Question about baking rewards

Research and Development
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Right now, baking rewards are processed offline by the bakers. Is there any reason for this sort of design? Is it possible to have the baking rewards offered by the protocol itself? Other blockchains offer this capability - examples include: Cosmos, Near, etc.
Rationale: Imagine when we have 100’s of millions of users and addresses in the next few years- the reward transactions would take more blockspace. If there was a way to autocompound rewards it would benefit the network. Is there anything like this planned?

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There is also another good reason to do this and that is regulations. Bakers are actually holding client’s money and this could have a regulatory impact for bakers. We have seen some large bakers close down due to regulatory concerns and if it’s deemed as holding client money then we would be required to register with the FCA - which would mean closure for us.

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Yes. You just need to sit down and code it into Tezos’s protocol.

the reward transactions would take more blockspace

Even if the protocol did this, it would take the same amount of blockspace as it does now because the chain must still include the balance update operations.

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4

The main benefit is that the transaction fee for rewards distribution can be subsidized by the protocol rather than paid for by the baker/staker. So then APR/APY on rewards would increase without the fee.

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It would be a significantly less space as the protocol would not need to include all the signatures as required by standard transactions. You could also compress the data in a way that you could not do with standard transacitons. Although the biggest advantage to us is removing the regulatory risk.

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6

Thanks for the suggestion.

Not really. There are ways to compress this data.

There are ways to do this without touching the protocol using rollups, but then it needs to be operated by the bakers themselves- not too hard if we have the tools. But first I want to understand if such a thing is planned at the protocol level as I can see clear benefits

  1. Reduce these reward transactions that take blockspace.
  2. Regulatory issues as someone has pointed out.

Thanks!

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