We need to increase baking incentives, we are on a path to centralization.
People will only be attracted to bake if it becomes profitable for them to do so, right now it is not very profitable, so they are leaving, even now that the price has surged. Can we stop pretending that people will run baking nodes out of pure altruism? Rational self-interest is the driving factor.
We need to increase transaction fees to make baking a much more profitable activity, so more people are attracted to bake. Even if we increase transaction fees, we still would be infinitely cheaper to transact than Ethereum, we are always reducing gas fees making it cheaper and cheaper, we can afford to raise transaction fees a little, so bakers and delegators receive bigger rewards.
So you want to increase one of the main things that has been advertised do to your own greed?
Baking and staking is one of the most secure things that makes money. Yes people are going into defi now while it is exploding. And some of those bakers will lose big money there. After all defi is a whole other level of risk taking than baking.
It is not about my own personal interest only, it is about the rational self-interest of ALL the current bakers and to spark interest to future bakers, can we stop using that childish fallacy of making it see like if it was only about me please? And not only bakers, also delegators benefit from an increase in transaction fees, since transaction fees are passed on from bakers to delegators.
It will still be much cheaper than Ethereum, we are talking about that every update there is an efficiency in terms of gas fees costs, a gap that we can use to increase transaction fees to incentivize baking, transaction fees create deflation for bakers AND delegators, making TEZ a SoV.
I remind you that a baker charging 10% fee to its delegators, distributes to them, 90% of all transaction fees and 90% of block rewards. So yes, transaction fees are distributed to delegators, creating deflation for bakers AND delegators. The average delegator that doesn’t use the chain for making a ton of transactions or using lots of smart contracts, meaning just the HODLers, they will benefit the most from this. But even delegators that do use the chain to do lots of transactions, will not even feel the transaction fees expensive as it is like with ethereum, we will still be cheap enough to compete with all Smart contract chains, no doubt about it.
Nobody is saying that baking needs to equal DEFI in terms of profit, I’m just saying we need to make baking more economically appealing because right now is practically an almost work for free activity comparable with what banks give you just by hodling your dollars in a savings bank account.
see in the image Adj.Reward which is the annualized reward rate adjusted by the inflation of the network supply. Source www.stakingrewards.com
It is barely 1.45% deflation due to the transaction fees, but in reality is much less, Is just the data of stakingrewards is taking to do the deflation rate is wrong, is much less, like less than 1%.
So you think that with less than 1% deflation a year is enough to incentivize baking and increasing bakers count? Really? I get more with a bank savings account. Make it 3%, and we might see another 300 bakers coming to decentralize the network.
Sure, I mean, raising economics incentives is NOT the only kind of incentive you can do to increase baker’s count, BUT is, nevertheless, the MAIN reason why potential bakers will join or leave. We need to stop denying this fact of reality.
We can reduce the roll size, and perhaps 20 new bakers will join, but if the economic incentives are kept low, 10 big bakers will leave and from the 20 new small bakers that joined, 10 of them will leave, I mean, none of the other type of incentives are as important as the economic one, this is an undeniable truth. And since the TF bakers won’t stop VOLUNTARELY their bakers, so more potential new bakers replace them and take the rewards they are sucking from us, since they solo mined their TEZ, we need to raise the transaction fees then WHILE at the same time making gas fees cheaper and cheaper to mitigate this for dapp consumers. I mean, even by raising the transaction fees, we still be 30x cheaper than Ethereum.
From the protocol point of view, transactions with fees set to 0 tez are perfectly valid. The only reason why transaction fees are not 0 in practice when blocks are not full is that most bakers (if not all) refuse to include transactions with very few fees (there are three options in the baker configuration to control this: --minimal-fees, --minimal-nanotez-per-gas-unit, and --minimal-nanotez-per-byte). This is a spam protection mechanism.
We don’t choose to increase or decrease the transaction fees, each baker can be configured independently from the others. We could amend the protocol to reject low-fee transactions at the protocol level but I doubt such an amendment would be very consensual because it would slow down adoption.
If adoption continues to grow blocks might eventually get full and users will need to put higher and higher fees to get a chance to be included in a block. It is very hard to predict how much the fees will become then.
Thanks for the explanation, i was in need of this, I’m not tech savy, so this is a great way to learn for me.
Yes, what i mean, is more getting block fulls so the incentives of bakers increase. I understand amending the protocol to reject low-fee can cause a slow in adoption, which in turn will take us away from reaching the status of full blocks that comes with adoption.
I also understand that bakers can each configure independently of one another, if they want to refuse to include low fees transaction into blocks, this is individual action in the sense that it is a voluntary decision of each baker, which is something that i applaud.
My question is, once we reach a significant level of adoption similar to ETH or even greater, perhaps Tezos being used massively by various private corporations, governments and their citizens, if for some reason even with full blocks, the economic incentives of bakers are still low, and we still have very few bakers (Centralization), would it be objective to amend the protocol to reject low-fee transactions given the fact that the status of significant adoption was already reached/achieved? This with the aim to increase bakers count and this way be more decentralized.
Market does value decentralization, it increments demand for the asset, since people feel safer owning a decentralized asset as opposed to a centralized one. Also, the more bakers, the more TEZ will be locked in bonds, making it scarce. Even tho, you can unlock it in around 3-4 weeks, this was enough disincentive for me to stop baking and sell at $8 in all times high. It is impossible to know when exactly you need to start the process of unfreezing your bonds, to be able to sell in all times high.
Also, the more bakers, the more TEZ will be locked in bonds
That’s not true, the amount locked in bonds is essentially independent of the number of bakers. Tez are locked when blocks and endorsements are produced and included in the chain. The total amount of locked tez is bounded.
I don’t get it, can you elaborate? When a new baker start baking, he needs to put TEZ inside bonds, as more delegators join to his bakery, the amount of TEZ that needs to be locked increases as more bond is required. That’s how I perceive it. I’m assuming the more bakers, the more locked bonds, assuming they all offer a delegation service, and they all are at full capacity. I always assumed that the consequence of more bakers joining in, is that more TEZ will be locked in bonds, among other facts like if they are at full or low capacity, etc.
Let’s say that there are only two accounts, Alice and Bob, and the total supply is exactly 2 rolls; Alice and Bob own one roll each. If Alice delegates to Bob (or if she neither delegates nor bakes) then Bob has 100% of the baking power and he locks tez at every block. If both Alice and Bob bake then each of them has 50% of the baking power and each of them locks tez once every other block. In both situations the same amount of tez is being locked.
If the number of bakers increases, the number of people locking tez increases but the frequency at which each one locks tez decreases.
Thanks again for the explanation, yes, I understand the concept of frequency, the more bakers, it decreases the frequency at which each baker locks TEZ. But nevertheless, even tho the frequency decreases, at some point they will need to lock their TEZ when their turn arrives.
So these two statements are still a fact. Bakers won’t be able to sell when their turn arrives, the only difference is that their turn arrives more often when there are fewer bakers and their turn arrives less often when there are more participants, but in both scenarios there will be moments in time that they won’t be able to sell, is just the time window from which they’ll be able to sell becomes wider when there are more bakers participating. I’m just trying to do some logic thinking.
Yes, the same amount of TEZ is being locked, is just the number of people participating in locking TEZ increases.
Edit: ohhh okey, yes, then i was wrong, i see my logic flaw, yes I meant the number of people locking TEZ increases, not the number of TEZ being locked increases.
Edit 2: @rafoo But still is a good idea that the number of people locking TEZ increases, it still simulates some sort of collective psychological scarcity.
Baking fees are subject to market competiness. They would all need to coordinate, so the incentives are increased. Something very hard and to actually happen. Don’t even count on that, this is basically a free laissez-faire unregulated market, so it is very, very hard to happen, if anything competition will most likely lower the baking fees, not raise it.
If we raised the incentives by non-competiness means, then more bakers would be attracted, because bigger pie of money, then the baking competitive fees would become even cheaper than they are today, the incentives would again even out, but with the addition that now there is much more bakers than before and therefore more decentralized.
I understand that raising transaction fees will be contra productive at this point in time, since we haven’t reached the optimal adoption standards, so in that sense we will be shooting ourselves in the foot if it was done TODAY.
But that doesn’t mean, raising the fees will always mean shooting us in the foot, seems dogmatic to think that using that option, will always mean shooting ourselves in the foot. For instance, we could do it, in 5-10 years, once we reached a certain level of adoption, once the adoption ball is rolling strongly even by amending the protocol to reject low-fee transactions it wouldn’t stop the ball (unless is used super excessively), resulting in something good, more decentralization. If not, why that option exist, to never be used?
I accepted, I don’t actually know if it is objective to do that now, it might not be a good time to do that, it might be, I’m just saying that seems very dogmatic to think that it will always mean a sacrifice in adoption and that for that reason it should NEVER be used, for instance, it could happen that even by raising fees by using that option (that reality allows us to do), the adoption will keep growing. That not necessarily will always mean using that option equals to adoption being stalled or a bad idea. Seems like a good way, to increase overall security and decentralization by moving that parameter through governance, unless the value of the parameter is so ridiculously high that the user will prefer to use other cheaper blockchains, adoption will not necessarily stall, we have governance for a reason. We can move the value of the parameter at will of what we find to be pertinent.
To chime in again. I think some bakers closed down their bakery and deposited the funds into the CPMM contract for the tzBTC/XTZ pair. Baking yields 7% while LP provides over 100%. No brainer for some bakers with lower overhead