Abstract:
Marinade proposes to adjust the Protected Staking Rewards (PSR) coverage mechanism to redistribute the responsibility for downtime losses between Marinade and validators more equitably. Under the current system, Marinade covers rewards lost below 80% of uptime, while validators cover losses between 80% and 99% of uptime. We propose modifying this arrangement so that Marinade covers the rewards lost corresponding to the lower 50% of uptime, and validators cover 100% of the rewards lost corresponding to the upper 50% of uptime.
Background:
Protected Staking Rewards (PSR) is a mechanism designed to shield stakers from losses due to validator downtime. The current system operates as follows:
- Validator Uptime Between 80% and 99%: When a validator’s uptime is 80% or higher, Marinade does not cover any returns lost due to downtime. Validators are responsible for covering these losses up to 19% of downtime.
- Validator Uptime Below 80%: If a validator’s uptime falls below 80%, validators is responsible for covering losses of 19% of downtime and Marinade covers the rest of returns lost due to this downtime for the stakers.
This mechanism was established to protect stakers and to cover 99% of expected rewards while encouraging validators to maintain high uptime. However, recent developments have led to increased economic impact on Marinade, mainly due to:
- Increased Fluctuation of Validators: With the Stake Auction Marketplace, it is easier to get stake from Marinade. Validators can enter the auction after 3 epochs of good uptime. This means that validators do not have to prove a prolonged period of a good performance. OLD: More validators are entering and exiting the winning set in the Stake Auction Marketplace (SAM).
- Higher Delegation Amounts: Validators are receiving larger SOL delegations, currently capped at 2% (approx. 150k of SOL). Making it around $10k at current price of SOL in rewards to be distributed to stakers per epoch.
- Growing Number of Downtime Events: An uptick in validators experiencing downtime below the 80% threshold.
These factors have significantly increased the financial burden on Marinade, affecting its sustainability, even though it is usually only a handful of underperforming validators.
Proposed Changes:
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Adjust PSR Coverage Mechanism:
- Validator’s Responsibility: Validators will cover 100% of the rewards lost between 50% and 99% uptime.
- Marinade’s Coverage: Marinade will cover rewards lost between 0% and 50%.
- The 1% grace period for downtime will be kept as is.
Explanation with Examples:
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Scenario 1: Validator’s uptime is 90% during an epoch.
- Validator’s Responsibility: Validator covers the lost rewards corresponding to the upper 50% of uptime, which, in this case, is 9%.
- Marinade’s Coverage: None, since the validator’s uptime is above 50%.
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Scenario 2: Validator’s uptime is 40% during an epoch.
- Validator’s Responsibility: Validator covers the lost rewards corresponding to the upper 50% of uptime (from 50% to 99% uptime), which is 49% of the total amount of expected rewards in the epoch.
- Marinade’s Coverage: Marinade covers the lost rewards corresponding to the lower 50% of uptime, which is 10% of the total amount of expected rewards in the epoch.
Rationale:
- Equitable Distribution: This adjustment ensures a fairer distribution of responsibility for downtime losses between Marinade and validators.
- Incentivizing High Uptime: By making validators fully responsible for downtime in the upper 50% of uptime, there is a stronger incentive for them to maintain high operational performance.
- Financial Sustainability: Reduces the financial strain on Marinade’s treasury, allowing for better resource allocation towards network improvements and community initiatives. For instance, Marinade had to pay more than 50 SOL in the last 10 epochs.
- Stakeholder Alignment: Aligns the interests of validators and Marinade, promoting a collaborative effort to enhance network reliability.
Impact Analysis:
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For Validators:
- Increased Accountability: Validators are now fully responsible for covering lost rewards when their uptime is between 50% and 99%.
- Operational Improvements: Encourages investment in infrastructure and practices that enhance uptime and reliability.
- Financial Considerations: Validators need to manage the potential costs associated with higher downtime.
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For Marinade:
- Financial Relief: Decreases the amount Marinade needs to cover for downtime losses, improving economic stability.
- Resource Optimization: Enables reallocation of resources towards development, security, and user experience enhancements.
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For Stakers:
- Continued Protection: Stakers remain protected from losses due to significant validator downtime.
Conclusion:
Adjusting the PSR coverage mechanism to this new model balances the responsibility between Marinade and validators, promoting a more sustainable and efficient ecosystem. Validators are incentivized to maintain higher uptime to avoid financial penalties, while stakers continue to receive protection against substantial downtime.
We believe this change will enhance the overall health and reliability of the Marinade network by promoting validator accountability and ensuring Marinade’s financial sustainability. We welcome feedback and discussions from all stakeholders to refine and implement this proposal effectively.
Call to Action:
We encourage all community members, validators, and stakers to review this proposal thoroughly and share their insights. Your feedback is invaluable in shaping a resilient and prosperous Marinade ecosystem.