Operate an Osmosis Validator on behalf of the ShapeShift DAO

Summary - This proposal would accomplish the following: A validator will be run on the Osmosis blockchain with the intention of providing a revenue stream for the DAO. This is the second validator proposal from TaxiStake. This proposal is scoped to one blockchain, Osmosis.

Abstract - Osmosis is an Automatic Market Maker (AMM) Decentralized Exchange (DEX) built on the cosmos SDK. ShapeShift DAO is currently building out an integration to support Osmosis functionality in the web app and mobile app.Boardroom Management Portal TaxiStake has established its ability to operate a ShapeShift validator on the Cosmos chain and is proposing that the DAO establish a second validator, on the Osmosis chain.
Specification - We are proposing that the ShapeShift DAO continues to support and secure the Osmosis ecosystem by creating a ShapeShift DAO validator on the Osmosis chain. Setup and maintenance of the validator will be done by TaxiStake under the ShapeShift brand name. Rewards, in the form of USDT, would be distributed to the DAO’s Gnosis Safe to diversify the income streams of the DAO.
In the first month of operation, the ShapeShift DAO Cosmos validator has attracted over 1,500,000 ATOMs from delegators. In the first month, this generated 1,185.554836 ATOMs from commission. Mintscan - Chain explorer by COSMOSTATION The first payment to the DAO was sent on November 30th, 2021 with a deposit of 23,023.212074 UST sent directly to the Gnosis Safe on the Ethereum blockchain. Ethereum Transaction Hash (Txhash) Details | Etherscan
We are proposing that the Osmosis validator commission be set at 10% and the commission from the ShapeShift validator will be distributed to the DAO treasury and TaxiStake in a 70%(DAO)/30%(TaxiStake) split of minus $2600/month for operating and maintenance expenses for a 12 month period starting January 1st, 2022 thru and including December 31st, 2023. TaxiStake is requesting 10,000 FOX for the initial setup and creation of an Osmosis validator. Osmosis users who delegate to the ShapeShift Osmosis validator will be supporting the ShapeShift DAO as well as securing the Osmosis network. Taxistake will convert the OSMO into USDT until Gnosis Safe adds ATOMs support or some synthetic ATOM on ETH exists.

Benefits - By creating a second validator for the ShapeShift DAO, the DAO can continue to expand revenue generating activities from staking activities.
Drawbacks - To be a validator in the top 100 requires a minimum of about 56,000 OSMO delegated at time of writing (about $300,000 USD). TaxiStake is working on ways to reach this threshold. There is an upfront request for 10,000 FOX ($9,100 @ $0.91 FOX).

Vote - If you vote “for” this proposal you are voting to create a ShapeShift Osmosis validator with the specific details laid out in this proposal. 10,000 FOX will be sent to TaxiStake. TaxiStake will provide regular payments of stablecoins in return for the use of the ShapeShift name on an Osmosis Validator.

If you vote “against” you are saying you do not believe this Osmosis validator should move forward per the details presented in this proposal.

Original Cosmos Validator proposal: Boardroom Management Portal

Osmosis integration proposal:
https://app.boardroom.info/shapeshift/proposal/cHJvcG9zYWw6c2hhcGVzaGlmdDpkZWZhdWx0OnFtbnV5Y3NyZXhmZXN5dG9mazZlbWRzYW1vcnVpMXBjdnU0aGpwN2V5ZHZuZ3o=

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as a YUGE osmonaught, this has 100% support from myself. Osmosis Sync covered this, sounds like seperate.

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Huge fan of Cosmostation. Thanks Marley, great work.

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This is absolutely a no brainer. Diversifying our treasury and adding additional revenue streams is so substantial for the long term success of the DAO.

Thanks for this Marley! I’m in full support.

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Overall I am in support of this proposal and it’s parameters seem fair.

ShapeShift DAO branding and default routing to the validator through the app are deeply powerful, but that is reflected in the 70/30 split toward the DAO similar to the cosmos validator. I also think a small fixed cost for operating the node is reasonable for taxistake to make sure it remains covered for operating costs.

I do have one concern around the 10% commission though, I simply don’t think it would be competitive considering the vast majority of osmosis validators charge 5%. While it may appear on paper to create more revenue for the DAO and TaxiStake I think the amount of lost stake that would otherwise choose ShapeShift will make this a net loss.

On top of that, IMO the best long term play (for both ShapeShift DAO and TaxiStake) is to accumulate as much stake as possible, that will create more long term stake “lock in” as the osmosis chain grows. Better to become a top validator now at the expense of some short term commission than trying to maximize staking revenue now at the expense of more staked OSMO.

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Most osmo validators have a 5% commission. When I was searching through the OSMO validator I first checked commission rate → then who was running the validator. I think 10% would put a lot of people off. It seemed (from what I saw) that most of the validators agreed on a 5% rate. I wonder if we wanted a higher rate if there were other incentives we could add to using our validator.

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I’ve thought a lot about the 10% vs 5% and here are some of my reasoning:

  • For as long as I have been involved in validating, there has been discussion about the long term viability of a 5% business. I like to run at 10% but that is just my opinion.

  • With commission, there is not really much room to move the commission up, mostly only down. Starting at 10% leaves us the option to move it to 5% and have positive response. A 5% to 10% change will result in a very negative response from the community.

  • the DAO Cosmos validator is at 10% and has attracted over 1.5million ATOMs (~$34 million) the first month, so it feels safe too say it was not a major deterrent for individuals with ATOM who wanted to show support to the DAO.

  • My napkin math looks like this: If you stake 100 Osmo and inflation is 70%, you would have 170 osmo in a year if you ran your own validator. At 10% commission, the validator keeps 7 and you keep 163. It’s a lot of work (not impossible) to run one. The difference between 5% and 10% commission on 100 OMSO over 1 year is about 3.5 OSMO. Just some perspective. (This is quick napkin math and would love if someone has a better calculator for Cosmos SDK staking)

  • looking at the top 12 on Cosmos, only 4x validators have less than 5%. 6x validators have 10% or greater and 2x of those validators at 100%. 10% is not too far out of the norm looking at top validators.

  • all that being said, we are running this for the community and will listen to what governance votes. I would support something such as: start at 10% and walk down 1% per month until 6% or something. We’re open to the discussion

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I appreciate you giving your thoughts here @Marley, but also want to weigh in point by point because I think there is some important missing context in your bullets.

Considering there is a fixed minimum operating cost included in your proposal, it seems like that would already protect against the downside risk regardless of commission % set. So It seems like this is not a huge point here, also have to point out that what matters is not the % number but the overall revenue. E.g. you would much rather have 5% of 2 million staked than 10% of 500k staked, the revenue will be easily made up if you more than 2x the stake which I think a competitive commission will easily do.

You are right you will not be able to move it down easily, I agree with this, however validating in general is a race to the bottom comission wise and this should be expected. Its better to lock in a large amount of stake IMO than worry about marginal revenue gains via commission in the short term.

This is true that the current DAO cosmos validator is at 10%, however this not the right comparison to be making. 10% is pretty close to the standard rate for cosmos validators and is very competitive in that landscape, there are only a few validators validating significantly below that commission rate. So in that sense the current DAO cosmos validator is competitive.

The Osmosis landscape is simply different. The vast majority of validators are set at 5%, very few are above that, its something like 90% of osmosis validators that are at 5%, so setting anything above that is going to make the DAO validator non-competitive. It doesn’t really matter what the commission is for ATOM on cosmos, that is a different validator market, the right comparison to make is the % commission vs other osmosis validators, not cosmos validators, and the osmosis landscape is very clear that if you are over 5% you are likely going to stand out as non-competitive commission wise.

I think your math is right here, but I think it gets away from the main point. For many when choosing a validator it is as simple as looking at the % comission, and if most are 5% and one is 10%, rarely is someone going to choose the higher one. What you are fighting is that perception issue, not math.

This point is not really relevant, again as stated above what you should be comparing against here is the commission rate of other osmosis validators, not cosmos validators which is a different market. No one is debating that 10% is not right for cosmos, the question is whether 10% is not right for osmosis and if you did the same comparison of the top 12 osmosis validators today, only 3 of the top 12 are above 5%, and not a single validator in the top 12 is charging more than 8.1% commission. In fact there is only 10 validators charging 10% or more right now in osmosis and they are generally all in the bottom half in terms of their stake (more evidence they are not as competitive or probably funding with mostly their own OSMO).

Based on all of this, I really do think the right move is to set the commission at 5% to stay competitive with the landscape and give the greatest chance of the ShapeShift Osmosis validator accumulating the most stake possible.

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The skew to 5% on Osmosis is wider than I realized. 75% of the 100 Osmosis validators are at the 5% floor. Some valid points here from @jonisjon .

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Ideation Thread: [SCP-50] Operate an Osmosis Validator on behalf of the ShapeShift DAO [Official Ideation Thread]

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