Protocol Parameters updates by IOG within Transitional Praos implementation

Developers CIPs
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A post was split to a new topic: Requirement for Stakepool setup

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Unfortunately, the reason a Nash equilibrium was achieved in the paper IOG published (Reward Sharing Schemes for Stake Pools - IOHK Research) is because their model enforced a single pool per operator. Hence, the need for an identity solution and single pool mandates if we expect to achieve a similar outcome in practice. This isn’t to say that the system will fall apart on its current trajectory, but IMO this implies that k is essentially just a vanity metric for “decentralization.”

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For a successful operator, the cost of splitting a pool is almost zero. This is because the required pledge is 0. Matters get worse because the min fix cost (i.e. 340 ADA) is well, fixed. It does not take the change of ADA price into account. Running decent hardware with N hours high skilled work may cost a fix amount of $ but not a fix amount of ADA. In short, the fix cost should be more flexible IMHO.

Also, a pool gets saturated at a certain max stake, but not as a function of the owner’s pledge. Some large pools have ridiculously little skin in the game (perhaps due to their splitting). Rewards could diminish when pledge drops below 3% of the pools active stake (e.g). This would be akin some sort of “healthy band” between min pledge max active stake.

Perhaps this is what a0 is about, when it gets implemented. In any case, because “Pool operators that run multiple pools with small pledge hurt delegators and smaller operators”, should IMHO discouraged more effectively let alone be endorsed by Daedalus ranking.

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I think we need to be careful not to let perfect be the enemy of good here.

We are in a situation where there is a clear window of opportunity until our main competitors solve their scaling problems. We have finite resources to allocate as a community (including IOHK) and we may need to prioritise other areas and return to this, assuming that the faults identified are not critical in the near term?

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I’d say this is true, except that this isn’t the first post calling for these types of changes. People have been calling for modifications to the reward scheme since before Shelley was actually released, my own suggestion for a CIP being posted back in November. True there is competition, but the competition isn’t going away and it is only going to get harder. So when is a “good” time to allocate resources to the issue?

I’d argue that we have too may resources and not enough tools. The rewards function has come up so much because, up until recently, it’s one of the few things that the community can actually contribute to. Goguen still isn’t completely out and there’s no smart contract functionality, Catalyst just got started after multiple delays of Fund 2, Marlowe and Plutus aren’t ready yet, NFTs are just being made available. I’m not blaming IOG for this, they’ve got their hands full and are doing the best they can. I’m just saying that if the only thing the community has really seen is Shelley, then they’re going to focus on what’s in front of them. And why not? The reward scheme is a low hanging fruit that, technically speaking, isn’t that difficult to fix/change, it’s more of a matter of getting consensus amongst the community.

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That is actually pretty genius! It allows small pools to compete, incentivizes them to reinvest rewards into pledge, and forces pools such as BNP to pledge too.

Using 1% as the pledge to stake ratio, a pool with 10K pledged could hold 1M in delegation before it gets “saturated”, 100K would be enough to run a 10M pool, and so on. Absolutely brilliant.

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Totally agree that we urgently need to have a solution in place before BFT nodes no longer hold power. It is only natural for the community to be pushing for responsibility in approving any changes and requesting the research work that was completed for any changes prior to changes being made.

We are not a passive community, nor should we be in this transition process. Let’s keep pushing on this to get a CIP draft for this community layer approval or add to the draft of CIP-0009 detailing the change process to protocol parameters.

Process for Making Changes to Protocol Parameters

Governance

Changes will affect many stakeholders and must therefore be subject to open community debate and discussion.

Ultimately, the Voltaire protocol voting mechanism will be used to achieve fully automated, decentralised and transparent governance.
In the interim, the CIP process will be used.

Signalling Protocol Parameter Changes

Changes to the parameters need to be signalled to the community well in advance, so that they can take appropriate action. For the most significant parameters, a minimum of 4-6 weeks elapsed time between announcement and enactment is appropriate. This period must be included in the CIP. Announcements will be made as soon
as practical after the conclusion of the vote.

Applying Protocol Parameter Changes

Protocol parameter changes must be submitted and endorsed within the first 24 hours of the epoch before they are required to come into effect.
For example, a change that is intended for epoch 300 must be submitted and endorsed in the first 24 hours of epoch 299.
Once a change has been submitted and endorsed by a sufficient quorum of keyholders (currently 5 of the 7 genesis keys), it cannot be revoked.

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Good points IMHO. I think that the fixed cost in particular needs to be paid attention to. The ratio to smaller stake pool rewards vs more saturated pools is very harmful to small pool operations’ rewards by comparison (i.e. much higher % chunk) and there is nothing we can do to change it.

There is no means to gain any competitive edge and so you end up with another race to the bottom with margin approaching 0% to get a boost in Daedalus. Margin is widely known among SPOs to have much less impact on delegate rewards, but is not perceived this way by the wider community because of Daedalus ranking.

Fixed cost also does not scale with the amount of stake / capital “invested” into a pool and therefore fiat. Margin does.

This parameter has been making decentralization difficult for a long time and I hope that it is lowered soon so that margin can actually function as the competitive parameter, along with whatever changes are made to a0 if any.