During the discussions on Livepeer 2.0 there have been many great ideas floated to address challenges that the protocol will face. Some are slight variations on the 2.0 concepts, and some are a larger departure to attempt solving the same issues with different approaches. Let’s take a serious look at a cohesive proposal inspired largely by @j0sh arguments around incentivizing work, the active role of delegation, and minimizing validator stagnation.
The MFS Proposal
Let’s highlight this proposal, with special attention to what changes and what stays the same from the initial 2.0 candidates:
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Uncapped node operator set size (same), but with no minimum or fixed bond. Node operators can still post as much stake as they’d like, and attract delegated stake.
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Still use the BME, though parameterize how many fees go to BME vs how many go direct to node operators. This incentivizes node operators to always continue to compete for more work, since they can always earn more fees.
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When it comes to claiming rewards from LPT emissions a node is only eligible for rewards % = min(fee %, stake %). This means that a node A that earns 10% of the fees, but only has 2% of the stake, can only claim 2% of rewards. Similarly, a node B with 10% stake but only 2% fee earning, can only claim 2% of rewards. Node C, who has 3% stake and 3% fees could claim all 3% rewards. This would incentivize A to get more stake by buying it, or attracting delegators. Delegators would move away from B since they are under-earning on rewards relative to what they would earn by moving to A. The equilibrium is that stake will chase fees in exact proportion, creating an active and engaged delegator role. Passive delegators may miss out on significant returns relative to active ones.
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Self dealing fees is unfortunately incentivized amongst high-stake nodes, but not new nodes with low stake. You still need validation to prevent this - the more stake they have at risk, the higher the cost of self dealing because the more of their capital would get locked up when validators set their rewards to zero. It’s worth recognizing that the worst case self dealing scenario is better than the current state of the network rewards - if everyone self-dealed fees up to the % of their stake, they would just receive rewards by stake, like they do today - except it would cost them money to do so, that would be used to buy + burn LPT to reduce the supply.
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Validation votes are handled by the top N nodes by stake, instead of introducing a separate role. This maintains a high cost of attack on the validator set. It is also a self-check on the top earning and performing nodes on the network. It’s an infrequent but important responsibility, like governance. Validation incentives do not need to be significant as these nodes are already earning the majority of the LPT rewards. Infra for providing validators with data and info can be funded via treasury as a public good. There is a downside though where these nodes could work together to entrench themselves as reward owners and prevent new entrants. Delegators can take this into account prioritizing fee chasing vs honest validation for network security.
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Therefore delegation secures the cost of attack on the validator set takeover, and secures honest node operation, as a longer unbonding period applies to nodes and their delegators - again prioritizing diligence and honest operations.
As far as implementing this protocol and transitioning to it:
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We’d have to implement the BME, validator vote accounting as an input to rewards, and update the rewards distribution logic.
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But we could retain the same staking, reward cut, fee cut, governance, mechanics without major protocol state migration or new delegator activity required.
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Micropayments impacts would need to be considered.
Questions
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Should there be a minimum skin-in-the-game required for node operators themselves to post a certain % or value, so that they can’t just penalize delegator capital when harming the network? I think agents as users can use the self-stake as a signal, and not prioritize low-stake nodes if they don’t feel there’s enough security and too much risk.
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Are rewards paid out liquid or in bonded state? Bonded would maintain continuity with the current protocol. Though switching to liquid (after a validation-delay period to retroactively block cheaters) would be reasonable considering the 90 day lockup. Unfortunately, unless you have a high node operator self-bond requirement, the long lockup would need to apply to both self-stake and delegated-stake. Perhaps 90 days is extreme, and there’s some lesser value as a compromise.
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There is still a griefing attack possible - under a low fee environment, you could self-deal massive fees in order to prevent rewards from flowing to other nodes. Your rewards may get zero’d out, but very little LPT would be distributed to other nodes and their delegators, ruining their incentives. Is it worth a few thousand dollars a day to do this? Maybe if an attacker shorted LPT it would be, as people would flee the network if their rewards were griefed consistently. Defenses against this include capping the fee % contribution to the broader pool by the stake % of the node, or looking at rolling historical fees rather than single round fees, and expecting validator action.
There is lots more research and analysis to do on the nuances of this proposal, and rippling effects to the BME. But I wanted to get this out here as a starting reference point for public feedback. Thanks Josh for many of the ideas and discussions to help inform this.