Set a 5% Minimum Validator Commission Fee for Polkadot
Proposal: Setting a 5% Minimum Validator Commission Fee for Polkadot
With the enactment of the governance proposal to reduce Polkadot's inflation rate to 120 million DOT per year and the recent increase in the validator set size from 297 to 500, we believe we should consider setting a minimum validator commission fee for Polkadot. This proposal aims to ensure the sustainability of smaller validator operators, maintain decentralization, and meet the growing hardware and operational requirements as Polkadot scales.
Motivation Validator profitability has been significantly impacted by:
- Increased Validator Set: The expansion to 500 validators has diluted rewards.
- Reduced Inflation: The reduction to 120 million DOT per year has further lowered overall staking rewards.
- Increased Costs: New hardware requirements for running a validator, particularly with the upcoming JAM upgrade, have dramatically increased the costs of operation.
The average validator currently earns significantly less than a year ago, while the costs of running a validator are increasing due to:
Higher hardware standards:
- CPU: Intel Ice Lake/AMD Zen 3 with 8 physical cores @ 3.4GHz.
- Storage: 1 TB NVMe SSDs with mirror redundancy.
- Memory: 32 GB DDR4 ECC.
- Network: Minimum 500 Mbit/s symmetric speed.
Database size: Polkadot blockchain expands by over 500 MB daily, with a pruned database exceeding 500 GB (StakeWorld Database Size Analysis). This limits the capacity to run multiple validators on a single machine, with most hosting providers limiting storage capacity to mirrored 1tb NVME’s.
Revenue Decline: A year ago, 1% commission earned ~13.8 DOT per era. Currently, 1% commission earns ~6 DOT per era—a 56% reduction. At the average commission rate of 3.6% (excluding private 100% commission validators), a validator earns 21.6 DOT per era ($125.28 at $5.8/DOT) compared to 49.68 DOT per era ($288.14) previously. These dynamics create unsustainable conditions for smaller operators, discouraging new entrants and increasing reliance on large staking providers.
Proposal Introduce a Minimum Commission Fee of 5% for Polkadot Validators. This aligns with Kusama’s existing practice, ensuring validator operators can cover operational expenses and reinvest in hardware and infrastructure while preserving network decentralization.
Benefits of a Minimum Commission Fee
Decentralization:
- Encourages diverse participation by smaller operators.
- Reduces dominance of large staking providers that can subsidize lower commissions.
Economic Sustainability:
- Allows validators to meet the increasing operational costs.
- Provides incentives for new operators to join the network, ensuring long-term validator diversity. It can take months for a new validator to gain enough nominations to get active.
Parity with Kusama:
- Establishing a 5% minimum commission aligns Polkadot with Kusama’s proven approach.
Security and Performance:
- Ensures validators can afford high-quality hardware, enhancing network reliability.
_* Please note that the main intent for this proposal is to gather feedback and get the discussion started.
_
Comments (19)
Proposal Failed
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so there is aroudn 30 eras in polkadot per month and based on your calculation 1% commission would give validators around 180 DOT per month so at 5.6$/dot pricing +1k/month per validator node. you are proposing there 5% minimum comission that would pump the minimum validator comission to 5k$ per month.
hardware matching validators specs is around ~1200$ globally bd790i(463usd)+2xCT48G56C46S5(238usd)+CT2000T705SSD5(315usd)+psu/chassis/fans(200usd)+nanokvm(50usd). 1200 split to 24 month payment plan is ~50usd/mrc as an ISP I sell 1U colocation at 50usd with 2.5usd/mbits networking 30mbits commit with 95% percentile together with ~0.1kwh(720_0.29usd/kw_0.1 = 20.88$/mrc) electricity we are talking about around ~175usd for the validator unit. since networking might require another 1U slot, lets say cost per validator in the on of the most expensive SEA region is around ~250usd/mrc.
ofc this requires right partnerships and plenty of hard work to get to but saying that we are only allowed to provide validation at 20x profit margins is just mental
this is the most fucking communist shit I have get to hear in while and probably also played its part in ksm valuation dropping by 95% since the adaption of these hard set minimum commissions.
to celebrate successful selection to decentralized nodes program to offer us opportunity for constant validation and to stand against this nonsensical value capture we have decided to lower our commission down to 0.3%(https://polkadot.statescan.io/#/extrinsics/23495659-2). even with 0.3% commission we are still able to provide 24/7 active monitoring by our devops team located in 3 different time zones as well as work further improving our connectivity by optimizing our routes as our own non-CALEA compliant ISP.
@RotkoNetworks first of all most validators will not be running on their own hardware but instead renting baremetal from a provider. Many ISPs prohibit blockchain-related activities, making it impractical to self-host. Renting bare-metal will be more reliable for most validators due to redundancy measures and is also more expensive ($200 — $400 p/m).
Second of all, a lot of validators only get active a few times per month. To even get active once it requires a few million DOT in nominations, and whilst inactive you do not earn any rewards but still have to run your validator and pay the same expenses. If a minimum commission fee of 5% would be set most would not earn the $5k. But for the sake of argument, let's assume they would.
In most western countries you pay up to 50% of your income directly back to the taxman, take The Netherlands for example. This means that of the $5.000, already half of it is gone in taxes leaving $2.500 in gross profit. After this you have to pay for your bare-metal, that's another ~$250. After this, take into account the man-hours spent managing the validator and hardware. Let's assume that every single day of the month you spent ~1 hour maintaining your servers, validators, monitoring and being available for direct support over mail to nominators. That's 30 hours in total. On average a sysadmin costs ~$50 per hour. That's 50 * 30 = $1.500 in manhours. Leaving us with..
$5.000 (initial earnings)
— $2.500 (taxes)
— $250 (bare-metal)
— $1.500 (manhours)
= $750 net profit.
In our case, decentraDOT is co-owned, so we split the profit, leaving us both with $375 in net profit. I wouldn't call that 'communist shit'.
We believe that setting a minimum commission on polkadot enables stronger validator competition on quality of service and operational setup over minimum commission alone, therefore preventing a race to the bottom. Whether 5% or some other commission is appropriate as a minimum should be suspect to further debate in our view. Still deigenvektor.io supports this proposal in principle.