Proposal: Redelegation policy for forced unstaking funds that are owned by Polygon Foundation

Status: Draft

Abstract:

Validators that fail to meet the given performance requirements in the GP2 period will be forced to unstake. This proposal is about setting a redelegation policy for the forced unstaked funds that are owned by the Polygon Foundation. I propose that the Polygon Foundation should redelegate these funds to well-performing (not in GP1 or GP2) and relatively small validators(in the bottom x% based on stake). This redelegation policy has two positive effects:

  1. Because it is an additional chance for small validators to increase their revenue, it will incentivize & motivate small validators to maintain their performance.

  2. As small validators’ stake increases, it reduces the relative inequality of the distribution of validating power among validators which is beneficial for Polygon’s decentralization & security.

Motivation:

As mentioned in PIP-4 Part B, validators that fail to meet the benchmark performance in the GP2 period will be forced to unstake. So, what happens to the funds that are delegated to these unstaking enforced validators? I think funds delegated by the Polygon Foundation should be redelegated to active validators in a way that is beneficial for Polygon.

The purpose of this proposal is to share and discuss my idea with the Polygon community of validators. If there is a soft consensus about this proposal, I would love to turn this into a formal PIP.

Rationale

3 types of Delegators

Let’s assume that validator A has underperformed in the GP2 period and is eventually forced to unstake. There are 3 potential types of delegators for validator A: 1) validator A itself, 2) community members, and 3) the Polygon Foundation.

  • Validator A itself: In the case of validator A itself, there is nothing to be done. If they want to get back into the validator set again, they should apply for the onboarding process again. If they don’t, they can delegate their assets to one of the active validators.

  • Community member: In the case of a community member who delegated to validator A, ideally, they should have monitored the performance and redelegated to other active validators before validator A is enforced to unstake.

  • Polygon Foundation: What I want to focus on in this proposal is the funds that are delegated by the Polygon Foundation to validator A. I think the Polygon Foundation should redelegate these funds to other active validators.

Why should the Polygon Foundation redelegate to active validators?

There are 3 ways that the Polygon Foundation can choose.

  • The Polygon Foundation can keep these unstaked funds in their treasury. However, redelegating is a better choice because a) as more funds are staked on the chain, it improves the chain’s security, b) those funds were already initially used for delegation.

  • Or, the Polygon Foundation can use these funds to help bootstrap newly onboarding validators that have insufficient funds. However, because the current validator onboarding process is not mature, I think it’s not a great choice to use the funds this way. When this process becomes more community-centric and transparent enough, like it’s outlined in PIP-4 Part C, we can consider this way.

  • The last option which is left is to redelegate these funds to validators in a way that’s beneficial for Polygon.

Different criteria for redelegation candidates

So, for the forced unstaking funds that are owned by the Polygon Foundation, I’ve shown that redelegating those funds is the most beneficial way for Polygon. So, which validators should the Polygon Foundation redelegate to? The criteria for the redelegation candidates I think are as follows:

  • Health Status: The performance of a validator is crucial for the health of the entire Polygon chain. So, redelegation candidates should be in a healthy status, not in GP1 or GP2.

  • Small validators: I think smaller validators should be given priority for redelegation because it’s beneficial for decentralization of the Polygon chain. This would also motivate and incentivize small validators to join the network and maintain high performance.

I’ve checked posts like ‘What are good validator onboarding criteria?’ or ‘Validator Decentralization: Protecting the Network, Securing the Future’ and thought maybe geographical distribution or governance participation could be a great additional critera. However, I didn’t included because those criterias are not transparently viewable & not quite quantifiable.

Specification

I propose the following redelegation policy for the funds that have been delegated to forced unstaked validators by the Polygon Foundation.

  1. At the end of every month, the Polygon Foundation calculates its own funds that have been unstaked due to the forced unstaking of validators.

  2. The Polygon Foundation equally redistributes its funds to the following active validators:
    a) Active validators that are not in the GP1 or GP2 period.
    b) Among validators that satisfy a), validators that are in the bottom x% based on stake.

Rather than proposing a specific number for x, I want to run a poll about what the community prefers. If this proposal becomes formal, I will go with the number that has the most votes. Please give your opinion about what x should be.

  • 10
  • 20
  • 25
  • 50

0 voters

The reason I proposed to equally redistribute, not proportionally based on their stake is because there’s a risk for gamification if we choose the latter. Some malicious validators can intentionally unstake their assets before the redistribution to get more redelegation from this policy. Because the unstaking period in Polygon is not that long (80 checkpoints, about 3~4 days), I think it’s a viable strategy.

Note: The proposal is not yet in its final form. Please give any idea or feedback about this proposal!

4 Likes

Good idea, especially in terms of decentralization.

One quick question:

You said, “The Polygon Foundation equally redistributes its funds to the following active validators: ~~, validators that are in the bottom x% based on stake.”

Does stake include self-staking or is it just based on delegation?