Decentralization is a founding principle of crypto and one of the guiding values behind pSTAKE. stkToken liquid staking solutions are built to bring a net positive to the ecosystem and its community. The basic idea behind stkATOM is to drive wide-scale adoption and increase ATOM use cases, but at the same time, help ensure sufficient decentralization and continual strengthening of the larger Cosmos ecosystem.
The basic idea behind stkATOM is to drive wide-scale adoption and increase use cases for pSTAKE’s ATOM liquid staking solution. At the same time, it helps to ensure sufficient decentralization and continual strengthening of the larger Cosmos ecosystem.
Currently, 62 validators (the biggest validator set for ATOM liquid staking) receive delegations through a community-driven approach to select validators based on criteria such as commission, governance participation, uptime, etc., powered by PSTAKE governance. Read more about it here. The selection process of validators was kept simple at launch to keep delegations simple at launch with a view of progressive decentralization.
This forum discussion proposes an updated automated validator delegation and rebalancing strategy for stkATOM to decentralize the Cosmos Hub.
Validators assume a crucial role in PoS-based blockchain networks. There are many barriers currently that prevent small retail holders from becoming validators. Moreover, a validator has to play an active role and cannot afford to remain a passive entity. Validators must take responsibility for many aspects, including proposing and validating blocks, casting votes, coordinating committees, and managing stakes. For their continual and active participation, validators are rewarded adequately.
However, average users who represent a majority of the network can participate by delegating their stake. A fundamental question then arises: how do you select a validator?
Should a user choose a validator with the lowest commission fees, a validator with a large user base or large existing delegations, or one with a famous or familiar history? A decision based on the abovementioned requirements will concentrate power and authority in the hands of a few older validators and reduce decentralization in the network. With this in mind, pSTAKE is guided (but not limited to) by some basic principles outlined below.
As a liquid staking provider, pSTAKE should not be a validator gatekeeper and should deselect bad actors/validators rather than trying to select the right validators.
The current methods for selecting validators include the following:
- Governance-driven criteria (pSTAKE)
- Council-driven criteria (Stride)
- Signal intent (Quicksilver)
The governance-driven approach adopted by pSTAKE allows for the onboarding/removal of validators through proposals made by users/validators, who can then add/remove a validator from a network. The overall delegation process should be easy and convenient. It needs to be simple and automated to ensure scalability in the long term.
The original approach always intended to develop a mechanism in the long term to score validators’ performance based on parameters like uptime, latency, data center decentralization, commission rate, and existing delegation. An automated validator delegation and rebalancing strategy based on a scoring mechanism will help complement the overall and long-term objective of creating a scalable approach to validator selection and rebalancing across all Cosmos chains enabled on pSTAKE.
pSTAKE’s new delegation strategy uses a weighted scoring mechanism with decentralization parameters to suggest the final validator set and automate rebalancing across the chain. It will lead to further decentralization of ATOM delegations and lead to the following benefits:
- Constant liquid staking alignment with the Cosmos Hub validator set
- Increase transparency through on-chain and data-driven automated validator delegation and rebalancing strategy
- Reduce protocol and users’ slashing risk
- Promote validator behavior that is aligned with Cosmos Hub
The proposed solution will comprise the following steps:
- Collect on-chain validator data, including all decentralization parameters, in a transparent manner
- Apply the pSTAKE Delegation Strategy filtering criteria to rule out specific validators like CEXs or high commission
- Apply the pSTAKE Delegation Strategy weighted formula to calculate individual weights for the shortlisted validators
- Delegate tokens (including new deposits) to all validators according to their target weights daily
- Rebalance delegations regularly to meet the target weights
The pSTAKE Delegation Strategy for Cosmos Hub will consider the following decentralization parameters to filter and calculate validator weights:
- Voting power: 0.05% to 5%
- Commission: 5% to 10%
- Average 90-day uptime: 95% to 100%
- Governance participation in the last 180 days: 60% to 100%
- Time in the active set in the last 180 days
- Slashing events in the last 180 days
After running scripts based on the above metrics, this is the validator list with the corresponding weights that the code suggests to decentralize the Cosmos Hub. Please note that the list (including new validators and individual weights) will vary on a daily basis.
pSTAKE’s new Automated Validator Delegation and Rebalancing Strategy for stkATOM will help to improve Cosmos Hub decentralization and maintain constant liquid staking alignment.
The delegation strategy’s active lookout on decentralization parameters will ensure that ATOM stake distribution does not reach validators acting against the network’s best interest. It will lead to more decentralization and help achieve delegation scalability without needing constant manual intervention.
Everyone is invited to share their feedback and thoughts on the proposed delegation strategy, specifically on:
- What do you think of the various validator delegation methods? Do you think the proposed pSTAKE method significantly improves delegation transparency?
- What is your take on the various decentralization parameters considered?
- Do you think pSTAKE’s delegation strategy can help decentralize ATOM liquid staking and the Cosmos Hub?
- What are some cons or drawbacks of the proposed strategy?
Upon in-depth discussion, a proposal will be put on the PSTAKE Snapshot for voting, and the new delegation strategy will be implemented via a Persistence One chain upgrade.