sure sounds like a bright future and definitely not something a journalist would want to make a hit piece on.

If this place is just gonna be two ambassadors farming leaderboard points with chatgpt-made posts, why dont you just shut this forum down?

[amela]

At the Oasis Protocol Foundation, we greatly value your insights, proposals and feedback. Following the soon-to-be-proposed Network Upgrade 23.0, the staking rewards schedule will become adjustable via network governance. To enrich our discussion, we’ve designed an incentive model that provides a clearer perspective on various staking reward schedules:

Incentives Model: https://incentives-model.oasis.io/
Source Code: https://github.com/oasisprotocol/tools/tree/main/incentives-model

We invite you to explore it and share your view on staking rewards. The source code is open for review for those eager to delve deeper.

[Doorgod]

Hi, thank you SerGo for starting the discussion.

Based on 2% inflation and current token price I will barely break even on my server costs (roughly 700 usd per month cost vs 800 usd for rewards), and my delegation is quite generous. This is because I have to run several servers with decent hardware for both mainnet validator, testnet validator, and separate mainnet machine for SGX paratime support, and I run yet another machine for mainnet emerald explorer (testnet emerald explorer and validator and paratimes is on same machine, though testnet explorer is still down at the moment).

This is just a data point for you all.

I have no doubt the price will recover, we just need some adoption.

[Jr-Validator]

Hello,
It cost a lot to run SGX and it is some work to configure and to keep updated.
If validator are not rewarded enough, they need to have other incentives to run the network.
But I m also worried about people stacking on the nodes. They will also not be rewarded enough?
It does not seams bear market will stop soon. We will need some big events to happen next year.
Keeping the rewards high will keep the ecosystem as it is.

[Opal]

“price recovery” can’t be the solution to fixing validator rewards and making validators break even when running nodes, especially when the current tokenomics are just deluting the value with another 3bn tokens NOT going towards validators but into pockets of greedy 2018 investors.

The fact that hardware requirements are relatively expensive in terms of cost but also maintenance and upkeep for thouse passionate enough to run SGX, should be argument enough to incentivize BETTER validator rewards going forward. Not worse with 30% of supply still left to be unlocked.

[AUJL]

Thanks for the model and governance extension to the reward schedule. Definitely a step in the right direction. But is that APR sufficient?

Example along the post @Doorgod :
Using the model provided at the current price, attracting 25M Rose in delegations – probably unrealistic with a large 20% commission. In that case, even a 6% final yield would earn a validator, optimistically, less than 700 USD worth of Rose per month.
Factoring in the maintenance work and infrastructure cost that’s not going to be a profitable endeavor.

A thesis:
I think that it’s of utmost importance for the health of privacy-focused networks to make sure the protocol security is backed by a profitable validator set that attracts substantial delegations.

If validator duties are incentivized poorly, that has two kinds of adverse effects for the stake that secures network integrity:

1. Poor validator turnover creates economic pressure to cut infrastructure costs to the bare minimum at the price of node reliability.

2. Poor delegation rewards incentivizes holders not to delegate tokens as they have the possibility to get larger returns with other investments.

A way out, as suggested by @SerGo , point 2…

Privacy and private compute in a protocol are unique features that protocol users are happily paying an extra for.
Adding transaction fees for these privacy features to the validator rewards and the fee parameters as subject to protocol governance would enable a credible and sustainable incentive alignment for validators and protocol users. i.e., validators that are profitable via earning rewards for securing the core protocol features for users.

[Opal]

Its almost as if copypasting Algorand tokenomics 5 years ago, and not accounting for SGX hardware costs or rewarding validators for putting in the extra effort required to run nodes compared to other networks - was a bad idea.

I’m sure the foundation and core developers would continue to work on upgrading cipher and consensus layer for 3 years without getting paid, just like validators are expected to run without profit!

[amela]

Hi everyone Reflecting on our discussion, there has been feedback that the initially proposed 2% rewards schedule might be insufficient. How do you feel about maintaining the current reward rate of approximately 2.5% until the common pool is exhausted?

According to the incentives model, it would take about six years for the common pool to be exhausted under this approach, assuming the percentage of staked tokens remains relatively stable. During this period, we’ll focus on exploring proposals for revamped incentives mechanisms for the Oasis Network. It’s also worth noting that the community can revisit and adjust the rewards schedule as necessary in the future.

With the implementation of the Eden upgrade, the ability to propose changes to the staking rewards schedule is now accessible to everyone. As node operators, you play a crucial role in Oasis governance system and changes in the staking rewards schedule have a direct impact on you. If anyone is considering making a proposal, please reach out to me on Discord (ami.dev). We are here to assist with spreading the word about the proposal and offer any technical guidance you might need.

[Jr-Validator]

Hello, as oasis Rose is at 0.12 their is no more urgent need to raise from 2% to 2.5%. Is there is a better way to have the reward adjust to the prices? With 2% or 2.5% when the rose is at 0.04 I don’t think most validators will be payed enough for the servers and their work. If the rose is at 0.20 it is more than enough. So can we think of a mechanism to adjust the rewards to the real value?