This post aims to discuss the pros and cons of the current DAO Wallet delegation to validators. It utilizes the funds in the DAO wallet to indiscriminately delegate to validators according to their self-bond amount, and does not take into account validator reliability or contributions to the Onomy Ecosystem. Additionally, it is important to note that only validators receive additional rewards from the automatic DAO delegation, and not community members at large. Discontinuing the reward is in the best interest of the community as a whole. Additionally, validators rewards coming from DAO delegation are unlocked which potentially contributes to sell pressure. However, it is important to discuss the pros of the DAO delegation as it stands, and hear community voices on the topic before an on-chain proposal is made.
Pros of DAO Delegation Staking Rewards:
Uptime: By providing higher rewards, the DAO delegation increases the amount of rewards that would be missed out if the validator machine was down.
Cons of DAO Delegation Staking Rewards:
Centralization Risk: High rewards may lead to centralization as only validators accumulate more tokens from DAO delegation, potentially undermining network security and decentralization.
Short-Term Focus: Validators may be more focused on maximizing short-term gains rather than long-term network health and development. Because rewards are unlocked and potentially excessive some validators have been selling their rewards on retail exchanges contributing substantially to overall sell pressure.
Deters new entrants: High validator staking rewards arguably supports the existing validators and deters new entrants, effectively diminishing an important and crucial aspect of early stage growth of Onomy’s ecosystem of users and the Nomad Nation at large.
Rationale for Discontinuing DAO Delegation Staking Rewards:
Encourage Long-Term Commitment: Validators will earn delegation based on their overall support of the Onomy Ecosystem, rather than obtaining significant delegation solely for being a validator. This will drive responsible decision making for the benefit of Onomy’s Ecosystem.
Reduced Sell Pressure: On-chain evidence shows various validators regularly sending their rewards from DAO Delegation to exchanges.
Validator Accountability: Recent On-Chain governance proposal #6 reduced the penalty for going offline by 20x, effectively removing the deterrent to downtime. In the case of unreliable validators, they will still receive the DAO delegation. Delegations must instead be earned organically by reliable validators making contributions to Onomy’s Ecosystem.
While a DAO delegation can attract validators and boost network participation, it must be more purpose-driven to reward good-acting validators. By discontinuing indiscriminate DAO delegation staking rewards to validators, rewards will be more balanced creating a more sustainable, secure, and decentralized ecosystem that benefits all stakeholders. I request the Onomy community to consider the pros and cons of this proposal and voice your support or opposition to this proposal. Please voice your considerations for the overall long-term health of the Onomy Ecosystem.
After sufficient discussion amongst the community in this forum and on various social channels across Telegram, Discord, Twitter, etc., an on-chain proposal may be made for NOM holders to either ratify or reject.
I think being able to adapt and pivot to real world changes using liquid governance tools is a concept humanity has been toying with for millennia- One thing that interests me is how do individual community members vote on these OIPs ? I know that more tech savvy users can use the CLI interface etc., and there are instructions to facilitate that and cast a vote but it seems most are defaulting to the validators to vote on their behalf - which from a game theory perspective if this proves correct may see voting outcomes skewed to those the validators deem to be in their best interest and by proxy believe that is what is best for the community. Agree we have an issue with inflation and we need to act but the voting interface may need to be launched first or a work around solution provided to get any meaningful results although the discussions are great practice for when that time comes that we have a one click voting interface in the access super app ( maybe one of the other wallets has this functionality now?)
Arguably this will benefit those validators that are responsibly compounding their rewards. Meanwhile other validators have been selling their rewards, which are unlocked and are primarily coming from DAO delegation, on exchanges depressing prices.
Because there is no way to adjust DAO delegation there is no way to adjust due to reputation as with all other delegation done by users.
The plan is to roll out the Governance Front End for voting on proposals regarding OIP 5 & on. In other words OIP 5 & 6 will be voted on using the soon to be released Governance Front End addition to app.Onomy.io
Ok thanks - that’s great news ! Should also draw more nomads to the access super app as mobile functionality is added and convenience of the UI/UX makes voting a super easy process, which is one of the things I always admired about Onomy’s vision.
I look forward to voting in favour of both proposals either way as it is the best for the long term but we are a community and hopefully we can find solutions that balance all the variables in play
A big factor I have seen mentioned and pondered on is whether pendulum ( or other contributors) plan on executing proposed inflation controls ( OIP5/6) in tandem with key road map milestones being released ?
The key point here is some have theorized that these key roadmap releases may offset any excessive negative sentiment from market participants as a narrative would form around that, as the voting took place so to speak.
At the end of the day protocols have been through way worse and the good ones bounced back hard - but I guess it’s the potential difference between a soft landing and a hard one as these monetary policy switches are flipped ; )
I propose to conduct a pilot vote on this issue, which is not valid, in order to analyze the involvement of users in the voting and management process. I look at the number of comments on the forum and begin to doubt the active involvement of the community on this issue, which may negatively affect the voting results. But in this case, it is necessary to make a record of how many votes are confirmed by the wallet.
Passing thought if the dao delegations are removed from validators then how will this nom be staked ?
i guess the dao will move to set up a 100% commission validator for the dao specifically to stake to in the meantime so this stake can at least get rewards.
Have to agree like most protocols active liquid democracy defaults to proxy’s and in Onomy’s case the validators but as it’s a small set of the more professional teams in cosmos we may get a majority to vote to hurt their business model in the short term for the long term benefit of the protocol
There is no need for a validator to ensure inflation of DAO treasury. The current code is complex as it rebalances the DAO delegation before slashing occurs. This proposal would simplify code by applying an inflation to the DAO treasury outside of the staking functionality. Thereby keeping the treasury from being diluted by staking inflation.
The proposal is well-considered and aims to reward responsible validators with a long-term perspective and a demonstrated ability to secure delegation organically through contributions to Onomy.
For additional context and data supporting the proposal’s benefits to the community, consider the following: Out of approximately 3 million NOM acquired from the bonding curve, the average holding was 1,550 NOM, as calculated from Arc Bridge transfer amounts between Ethereum and Onomy wallet addresses.
In contrast, a specific validator withdrew 155,000 NOM from validator commissions, which is 100x the average public holding, just before Kucoin’s listing. On-chain data revealed this validator moving funds between multiple wallets before depositing into Kucoin and subsequently selling at the expense of new and existing community members. When the community noticed these on-chain transactions, the word spread, and many undelegated from this particular validator. However, the DAO delegation continues to allocate millions of NOM to them in the same manner as more responsible validators in the set, and they persist in withdrawing validator commissions.
Although the network is decentralized and actors have the freedom to act as they wish, it is not desirable to reward such behaviors. Furthermore, while it is expected that validators will eventually sell rewards to support their operations, the issue lies in excessively selling far more than necessary for operational support, and at a volume 100 times greater than the average holding, which negatively impacts the community. By discontinuing indiscriminate DAO delegation staking rewards, the proposal aims to foster a more sustainable and equitable ecosystem that benefits all community members.
In my view, steps should be taken to include community voting on the DAO delegations - with recurring votes every quarter or bi-annually in what could be named “The Great Redelegation Event” in which validators may compete for DAO delegation. Interesting to think about - I’d support that proposal if any builder wants to take that on. Don’t want to deter too much here, so I’ll leave it at that! I’ll be voting yes on this proposal by Charleston - it is a great first step.
The current on-chain governance proposal ongoing now for OIP-6, which can be viewed on Mintscan here, proposes to reduce MaxValCommission to .005. This in turn forces validators to compromise rewards, which helps to secure the network and keep good acting validators, for delegation. After ongoing discussion amongst validators in social channels such as Discord, it has been determined that a more fair implementation that accomplishes the goals of OIP6 is through a software upgrade rather than a parameter change.
As such, validators may be switching votes to NO on the current vote, while collectively working together with community input on a software upgrade that achieves the same goals established in this OIP-6 in a more fair manner. The new proposal with the software upgrade could be anticipated in 2 weeks.
In the meantime, community has voiced their support for OIP-5 as it seems to be most pertinent to many in community chats. OIP-5 went live on testnet and is being observed to ensure no chain halt occurs. After operating without flaw on testnet, validators may propose OIP-5 on mainnet for community voting. OIP-6 will be re-proposed thereafter through a software upgrade proposal rather than a parameter change.