Abstract
To address the ongoing issue of centralized voting power within the Terra Classic network, which currently has a Nakamoto index of 5, this proposal introduces a new rule to the staking module: a 2.5% voting power cap on validators. This cap prevents validators with more than 2.5% voting power from receiving new delegations or redelegations, encouraging a more equitable distribution of voting power, increasing the Nakamoto index to a target of 14, and fostering greater decentralization and validator equal profitability.
Background & Problem Statement
Terra Classic prides itself on being a fully decentralized blockchain, where governance decisions are made through community consensus. However, the current Nakamoto index of 5 indicates that just five validators could potentially veto proposals or exert significant control over the chain. While historical data suggests no malicious intent from the top validators, this low index undermines the chain’s decentralization ethos and introduces risks.
Additionally, the concentration of voting power among the top validators creates profitability challenges for smaller validators. Only the top 10 validators can consistently cover the operational costs of running a node, leading to reduced motivation for others to participate actively. This centralization fosters internal conflicts and discourages validators from championing Terra Classic’s growth.
Key issues include:
- Centralized Control: A Nakamoto index of 5 indicates that five validators can dominate governance, contradicting Terra Classic’s decentralization principles.
- Validator Profitability: Smaller validators struggle to remain profitable, reducing their incentive to maintain nodes or advocate for the network.
- Community Dynamics: Centralization fuels internal disputes, hindering collaborative efforts to build and promote Terra Classic.
Proposal & Example
This proposal introduces a simple yet effective rule to the staking module: Validators with more than 2.5% of the total voting power cannot receive new delegations or redelegations. This cap ensures that voting power is gradually redistributed to smaller validators, increasing the Nakamoto index and enhancing network fairness.
Example Scenario
- Validator A: Currently holds 3% voting power. Under the proposed rule, Validator A cannot receive new delegations or redelegations until their voting power falls below 2.5%.
- Validator B: Holds 2% voting power. This validator can continue to receive delegations, attracting new stakers and increasing their voting power up to the 2.5% cap.
- Outcome: Over time, validators with lower voting power gain more stake, reducing the dominance of top validators and increasing the Nakamoto index.
The goal is to raise the Nakamoto index from 5 to 14 within a reasonable timeframe, making Terra Classic more decentralized and resilient.
Mechanics of the Mechanism
The proposed rule will be implemented as follows:
- Voting Power Cap: Any validator exceeding 2.5% of the total voting power will be ineligible to receive new delegations or redelegations.
- Monitoring and Enforcement: The staking module will check each validator’s voting power at the end of each epoch. If a validator exceeds 2.5% ( prev. cap 20%), new delegations and redelegations will be blocked.
- Grace Period: Upon implementation, validators above 2.5% will retain their current stake but cannot receive additional delegations or redelegations until their voting power falls below the threshold .
- Governance Adjustments: The 2.5% cap can be adjusted via governance proposals to reflect network conditions, validator feedback, or decentralization goals.
This mechanism requires minimal changes to the staking module .
Advantages
- Enhanced Decentralization: By limiting the voting power of dominant validators, the proposal encourages a broader distribution of stake, increasing the Nakamoto index.
- Improved equal Validator Profitability: Smaller validators gain access to more delegations, improving their financial sustainability and motivation to participate.
- Network Security: A higher Nakamoto index reduces the risk of coordinated attacks or governance manipulation.
- Community Unity: Fairer stake distribution mitigates internal conflicts, fostering collaboration among validators and community members.
- Simplicity: The 2.5% cap is straightforward to implement and understand, minimizing technical complexity.
Future Adjustments
The 2.5% voting power cap can be fine-tuned through governance based on:
- The current Nakamoto index and decentralization metrics.
- Feedback from validators and delegators.
- Network growth and staking participation rates.
Regular evaluations will ensure the cap remains effective and aligned with Terra Classic’s goals.
Conclusion
The proposed 2.5% voting power cap addresses Terra Classic’s centralization challenges by redistributing voting power, increasing the Nakamoto index, and improving validator eqaul profitability. This mechanism aligns with the community’s decentralization ethos, enhances network security, and fosters a more collaborative ecosystem. By implementing this rule, Terra Classic can solidify its position as a truly decentralized blockchain.
Cast Your Vote Now
- Yes: Support the 2.5% voting power cap proposal.
- No: Oppose the proposal.
Note on Implementation
Implementing the voting power cap requires modifications to the staking module at the L1 level. While this entails development effort, the changes are relatively straightforward and can leverage existing governance and staking frameworks.
Author: Vegas