PIP-85: VEBloP PIP-65 Priority Fee Formula Adjustment

Polygon Improvement Proposals Canonical PIPs
5

I support PIP-85 as a fast first step. Getting stakers paid by end of April is the right priority.

From the perspective of the community proposals — the Priority Fee Sharing PIP and the Base Reward PIP:

Trust model

PIP-85: No direct on-chain changes. Polygon Labs and Regen Financial continue to calculate and distribute. The formula is open source and all token movements are on-chain — the system is auditable after the fact, but not enforced on-chain. This is a trusted setup with verifiability.

Community PIP: A collector contract on Polygon PoS accumulates fees and bridges them to Ethereum, where a distribution function feeds them into the existing ValidatorShare reward pools. The distribution function reads all inputs on-chain — stakes, commission rates, performance scores. No off-chain calculation. No trusted party. On-chain enforced.

Merkle claimer vs existing reward system

PIP-85: Staker distributions via Merkle claimers. An off-chain party calculates who receives what and publishes the root. PIP-85 does not specify who performs this calculation, what happens if it is wrong, or which chain the claimer is deployed on. If deployed on Ethereum — where staking data lives — every delegator pays extra gas on commission and fees claim. If deployed on PoS, staking data needs to be calculated off-chain, reintroducing a trusted party. And delegators who want to restake need to bridge back to Ethereum individually.

Community PIP: Adds one function to ValidatorShare — addPriorityFeeReward — that feeds into the same reward-per-share accumulator already handling checkpoint rewards. This is how POL staking rewards are currently calculated and distributed. It works. No new claim mechanism. All edge cases — rapid stake/unstake, short staking, token transfers — are already handled by the existing system. Delegators claim and restake in the same place. Zero additional gas cost. No seperate bridging needed.

Speed of deployment

PIP-85: No modifications to existing contracts. Requires building Merkle claimers from scratch, deploying them, and integrating into the staking UI.

Community PIP: Adds one function to ValidatorShare and deploys a collector contract. No integrator coordination needed — they already integrate with ValidatorShare.

Custodial model

PIP-85: Does not change the custodial model. POL accumulates in the multisig between monthly payouts. At current fee volumes that is millions of POL held by two parties between distributions.

Community PIP: The collector contract distributes when a threshold is reached — at current volumes, multiple times per day. Less POL held at any point. No accumulation between monthly payouts.

The 50/50 split

Delegators provide 99.66% of staked capital. Validators provide 0.34%. Delegated capital directly increases a validator’s fee allocation under PIP-65, which distributes fees weighted by total stake including delegation. The delegators providing that capital currently receive none of the resulting priority fees.

PIP-85: Both sides receive 50% of priority fees. This ratio is hardcoded in the formula. Changing it requires a new PIP.

Community PIP: The market determines the split through commission rates. If validators need more, they raise commission. If competition drives commission down, delegators receive more. The system adjusts without requiring a governance proposal every time conditions change.

Validator sustainability

Every Polygon PoS validator has identical infrastructure requirements regardless of delegated stake. PIP-65’s own analysis estimates the cost at $929/month. Yet the February 28 payout shows a 359× difference between what Coinbase received ($67,197) and what Stakebaby received ($187). That difference is entirely a function of delegated stake, not operational contribution.

PIP-85: 75% of the validator pool distributed equally (performance adjusted), 25% stake-weighted. This helps smaller validators, but what each validator receives depends on total fees and number of active validators. It varies every period. A small validator cannot predict whether they will cover costs.

Base Reward PIP: Every performing validator receives a fixed amount covering infrastructure costs before the proportional split. Simulation using the February 28 payout data:

  • Validators below infrastructure cost: from 66 to 0
  • Stakebaby goes from $187 to $1,405 (+650%)
  • Upbit loses 11.3%, Coinbase 10.8%
  • Total base allocation: 14.6% of the pool — decreasing as fees grow

The base reward transforms fee sharing from a sacrifice into an opportunity. A validator who starts each month with costs covered has both the ability and the incentive to share with delegators.

How the two community PIPs work together

The Priority Fee Sharing PIP addresses the vertical inequity — validators receive 100% of priority fees, delegators receive 0%. The Base Reward PIP addresses the horizontal inequity — the top 5 validators capture 42% of all priority fees, while 66 out of 103 cannot cover infrastructure costs.

One without the other is incomplete. Fee sharing without a base reward penalizes delegators who choose smaller validators — those validators cannot share as much. A base reward without fee sharing still excludes delegators entirely. Together, they create a system where every validator can compete and every delegator benefits from fees their capital generates.

PIP-85 tries to address both in one formula. The 50% staker split covers the vertical. The equal-weight component covers the horizontal. But the two mechanisms are disconnected — the staker split bypasses commission, and the equal-weight provides no guaranteed floor.

What I’d like to see

Two things alongside PIP-85:

  1. A commitment to transition to on-chain, trustless distribution as phase 2 — with a timeline. PIP-85 itself stipulates that “when the PIP-65 system is enshrined in smart contracts, the changes made in this PIP are included as well.” When does that happen?
  2. The community proposals considered on their actual merits — the Priority Fee Sharing PIP does not remove validator incentives, and the Base Reward PIP directly addresses validator sustainability with real data.

— Just Hopmans (@HopmansJust)

References:

3 Likes