FLIP-GOV-1: Maintain Staking Rewards

Governance FLIPs
1
Key Value
Status Draft
Flip GOV-1
Editor @pgpg
Author Kristin Smith (kristin@flowfoundation.com)
FLIP Document https://github.com/onflow/flips/blob/main/governance/20220629-staking-rewards.md

Abstract

This proposal states that the current staking reward of 5% remain unchanged. A future proposal can be used to modify the staking reward rate at any time in the future.

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I am against this.

There is an ongoing research about this subject:

But as you can see it didnā€™t move an inch in 25 days, if we agree on this proposal, then it will not move 25 months.

Also tbh this is the first time I am hearing about some ā€œKristin Smithā€ maybe they can take some time to come to forum and introduce themselves.

In the mean time they can maybe inform us what flow foundation is doing etc? Tbh for my taste they are too quiet.

FLIP-GOV-1 should be Foundation Transparency in my opinion.

PS http://www.flowfoundation.com/ didnā€™t lead to anywhere.

PS2: ā€œStaking Rewards are how the network pays trusted node operators for security. Given the current downturn in the economy it is not desirable to reduce the rewards rate. As such the rewards rate of 5% should remain in effect.ā€

I donā€™t know who wrote this sentence and as much as I love to use Hanlonā€™s razor when it comes to stuff like this, you really left me out of options here.

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Also as a second point, staking rewards are not only for security of the network.

More staking rewards leads to less dapp usage and less Flow Token usage. ( which is currently super low ) and more credit card usage ( like Dapper Wallet etc.)

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Maintaining a 5% staking rewards ratio has to come at the same time with a proposal/implementation for additional use cases for Flow utility. Otherwise the generated inflation will just make the Flow token situation worse, and therefore will not attract additional developers to the ecosystem.

As Layne said during the last Office hours, we just have at this point a Flow tokenomics MVP, and it is really the time to revisit this piece.

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Iā€™m new here so apologies if my questions have been answered elsewhere.

  1. What is the strategic priority at this point: operating margin for node operators or inflation rate of $FLOW? Which is a bigger risk, both short term and long term?
  2. What is the current cost to maintain a node? At 5% reward rate, what is the margin node operators are making? What is the target margin, and how competitive is it vs. other chains? What about the return relative to the required stake?
  3. Does the reward margin need to be competitive to attract new operators (when will that be opened up?), or just enough to retain existing operators, or are existing actors going to maintain their nodes even at a deficit (ex: if they are vested in the success of Flow blockchain beyond their node operation rewards, or if they are not concerned with short term USD/FLOW prices because they plan to HODL the $FLOW anyway)?
  4. What are we hearing from node operators, are they raising concerns?
  5. What is the target inflation rate for $FLOW? Is the desire to make it 0 or even deflationary at some point, and if so, whatā€™s the target timeframe for that? Will that be strictly achieved with higher demand for $FLOW or do we expect to reduce the reward rate (now or in the future) to reduce minting new supply? If we decide not to change the reward rate now, what would need to be different in the future to justify changing it?

I see @bluesign linked to some related threads but as they point out those threads donā€™t have clear conclusions yet.

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Hi,

From the perspective of an ordinary Flow token holder:

Hard to form a well-informed opinion on this proposal in its current state.

The questions raised by @C-3PFLO are a very good starting point, I hope they will be answered in sufficient depth and included in the proposal to make the case clearer.

My personal opinion: Iā€™d rather see less inflation.

And if it is essential to keep the 5% now, there should be a clear plan how to reduce it and when.
After all, this is also a question of credibility.

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@C-3PFLO I donā€™t have the answers to all your questions, but what I can say is that the answers to questions 1 to 4 are all related to a same topic which the Flow team donā€™t like to discuss about publicly, which is the Flow token price (node operators are rewarded with Flow tokens hence their margin)

At some point this need to be included in the overall approachā€¦ a weak Flow token pricing is making the situation more challenging for node operators. The inflation rewards and even broader, the Flow tokenomics need to be built having in mind a sustainable/ healty Flow token pricing

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Seems fair to discuss token price assumptions, since that is the central argument of the proposal :slight_smile:

Either way, if the value of the token is the problem, keeping a higher inflation rate wonā€™t solve it.

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Exactly @RockIng

If thereā€™s a policy that certain entities or community members canā€™t comment on the price of $FLOW for ethical or legal reasons (is that confirmed?), so be it. But then who is going to lead this discussion (and discussions like this), where the price of $FLOW is central (since node operation costs are priced in $USD)?

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5% is reward rate, approx 70% is staking. So effectively, if you are staking, you are earning about 2.14% against inflation.

Node operator earns 8% of the delegated reward. So effectively, running node instead of delegating to some other node brings about 8% of 2.14% ~= 0.17% ( this is in one year )

Letā€™s take some example node: ( from flow suggestion )

Verification 2 cores 16 GB 200 GB n2-highmem-2
( linux 1 year committed cost: 0.08253 USD hourly ) https://gcpinstances.doit-intl.com
VM Cost: 723 USD yearly ( not sure about network costs )

Stake Requirement: 135,000 FLOW

Effective income from 135,000 FLOW = 230 FLOW ~ 368 USD

Profit: 355 USD Loss

Problems I see:

  • Reward rate is too high. ( 5% is really high reward for not doing anything, effectively not using / spending money on dapps )
  • Staking percentage 70% is too high ( which is killing economy, every dapp is selling with USD, not using FLOW, which is later killing demand and price )
  • Delegation is too easy way to make money. ( you earn 92% of the node operator, without doing nothing )
  • Node Staking Costs are too high.
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Thanks @bluesign for the example, interesting.

Who from the Flow team is leading this discussion?

The FLIP proposal doesnā€™t seem viable.
Clearly needs more context, probably changes.

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Who from the Flow team is leading this discussion?
@pgpg I assume as he is the one pushing for the FLIP proposal

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Hey all!

I have a ton of thoughts on this topic and Iā€™m working on a longer post laying out the various topic areas that I think warrant discussion.

However, relating just to this proposal to not change rewards rates. To me, this proposal means that we arenā€™t going to change the reward rate today because we donā€™t yet have a well-reasoned proposal for how to change it given all of the inputs to the tokenomics framework.

Now isnā€™t a great time to just willy-nilly decrease this value from 5% to 3% just because the original documentation from 18 months ago stated that as an idea.

Iā€™ll try to follow up in the next 2-3 days with a longer post that highlights various discussions that need to happen in order to put together a proposal for a larger plan.

p.s.

I apologize for my slowness with posting here ā€“ this isnā€™t malicious Iā€™m just a bit behind on writing!

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@pgpg The discussion here is popping-up because the decrease of the Flow rewards is not just coming out from the fact that the original documentation from 18 months ago stated that as an idea, but because there is no sustainable reason to keep the rewards at this level and increasing Flow inflation without having enough utility to spend the Flow token in the ecosystem. The integration of Flow in the Dapper wallet in the coming days might change the picture, but for now whatā€™s the point for keeping an inflation rate @ 5% ?

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I agree with @pgpg here, keeping 5% or 3% or 0% doesnā€™t make sense now, I think if we kickstart the process, and work towards a sustainable result, it would be the best solution.

@Redallica I agree, there is no point of that now, but also no point to change it and vote 2 times on same thing in short time, if we focus on this, sustainable solution can come really fast.

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Well just spotted this one this week-end:

Dapper Labs is actively recruiting a Senior Product Manager for Flow Tokenomics. At least this shows that the matter is taken seriously by the Dapper team.

Seeing this, I understand why there is no rush to change the rewards ratio now.
Looking forward to that, and I would be keen to kick-off the discussion by now with the community and not wait till the new person is onboarded. This might take months and not happen before the end of the year

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@Redallica recruiting a pilot after the plane has been taking off two years and crashed

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Ok, this is good, feels like the team is taking the feedback seriously and trying to catch up.

Looking forward to @pgpg ā€˜s thoughts, should be a good starting point for further community input and the work of the tokenomics strategist to-be.

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Submitted a PR for a method of automatically choosing node operators to fill available slots. This is one of the pieces that needs to be considered as part of this whole tokenomics discussion.

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Glad you feel that way :slight_smile: Iā€™m looking forward to your feedback on these things Iā€™m publishing this week!