Lower self-bond requirement to 4%?

We have recently seen several bakers close down shop because of issues with the size of the self-bond. Currently, it’s close to 8-12% depending on what calculations you use.

In reality, it’s more like 15-20% for every baker if they want to continue getting new delegations.

So I therefore suggest that we lower it to 4% which would result in an operational self-bond at around 8-10% (in order to keep getting delegations).

This has become even more important now that several wallets are being conservative about the self-bond and will disable your baker if it gets too close to the 12%.

Hope the community will consider this as it could save some of the smaller bakers.

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Where do you get the 4% from?

What do you mean wallets will disable your baker? Can you give an example?

I suspect many bakers that closed shops have decided they prefer being able to liquidate/trade their Tezos immediately. Sell on downtrend, buy on uptrend - and may believe that yields them a lot more than the modest baking fees. Their choice. There are plenty of bakers out there that are not full and are looking for delegations. If you fill up, you can always hike your fees.

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Sorry, by “disable” I meant removing the baker from their list of bakers (when people delegate from the wallet).

I believe the self-bond will limit the number of bakers because the cost of capital is too high. E.g taking 20% in fees will only net a 10-14% yield (depending on operational costs) on the self-bond. There is not much to live of :slight_smile:

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Pretty sure those bakers did not leave because bond was an issue. They were all huge whale bakeries with plenty of funds. In fact, one of them even publicly announced they were closing shop to be more liquid.
Lowering the self-bond to “4%” won’t change anything, it will simply delay the issue you speak of.

What we really need are on-chain settings that allow bakers to block new delegations. This would solve the issue.

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In addition, lowering the self-bond requirements will likely lead to more centralisation, as it would also allow the big bakers to double their delegations.

From a subjective perspective of being a small baker, I would have not much against doubling my rewards without additional efforts. But it would change the economic parameters of Tezos and probably to the negative side in the long term.

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The security deposit has been progressively lowering as a fraction of the total supply. It might make more sense to raise it back to initial levels if anything.

In fact, compared to other proof of stake network with slashing, planned or existing, Tezos probably requires the lowest amount of slashable funds.

The risk in setting deposit requirements too high is that not enough funds are willing to stake. Given that bakers routinely pay close to 90% of their rewards to delegators, we have strong evidence that this is not the case and that the deposit could be made much higher.

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What if we keep the slashable funds at ~10% but allowed outside delegations to a secondary slashable pool? Filling that would lower the self-bond requirement. That would help the smaller baker.

In addition, the percentage of slashable funds could increase with the total amount delegated thus creating an upper bound for large bakers (exchanges :)).

Bakers are not earning a profit with 90% going to delegators. Its only a matter of time before they need to close shop - unless the dollar price increases (speculation).

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You can achieve that by having bakers borrow their bond. One way to facilitate that would be for the protocol to allow different access control for baking and spending the bond. That idea has been floating around, there are pros and cons.

No, exchanges would simply create multiple baking addresses.

It’s unfortunately not possible to make baking immune to economics, the competitive landscape is what it is. To go back to your original point, if you reduced the bond requirement, you’d see more competition between bakers and instead of paying 90% to delegates, maybe they’d start paying 95%. At this point, the change would have only reduced the security of the network and not actually made bakers better off.

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Thank you for your insight. You have some solid points there. Then I guess the market can mitigate the risk in the self-bond once the DeFi ecosystem matures on Tezos.

Keep up the good work. Thanks.

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