Changing the Node Operator Commission Rate System

Governance
21

Thanks @Kennyc.eth!

Increasing the deposit pool size has the same effect as increasing node commission. It makes rETH less competitive. That said, we will be able to increase the pool size as we get larger because it will have a lessened effect.

The idea behind the supply/demand was to give the market a way to react but what we are seeing is that it doesn’t work like that in practice. It happens on a much smaller time scale - so it just ends up being a gaming vector rather than a supply/demand mechanism. Like with many economic theories it needs to be tested in the wild to know for sure.

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22

We know that 5% minipools are pretty downcast about this and we are sorry about that but minipool commissions are locked by design.

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23

Yeh think i’m overlooking the commission lock in. You guys have more expertise than me so take my opinion with grain of salt soz. (still interesting to consider lending and fiat hyperfinlation stress test on system). I’ve loved and have confidence in lots of the decisions you’ve guys have taken over the years using a long term outlook. Not paying for token listing worked out to be great call.

24

I agree with the proposal to set a fixed commission rate - nice and simple and easy to understand.

Having said that, it doesn’t seem fair to punish NOs who have minipools currently running at <15% (not my case). I understand that the protocol doesn’t allow for the commission to be changed for existing pools, but couldn’t RP make a small gesture to appease these early adopters? Some ideas: a commitment to cover gas costs involved in exiting and re-launching once this is possible, or perhaps a one-off “airdrop” of RPL to the affected parties (not sure how this would be calculated though).

Not sure if this has been discussed, but would it make sense to schedule a regular review of the commission rate, say in sync with the rewards day (28 day cycle)? This would leave some flexibility to adjust the rate according to market conditions. The current rate would be posted on the main NO page, along with the other stats.

3 Likes
25

I’m all for a flat 15% commission, but it might be a good idea to maintain a minimum DP threshold for 5% commission rate (500 ETH, for example). This would help provide a liquidity as cushion for sell-off events, avoiding big swings in rETH price on the secondary markets. The disadvantage would be that we would need to keep the rETH lock to discourage NOs manipulating the commission. Another option would be to have a minimum DP reserved as liquidity (no new minipools can be created when DP < 500 ETH), this sidesteps the need for a rETH lock.

2 Likes
26

I think this is a smart strategy. I launched my second node by some additional risk that I was not initially planning to take on (ETH loan against my fiat collateral that I’m going to buy back in on over time).

As such, when I saw rates spike and gas was ridiculously low, I seized the opportunity and got in at a higher commission rate to balance out my 9.96% I got on my first node.

I suspect some others that were at low minipool counts, but were waiting on some reason or another decided to seize opportunity. Others were also likely gaming.

Fixed rate really just makes a solid constant inflow of node operators as the advantage of RPL APY + ETH APY + commission puts it several hundred basis points above solo staking, especially if you get your minipool and node count higher.

Knowing the plan will be to bring in line with 10% over a long period of time also helps to ease into rewards to be able to forecast revenues and understanding when to stop adding minipools from HW limits and risk of being on a single system with a growing business/passive income revenue streams.

Long-term, it might be nice to create some ways that these things could be tuned over time to optimize the pool rewards and NO rewards. Not sure how that would be envisioned, but possibly have a function within the contract that would handle a set of variables that can be voted on to be changed as inputs that would adjust the rewards based on needs of RPL token holders.

2 Likes
27

I want to build off of your idea on the one-off airdrop. Here’s an idea…since the early adopters that missed the initial 20% staking fee before it plummeted to 5% for weeks could have the differential in their APR % on commission adjusted on a 28-day cycle basis through a regular drop to balance out their rewards up to the desired 10% eventual target or to the proposed 15% rate (and included eventual decline, which would result in a declining APR in the additional RPL rewards).

I’m not sure if the Oracle NOs would like that much, but the staking NOs under the 10% mark and under the 15% mark would probably take that as a fair compromise.

Also, instead of being a wallet drop, it could be just a deposit against the node’s stake, which would have a smaller effect on RPL supply over time as the RPL would be locked (under 150%) and the excess could be retrieved and converted into ETH, fiat, BTC, whatever.

28

I would like to take an alternative view to the above.

Problem

Low influx of Node Operators/Validators

Current solution

Variable commission rate from 5-20%

Proposed solution

Lock commission rate to 15%

Reasoning behind solution

  1. Completely remove gaming of the commission rate
  2. Leave gas price as the only factor

Node Operators form the foundation of Rocket Pool. Currently, a shortage of NOs and validators is limiting the growth of RP.

The reasoning behind the proposed solution is firstly, to remove gaming of the commission rate. It is quite obvious that NOs tend to come in at 20%, and the flow slows down and stops after the rate drops below 20%. As Ken kindly pointed out in discord, NOs choose when to enter, and hence would logically only choose to enter at maximal returns.

This would mean the current situation translates to a fixed 20% commission system effectively as NOs wait out until the rate goes up to 20%. This solution would effectively be a change from fixed 20% commission to fixed 15% commission, and is strictly disincentivizing NO growth.

Secondly, when we consider gas as a factor, we are fortunate in the past week to have very low gas fees in Ethereum. Coupled with significant time at high commission rate (with much thanks to the efforts of jasperthefriendlyghost), it would be a perfect time for new NOs to enter. Despite this, the Deposit Pool stayed full for significant periods of time. Low gas at 20% is insufficient to draw in many NOs, and it is doubtful that low gas at 15% would do better.

Ken has additionally pointed out that the aim of the change is:

To provide some reasonable APY for rETH holders, remove the gaming of the curve and to allow NO to form minipool at low gas times without penalty a fixed commission is a reasonable solution.

My take is that the limitation for rETH holders is not the commission rate right now. I am inclined to think more DeFi integration and more space in the Deposit Pool would increase the number of rETH holders, but I would be happy to hear any evidence to the contrary.

Gaming of the curve is addressed above.

Allowing NOs to form minipools at low gas times without penalty has also been addressed recently with a low gas situation and high commission rates.

[object Object] has also pointed out that a fixed commission rate would be more attractive to whales who would then be able to launch pools at 15% commission for the entire 2k Eth Deposit Pool.

It is unclear that this is a significant factor for many whales. It seems reasonable to believe that they would want to launch pools at or near the maximum rate they can get. The commission rate has been at/near 20% recently, and remains stubbornly stuck there.

This issue is also remedied with new batch commands that Joe is kindly working on, that may be able to specify a minimum at which to launch a minipool. Also, if/when the Deposit Pool is increased in size, this problem would fade.

Conclusion

IMO, I believe this proposed solution is nett negative for onboarding new NOs or incentivizing creation of new minipools, which is a counterproductive for the growth of Rocket Pool. I would propose leaving the current variable rate in place for now, while we work on improving other aspects to attract new NOs (new NO staking page, outreaches, guides etc).

1 Like
29

Thank you @Shokus

I agree that we are trading off rETH APR for onboarding new NOs - unfortunately this is the balance that we have to maintain to ensure a healthy protocol.

We are working on ideas that could help us maintain a relatively high commission rate, while we are in this expansion stage, but we still need to reduce the commission rate over time.

30

I have a proposal idea to help with this, that would help keep us below the cap. It would essentially be a new feature/product within the ecosystem. However, it could be used as a mechanism to build and balance the pool. A self-balancing pool mechanism that launched (and allowed for users to supply some collateral/asset like RPL, ETH, or rETH possibly). When the pool starts to get into the red zone for too much ETH, a layer could be built to automatically spin up nodes with several different providers to maintain minimal dependency on a provider and help maintain decentralization. The entire reward pool could then be returned to rocket pool, minus the amount needed to pay for the infra.

If we minimize the infra scale-out, I believe it could be net positive for the pool as well as stabilize rates in the long-run. Essentially, ETH1 and ETH2 client could be scaled back from 1:1 to something like 3:1 (just an example. math would come if we liked a more formal proposal) validators to ETH1 + ETH2 stack and storage, thereby minimizing storage and compute costs. We could probably drive that lower spare liquidity and scale out faster.

Also, we could target flattening out the commission rate using that scaling method. Once the merge happens and we get withdrawals, we may be scaled high enough that we could spin down that infra or spin it off into a separate business, which would allow direct interface for whales to potentially get indirect exposure to node operation.

31

So is this definitely happening on the March 23rd?
I am still waiting for my NUC to arrive :frowning:

I propose EOM haha :wink: :joy:

1 Like
32

Going forward, I’m of the opinion that protocol changes like this should require an actual pDAO governance vote. There seems to be broad support across the community for the change, so it’s probably not worth delaying, but we should consider this an exception to the rule.

2 Likes
33

I have to respectfully disagree with this propossal, if NO are the bottle neck the solution cant be lowering their potential for profit.

We need to find a way to encourage new minipool creations rather than fixing the CR that where imo a really smart approach that should auto regulate, and is working as intended.

It is also unfair to NO that have trusted the process and had lower commision rates.

i suspect that if commision where higher… then a lot of people would be considering beeing a node operator, so imo what is missing is a potential for higher commision rates, not a fixed one…

Node operators cant colude…