Implement minimum SSN commission fee

Summary:

There have been several discussions concerning Staked Seed Node (SSN) commissions and coordination among SSNs to agree on a minimum commission fee.

We want Zilliqa to thrive as a healthy and decentralized network, which involves setting up clear incentives and ensuring that SSN operations are sustainable for participants of all sizes. As such, we suggest enacting a minimum SSN commission fee of 4%.

This forum post intends to provide details on the minimum SSN commission fee proposal and serves as a rightful discussion place before the Snapshot proposal is posted.

Abstract:

According to the Zilliqa Improvement Proposal (ZIP), all proposals must be discussed for at least 3 days with a forum poll before they will be assigned a ZIP number by a ZIP editor and moved to Snapshot voting. As such, gZIL holders and Zilliqa community members are invited to discuss and contribute to this post, and vote on the poll.

If after at least three days there is a 25% “For” vote in the forum poll, this proposal may then move to formal voting via Snapshot. The Snapshot voting will follow the ZIP guidelines. The proposed change comes with two options, with criteria of 20% quorum and the majority of the vote to pass the proposal.

Options:

  1. In favour: Enact a minimum SSN commission fee of 4%
  2. Against: No change (status quo)

Motivation:

There are several motivations for implementing a minimum SSN commission fee:

  • Provide a minimum and reasonable earnings to SSNs so that they can cover the operational costs associated with running reliable infrastructure;
  • Invite SSNs to differentiate themselves through community involvement, product development and marketing, or other positive contributions instead of just relying on their commission fees;
  • Provide clear economic incentives for new SSNs to join the Zilliqa network;
  • Avoid “race to the bottom” situation;
  • Ensure Zilliqa thrives as a more sustainable, healthier and decentralized network.

Specification:

If the forum post gathers enough support, the proposal will then be implemented for voting via Snapshot.

If the final proposal passes, SSNs will be invited to respect the will of decentralized governance, and adjust their commission fee accordingly. If SSNs do not match the minimum commission fee requirement within a reasonable timeframe after the proposal is enacted, the Zilliqa blockchain will need to be updated so that all SSNs cannot set fees lower than 4%. In this case, necessary changes will be implemented by Zilliqa’s protocol team, and the network’s upgrade timeline will be announced after the implementation is completed.

Poll:

  1. In favour: Enact a minimum SSN commission fee of 4%
  2. Against: No change (status quo)

0 voters

8 Likes
  • Invite SSNs to differentiate themselves through community involvement, product development and marketing, or other positive contributions instead of just relying on their commission fees;
  • Provide clear economic incentives for new SSNs to join the Zilliqa network;

These are the key points for me to be in favour of enacting the minimum 4%. Yes it will reduce the staking rewards I’m earning, but long term we have to have way more SSNs in order for Zilliqa to be a lot more decentralised

7 Likes

Hope more and more humans come and vote on this

Don’t mind me, I’m just an alien :vulcan_salute:t2::alien:

3 Likes

With minimal 4%, even if stake nodes decide to give back the 4% to their stakers would increase innovation and creativity to spark interests. Node providers should enjoy the fruits of their labor too so I appreciate the movement.

5 Likes

Correct me if am wrong, most of SSN operators are above the minimum proposed comission (4%). There are only 3 below it. I dont see much impact of implementing this. Any thoughts?

3 Likes

Primitive centralized ideas such as price controls are not the answer. Maybe create an SSN controlled by gzil holders only. SSN rewards pooled and released to gzil stakers on a slower schedule or offer other rewards if instantly restake claimed SSN rewards instead of selling

6 Likes

Any SSN could already set the Comm. to >=4% if they wish.
None of the above makes sense if you try to explain why you indeed want to force these operators to take at least 4%. If they wanted, they already could? If they can do with less, its a benefit…

3 Likes

Correct me if I’m wrong, but the 4% commission actually means subtracting 4% from the 13.35% APR, so you’re left with 13.35% - 4% = 9.35% staking rewards. So the actual fee % for the SSN’s is 4 / 13.35 x 100 = 30% of the total staking rewards, which is very high in my opinion.
If the fee was actually 4% of 13.35% (i.e. 13.35 x 0.04 = 0.534% of the overall staking rewards), then I would have no problem with it.

2 Likes

To attract new SSN’s, why not lower the 10 million minimum ZIL entry requirement? Not everyone has $225,000 USD.

5 Likes

Good question. We should have clarified this in the initial post.

Staking commission fees are charged as an overall % of the rewards, not of the principal.

Taking your example, the fee would be 4% of 13.35% (i.e. 13.35 x 0.04 = 0.534%)

1 Like

Every Organisation needs revenue to survive and this change would support the builders who are looking to create/fund applications to drive growth in our ecosystem. It will also help attract new SSN’s to our Network.

2 Likes

Hi all, my name is Milan, and I am the co-founder of Ignite DAO. I’ve been working on Ignite DAO & Torch mostly in stealth mode. After more than a year of developing Torch we can’t wait to launch it for the Zilliqa ecosystem in the next few weeks:)

We from Ignite have been following the discussion on SSN fees, spoken to some other SSN node providers, and some Zilliqa Research team members. After considering multiple points of view we agree with the decision to even out the baseline commission for all SSNs. In essence, by allowing for a somewhat similar starting point for all SSNs forces each SSN to innovate and provide value to the community to differentiate itself. Yes, everybody wants to have more ZIL, but if the ZIL value does not go up because the development is heavily being slowed down, then what’s the point of having a few extra % a year right?

We think as more SSNs will join and as market dynamics change, decreasing commission creates unnecessarily price wars which will directly make development and innovation harder for the Zilliqa ecosystem and bankrupt some of the teams that are working on using the commission to build on the Zilliqa ecosystem. For the people that insist on competing on price, you can substitute by airdrops after you receive the commission. Then you can even build marketing campaigns around it that should attract more people inside and outside the ecosystem for your SSN. If there are more eyes on Zilliqa and there are more things built, then the price of $ZIL will heavily outperform the few % of commission you save a year.

Also, I have to be honest. The revenue from commission right now is very low. Even if we go towards 1 billion ZIL staked (150% growth) we at Ignite are still burning more money than we are making from the commission (developing dapps is expensive!). By creating price wars through low commissions we think will heavily slow down development on Zilliqa for us and other SSNs. By having a surplus we can keep expanding (e.g. building out an EVM wallet, dapps etc.) and create a win-win for everyone. Especially stakers will benefit from this from business models that could be built around staking itself.

If everybody has approximately the same starting point then people will start switching to SSNs based on how much value they provide to the Zilliqa ecosystem. We can see it happening in practice. The #1 SSN CEX.IO is currently holding the most ZIL (due to their low commission) but arguably besides providing lower commission what have they contributed for the Zilliqa ecosystem? Also, what if Binance decides to go to 0% or 1% because they want to traffic people towards their exchange and don’t care about the commission? And then others like KuCoin or Atomic have to react as well to compete with lower commissions and you get this downward spiral that won’t benefit anyone. Eventually people have to raise commissions to make money. But newer players or established players that have other services outside the ecosystem can use this to their advantage and the cycle keeps going. We hope people realize that the inflation from the protocol can be used to build out the ecosystem which directly should positively impact $ZIL through reinvesting in the ecosystem.

If your value proposition is only giving more ZIL to users and not innovating, it creates unnecessary price wars and kills competition and makes it hard to launch businesses on top of Zilliqa and therefore will decrease $ZIL’s value over time. Deflationary forces by providing new dapps should counter the inflationary forces. The few % commission you give away therefore can directly exponentially allow ZIL to grow in value over time. With the commission we received (and our own funding/investments) we were able to launch our smart wallet and other SSNs that are here for the long-term can use that to also build out products/services. This is why we think the proposal would be good for the ecosystem!

9 Likes

I support this proposal because we really need such SSN who use commission to build on Zilliqa & not other chains. We still have more than couple of SSN at top who spend 0 towards building on Zilliqa. So, therefore I would be voting in favor. However, I have 2 expectations from SSNs.

  1. They need to be more vocal to spread word about what they do with commission. Raising Min comm bar to 4% alone won’t help because when community see name of like - Binance, Kucoin, Huobi, Cex exchange in list. They are tend to stake with them than other SSN, who might be using commission to build on Zilliqa contrary to Binance, Kucoin, Huobi.

  2. I would really wish SSNs to be more transparent on how do they use Commission. So if they could provide their expense details to community then I believe community will be more inclined to stake with them. If they ever need more support.

2 Likes

The largest SSN with the most ZIL is below it (CEX.IO) and as far as I know has not contributed anything for the ecosystem in the last years. I’m fairly sure that those 1.2 billion will be redistributed to other SSNs that will provide value and force CEX.IO to innovate or to help ZIL grow, else they will lose their staked amount.

4 Likes

This fund of pooled ssn rewards could then operate like DAO with gzil holders utilizing votes to re-invest in Zilliqa projects of choice !

My main point is if structure broke Fix it. Not by implementing antiquated price control mechanisms but rather a model that rewards the behavior you seek

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Exactly. They did give back some rewards to community in form of airdrop or something similar but again, that is not contributing towards ecosystem & on-chain development.

1 Like

I thought the idea of SSN commissions were to cover the cost of providing the staking infrastructure and reward those SSN providers who contribute to the ecosystem (through delegation) but I don’t think any SSN provider should be entirely funding their projects in this way - setting a 4% base rate reduces competitiveness for stakers in order to maintain unsustainable business models.

I would actually argue that both staking rewards and SSN commissions should be reduced!

As per the whitepaper, Zilliqa was supposed to have transitioned towards reducing block rewards by now (which there is a strong argument for - see this post: Zilliqa Incentive Layer ), which would also reduce the staking rewards and therefore SSN commissions.

So I think projects should be focussing on more sustainable means to bootstrap their development rather than SSN revenues.

I would also suggest that out of miners, SSN providers and stakers, stakers are the least likely of the 3 to sell their portion of the block reward…

It makes sense Milan and I see your point. My question: is placing a minimum commission alone the answer? I mean you can do that and still have people staking with the lowest comission SSN like CEX. I believe its a two sided equation, SSN operators and stakers. There must be a way to incentivize zil holders to stake with nodes that are contributing and at the same time figure out a way to empower positively contributing nodes to keep building and innovating.

I am not an expert in the technicalities but I am thinking of something like offering stakers a special privilege of staking with said node like exclusive NFTs, special features on ur wallet (0% commision swap for example)…etc.

In essence, i dont think focusing on SSN operators alone will solve the problem. But I totally agree with ur point of view and the current issue at hand.

2 Likes

The problem is there is no incentive to build on Zilliqa if you can’t make money out of it for the time and effort you invest in it. Because it costs a lot of money and time (100k+ at least) if you want to build something useful (e.g. borrowing lending app) so the barrier of entry is high. Everybody wants more dapps and business on Zilliqa but who is going to actually take the time and money to do it? Where would this money come from? Either (1) you launch a token and hope the token makes sense to launch and get enough capital from users and then start building it for the next year or 2 (however there barely any ZILOs right now and we are in a bear market). (2) You fund it yourself like we did and hope the commission will increase to break even and be profitable to expand, or (3) you attract VC funding, but there are no VCs like with Solana/AVAX/NEAR investing a lot of money just in the Zilliqa ecosystem. The SSN commission is a the only good way to help bootstrap things because once you have a product and users it will be much easier to attract VCs. Creating price wars will slow down the ecosystem further and this will directly impact the ZIL price. At the end of the day, the ZIL commission doesnt matter that much if the ZIL price goes up right? If the ZIL price stay the same or goes down but you receive 2 x more from the commission then you’re still have an opportunity cost. Or if the ZIL price keeps going down then even your 13% yield or 50% yield won’t matter. What matters is development and expanding the protocol so the valuation increases.

4 Likes