I am writing this post because of a few discussions I have had with prospective new applicants about the risk-reward ratio of obtaining and registering 20k CELO and the constant rewards of 75k cUSD which has been reported to be less than that annually.
Wanted to start a discussion on how the validator community feels about getting rewarded in cUSD vs getting rewarded directly in CELO.
Obviously having a reward be in CELO means that validators benefit from the upside of the CELO price, but obviously there’s a risk if the CELO price downtrends which might mean less validators might participate.
Alternatively, if the price of CELO keeps increasing, then 20k CELO becomes an impossible barrier to entry for the return given in cUSD, especially when there are alternative modes of earning yields on your CELO. Tarun Chitra wrote a great paper on this phenomenon of staking vs. DeFi yield tradeoffs and security risk in this paper here.
Personally, I don’t think adjusting rewards via governance proposal is a good approach because it feels we are just adjusting to market behavior which is never constant. I see two potential approaches:
Register your validator in a fixed cUSD amount and get rewarded the 75k cUSD.
Register your validator in 20k CELO and get rewarded for validating in CELO.
I want to ask folks here who are validators on their thoughts here on this topic, and especially interested in hearing from Foundation Voting Recipient cohorts as well.
Hi Yaz, I wasn’t aware of a link between validator / validator group stake requirements and validator rewards. Perhaps I misunderstood, but you seem to be suggesting a link between the (currently) 20K CELO validator requirement and possible future validator reward schemes. Please let me know if there’s a discussion or set of docs I can refer to.
One concern with this proposal is that you’ll end up with different rules for the two groups. The amounts at stake, the opportunity cost, are different. And of course the rewards would be different as well. So the incentives could be very different, which means trying to incentivize uniform behavior with non-uniform incentives. This could all be academic and not have a meaningful impact, but I think it’s something to keep in mind.
I may be in favor of being rewarded in CELO. How would we select an appropriate reward amount in CELO? And how would we select an appropriate cUSD stake amount?
I believe the original motivation for $75k cUSD rewards was to ensure infrastructure costs are comfortably covered plus additional earnings to cover operational labor. It makes sense to continue paying rewards in cUSD to ensure stability of the network in the presence of price swings.
Most validator groups are self-staking CELO significantly higher than the minimum requirement in order to get elected so the 20k threshold does not feel like the relevant barrier to entry. This might start to become relevant if the validator set is increased. If the 20k requirement gets too high then that sounds like an argument for lowering the requirement, not switching it to cUSD.
There’s a broader question about whether it’s financially appealing to lock up a large amount of staked CELO to operate a validator and receive rewards. Probably most validators are in the game because they care about the ecosystem, not to maximize return on their CELO. If this becomes a problem however then the solution may be to continue with the cUSD rewards (to ensure infrastructure costs are covered) and add an additional CELO reward.
The original idea is how James describes, for covering operational labor and infrastructure costs. Receiving in either CELO or cUSD, an operator will need to swap either to cover one of the above costs.
How to define what is a right fixed cUSD amount to register ? Also, if this fixed amount becomes much less (or more) than 20k CELO, how will the epoch elections look like? Or will dollar value be used to compare?. Assuming once registered there is no way to re-register from CELO to cUSD. Don’t think it’s a good idea to have different groups with different rules.
There is a risk in obtaining 20k CELO for new applicants, but same is true for getting rewards in CELO.
I like the stable cUSD rewards but wouldn’t mind to receive CELO rewards instead. Difficulty wil be to determine an appropriate reward in CELO I guess.
I agree with what was said above and are also fine with the current status quo. Being a validator also on other networks and being subject to wild swings of the rewards assets, I appreciate the approach of Celo to paying out validator rewards in a stable asset, so in times of prolonged down-swings, I can be certain to have at least one stable income to cover costs.
It could be considered to moderately lower the barrier to entry to, for instance, only 8k Celo deposit requirements, but this wouldn’t guarantee a seat in the validator set as was stated by others.
