Delegators rewards should be withdrawable to a separate address

“Re-delegation” is a feature that has been discussed. And is worthy of it’s own post on discourse. Other blockchain protocols allow it. It would allow delegators to exit an Indexer who makes a move to screw them over.

Let’s consider even, an honest Indexer who has been good to their delegators. But gets in a personal bind , and needs to unstake all their tokens to pay off some real world debt. They say to there delegators - sorry but I need to do this, and unstake. Now the delegators are stuck for 28 days earning no rewards. This isn’t great. Allowing something like a once a month re-delegation could be a nice add to the protocol

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This post is meant to educate both Indexers and Delegators so they understand the whole picture of each others situations. Starting with describing the Indexers situation.

Some technical details and a bit of history:

  • A good question - why is there a 28 day period in the first place? Without going into too much detail - it is for network security. This is known as the thawingPeriod and is set to 28 days. This parameter exists so that Indexers stake can still be slashed for a period of time, so that they could be caught for providing incorrect queries or Proofs of Indexing (POIs).

Now let’s discuss token lock wallets:

  • It was intended that rewards could be withdrawn from the token lock wallets. It was not intended that the only way to do so would be by removing all tokens from the Staking contract and having them in the token lock wallet. It was an oversight that was missed, and in retrospect we see it is not desirable. Which is why many Indexers are pushing for this upgrade - right now they can access no rewards unless they shut down for 28 days, and this is not desirable for the network.
  • That is why we have the indexer rewards proposal to change the core protocol

Let’s discuss the core protocol:

  • The protocol enforces 28 days of Indexers locking their stake before withdrawing. But it does not matter if the rewards are locked, because the rewards aren’t already staked, and thus at risk for slashing
  • What does matter for rewards is that an Indexer should not be able to immediately exit rewards, while doing no real work (i.e. providing fake POIs), and have it be profitable. As long as the slashing and fees, and opportunity costs are high enough, exiting rewards immediately is fine from a security standpoint

Some side notes:

  • An added note is the tax considerations - some jurisdictions tax Indexers when the token is minted. So allows indexers to get them immediately is a plus.
  • A downside mentioned is that immediately available rewards will create sell pressure by the indexers now being able to sell their rewards on the market. This is true, but in the same respect, if a fix like this is never implemented - it means we continue to build up the sell pressure for a potential huge sell off. Eventually, many indexers will have to unstake and sell. And it would be likely that this would be around the time that Indexers token lock wallets begin to unlock, which is 1 year from network launch.

Now let’s discuss the main topic of this thread - should delegators also be able to withdraw their rewards immediately? Let’s think through how the delegation works in the protocol

  • The main reason for the delegationUnbondingPeriod is to prevent Delegators from “double delegation” - where they are rotating their tokens between indexers to get a portion of the rewards right before the indexer claims.
  • If they withdrew their rewards immediately, this wouldn’t effect double delegation.
  • In fact - it actually provides a slight disadvantage for a delegator to withdraw their rewards immediately. When rewards are immediately deposited in the delegation pool - they are never subject to the delegationTax - which is currently set to 0.5%. Thus, they enter the protocol untaxed, and this would compound over time. Said another way, if a Delegator entered 100,000 GRT into the protocol, only 99,500 would be delegated, and 500 burnt. Now if they made 15,500 GRT in the next year from the delegation pool, all of those are entered without the tax. Whereas to get another 15,500 GRT into the protocol by depositing, they would actually have to deposit 15,577.9 GRT.

Now let’s discuss the practicality of doing the Indexer rewards proposal and the Delegator rewards proposal:

  • Technically speaking the delegation upgrade is a bit tougher than the indexer upgrade because of the way the smart contracts are implemented. And will take a bit more time because we are just beginning to think of it, whereas the Indexer requirement was noticed within the first few days of launch.
  • The Indexers are in a bind, as they have been paying infrastructure costs since testnet, and can’t get access to their rewards.
  • Delegators are in less of a bind. They have no infrastructure cost, and can undelegate their tokens and get access to them in 28 days. Also if an indexer unstakes because they need to realize their rewards in a token lock wallet, they actually screw over all their delegators, who will now be earning 0 rewards.

It would be good for Delegators and Indexers to discuss the following points, now that they have more facts laid out in front of them and understand each others situations :

  • Discuss each separate proposal and hopefully get a majority of each party to agree with each other on what is good for the network, by thinking from the pespective of themselves, as well as the other party
  • Understand the practicality of how each proposal could be implemented, and come to agree on a timeline that seems appropriate for each
  • Please bring up any other facts or questions that have not been answered thus far to drive more discussions
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I’m in support of re-delegation initiatives and have written about them here, would be great to see that topic as a discrete post.

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@ferosv

@indexer_payne has good idea. Let’s think about this proposal as part of delegate 2.0, as well

There’s no relevancy between this thread and that proposal, if you read it. Nobody mentioned avoiding unthawing periods in the event of an exit from the protocol.

@JustArthie

So it’s completely fine, indexers to do that, but not delegators.

You should try to respond to the points made rather than attacking a group or making assumptions based on perceived victimhood.

Also consider some simple math. As in - the potential market impact regarding the volatility aspect, when comparing the weight of rewards from staking-only, as opposed to the rewards from all allocations.

With the big difference beside their own tokens they get shares from delegators and have in fact much higher APY than delegators, opportunity cost isn’t a factor for the delegators?

Yes, they demand higher APY, because they provide the means to stake. If they got the same APY, they’d earn less, while making the effort to provide that service.

It starts to look more and more like indexers protect their own interest and they care for the delegators as far as they delegate to them and thats it.

I’m also a very actively invested Delegator and have made over 70 delegations in the past 2 months. But despite that, i’m not interested in changes that i believe would harm the network or project (such as in the ways i’ve mentioned), even if i could very well take advantage of it myself, no matter which side of the fence it benefits.

Beside the fact indexers need to pay infrastructure nothing is different for the delegators

Yes. And it’s a large differentiator.

Anyway

Exactly. I was and am fine with having to withdraw Indexer rewards via a thawing period, which i’ve noted in other discussions. Though i think it may be headed in another (no thaw) direction purely down to chance of it being the best way to implement it on a technical level, from what i’ve gathered from some other comments by the team.

Personally, I would actually prefer to see no group able to avoid thawing their in-protocol funds or rewards, for various reasons, including the ‘volatility’ example. And i’ve yet to see arguments that are focused on long-term positives over short-term desires, other than the taxation considerations some have made, which is definitely a good and valid reason completely on it’s own.

In that sense, delegators should also be allowed to do the same with their own token lock contracts (basically any token lock contract should allow for rewards to be withdrawn without the need for a full unstake/undelegation), but neither indexers nor delegators should be allowed to bypass thawing periods.

:100:

@GRTIQ

We do think, however, that if a Delegator wants to move from one Indexer to another, there might be some benefit to modifying the thaw period.

100% agree. The punishment to Delegators should be minimized if an Indexer acts badly or makes an exit. This is what the points made by @indexer_payne focused on, as it’s how things behaved moreso in early testnet. Being “in protocol” vs out, and in this state you should have a bit more freedom with re-delegation. Different topic though, feel free to make a thread on this.

@davekaj

A downside mentioned is that immediately available rewards will create sell pressure by the indexers now being able to sell their rewards on the market. This is true, but in the same respect, if a fix like this is never implemented - it means we continue to build up the sell pressure for a potential huge sell off. Eventually, many indexers will have to unstake and sell. And it would be likely that this would be around the time that Indexers token lock wallets begin to unlock, which is 1 year from network launch.

A good point that is often not considered.

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My simple math saying to me that total rewards so far for all participants are around 50 millions, only the 24 hours trading volume at one pair is around 150 million, meaning that the worst case market won’t be impacted for more than 2 days. 500k GRT per day could impact exactly zero at the market. Well i guess anyway whatever happens with delegators rewards, indexers will have theirs, which are around 40% of the total rewards, so basically we are speaking for 30 millions more or less in the market. From other point of view if the rewards of the delegators are about to be liquid, faster it happens less price impact and you can’t argue about that.

I saw you are agree with that, just asking with the full sentence or just with the thawing period part which i think everyone is more than agree with it and would prefer not to have any liquid rewards if its bad for the network?

I will be happy to receive feedback for my simple math skills if you are not agree

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Yeah because it’s a certainty that will be implemented. No, that’s not how it works. Indexers will have to pay tens of thousands of dollars per month and I’m not exaggerating by any means, even with the current implementation of the protocol.

How is that possible? Well, it’s simple. Every single allocation costs ~$100 to open and another ~$100 to close, at ~150 gwei gas price. We will eventually have 50-100 subgraphs to allocate against. The default setup is having two parallel allocations.

Now let me translate that to you:
100 (usd, each allocation) x 2 (allo open, allo close) x 50 (subgraphs) x 2 (parallel allocations) = $20,000 per month
And this is a very conservative calculation I’ve done there. If you don’t allocate to most of the subgraphs, you’re losing a ton of rewards that come from inflation.

Now, changing the way delegation rewards work without overhauling the entire protocol design will most likely at least double that amount of money that we have to pay every single month.



Can you NOT put words in my mouth, maybe? And also maybe read the thread and conversations that went around that post before you point at someone?
Let me quote what I have said there, in case you missed it:

I think it would be better, if the OP idea is implemented […]

Now what was the OP idea?

According to this thread accounting for the time that a delegation was made when closing an allocation would allow other related changes:

  • This would not allow “double counting” of delegation, which has the immediate impact of removing the need for a 28 day undelegation thawing period
  • No “Delegator Front Running”, which has the immediate impact of being able to remove the delegation tax.
  • More dynamic delegation market has implications for overdelegation, as savvy delegators can easily reallocate their resources without heavy taxes and waiting periods.

It seems to me that this would be more clean, fair, and dynamic design. The downside of course is gas efficiency. I think it would be worth exploring in this thread what that cost is and how it may be mitigated.

Would you be kind to tell me where in the world is it ever mentioned in the ORIGINAL POST of that thread, that delegators would be able to withdraw their rewards without going through the thawing period?

Even I mentioned the thawing period in the same literal post you quoted:

You will still have a thawing period for exiting the protocol, but you will have more freedom to move your delegation between the indexers.



Let me break this down for you, because I see there is a big lack of fundamental understanding in how the protocol works, and how you’re allowed to earn rewards.

Paragraph no.1: Yes, it’s completely fine for the indexers to do that, because they have much more risk and the protocol is NOT a one click sudo bash make-money.sh type of network where you sit on your sofa and you become a God.
It’s a full-time job that we have to take in order to ensure maximum efficiency, and it takes a lot of money, patience and efforts to reach that maximum efficiency.

Paragraph no.2: Without indexers you wouldn’t be able to get a single dime out of the indexing rewards nor the query fee rebates. :slight_smile: If you think it’s unfair, why don’t you join the indexers side, yeah? It’s a permissionless protocol, you can take any side of the protocol you want. No one stops you from doing that. Grab a minimum of 100K GRT, a beefy infrastructure to support your stake, a few tens of thousands of dollars per month for operational expenses and let’s dance. :dancer:
Here’s my documentation for the Testnet, where you can learn how to operate before you deploy on mainnet:

Paragraph no.3: The infrastructure costs are nowhere near the operational cost that we have to pay in order to allocate. Read the beginning of this wall of text, I’ve outlined exactly what it costs us to operate efficiently. And this is not the only risk, we also have slashing events that can occur and we can lose everything that we have in a splitsecond, unlike delegators that will never be at any sort of risk.

Apart from what Fattox, Juan and Dave wrote, here’s some documentation you should read, as I see you definitely need it:

https://thegraph.com/docs/network

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That’s very good, i really do have lack of fundamental understanding i will take a look

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Just relax, Payne. I was mentioned you, because you are my favourite indexer and I believe in you. What I meant with that thread it was like Davekaj mentioned, that they are preparing some changes for delegation in v.2.0. So I was thinking, that this PR could go there as well, if there will be good will and we find consensus.

So, we have here opinions from various indexers, now, I would like to hear some opinions from delegators. If they are for this change or not.

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Fair enough, but it doesn’t have anything to do with the Original Post of this thread :frowning_face:
I do agree that certain changes must be done to the whole delegators mechanism, but it’ll take time.
I would very much prefer if the economics would be moved to an L2 and overhauled entirely, due to gas concerns. But then again, it’s a long time before we get there.

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Once a month seems way too frequent, considering allocations can be active for 28 days. That could lead to a ton of hopping and yield farming type of activity, which is detrimental to an honest delegator’s rewards potential.

One or two re-delegations a year would be a better compromise, I think. If indexers are failing so frequently that folks need that many re-delegations, we’re looking at a MUCH bigger problem, right?

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Wait, why though? If the rewards enter lockup as they are generated, then they will exit lockup one year later- at the same rate the entered. So the difference is selling now as the rewards trickle in, or selling a year from now at the same rate that they trickled in.

It would seem that the 1 year lockup ensures Indexers keep skin in the game for… 1 year, which from a delegator perspective I’d like to see.

I’m confused, why can’t the fix for Indexer cash flow issues be solved by allowing them to unstake a portion of their original stake (assuming it would not move them into an over delegated position, or below the 100k GRT threshhold)?

Because the majority of Indexers on the network have their stake vested in token lock contracts which are not upgradeable and require the entirety of their stake to be returned to it before any surplus can be withdrawn.

I thought you were aware of this? Also, isn’t this off topic for this forum thread?

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Dude I literally quoted someone in this thread.

I have seen this explanation, but I find it somewhat unsatisfactory. If we can make one set of changes to the token lock contracts for rewards, surely we could make a set of changes to the token lock contracts for stake, no?

Look, the implications for what could happen if indexers can withdraw rewards in 28 days instead of 365 is obvious, right? An indexer could shut down operations completely, and take their entire stake and rewards with them in a month, enabling a complete cash out of the rewards indexers received before a single additional subgraph gets migrated to mainnet. If the project gets stalled, or heaven forbid was never serious in the first place, this would be highly advantageous for indexers, as it would let them cash out high on GRT before the broader market notices that the project is not going anywhere.

Keeping rewards locked doesn’t add that much safeguard against this, but it is a strong signal of good faith.

I think I might have mentioned this in the other thread, but no changes are being made to any token lock contracts to resolve the issue of indexers being unable to retrieve rewards.

And what about their delegators? Where does that leave them?

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Okay- I’m not sure what you mean here. Are you saying A) there is a workaround in place to allow indexers to draw on their rewards and therefore there is no change necessary to the token lock contracts, or are you saying B) indexers will not be permitted to actively draw on their rewards?

And then as for where would that leave the delegators? Not in a great position, that is for sure. I think many delegators assumed that locked rewards were intended to mitigate the likelihood of such an event, in the sense that collective action from indexers that could tank the price of GRT on the market would, if nothing else, come at the expense of a reduced value of the rewards indexers would have to wait a year to draw on.

I’m not saying this is likley, but from an optics standpoint this looks very rough to anyone with an active delegation who assumed the locked indexer rewards were a feature and not a bug when they delegated.

A. You can read about the solution here.

With regards to where that would leave delegators, I was talking specifically about those that were staked with an indexer who chose to take their indexer offline in order to retrieve their rewards.

I really think this thread is being steered way off topic now, can we close this loop of conversation out here? I hope you’ve learned a bit more about how the first GIP is proposing to solve the issue that indexers are currently facing, the network was never intended to be this way for them.

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Okay. Sure. But you aren’t engaging on the issue of optics, and okay that’s fine.

I’ve heard that the system wasn’t meant to be designed this way, and that’s well and good, but the trouble is that people put money into the system when it WAS designed this way, and so, intentional or not, there is a fundamental change to the incentive structure.

Feedback from a delegator’s point of view here to the original topic (i.e. immediate withdrawal of rewards): While it may seem inequitable at first glance, I think it has been laid out pretty well why there is a difference between the indexer and delegator group. Indexers require immediate access to rewards in order to financially support their operations. Delegators generally stake GRT with discretionary income and a long-term investment horizon. We don’t have any operational costs associated with delegating GRTs in any way that would provide equal justification to immediate access. I’m ok to leave it as-is for delegators.

I do agree with some thoughts shared around the ability for partial un-delegation vs. the current all-or-nothing approach. However, that’s for a different thread.

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I have no fundamental disagreement with allowing everyone to withdraw subject to the same conditions (whether immediate or 28 days), but I don’t agree with the “immediate access” justification for indexers alone. There’s no logical reason why indexers can’t plan out their finances for a month based on rewards being subject to a 28 day thawing period. And it’s not a new concept, whether you’re a business owner or an employee. My business’s income is basically monthly. We don’t send out invoices to our clients expecting them to pay us daily. We send out monthly (or even quarterly depending on the contract) invoices and they pay them within a set number of days of receipt. Also, if you work in the U.S. (I know people aren’t necessarily in the US here), you don’t have immediate access to your salary as you earn it every day; most commonly your employer will pay your salary every 2 weeks.

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Glad you brought up the analogy to the real world, makes it easier to draw parallels. Using your example, I think the fundamental difference is that delegators and indexers are very different type of stakeholders which are not in the same bucket. Indexers are doing the work and are running the operations of the protocol, hence they are actively engaged in the daily operations who also manage the ongoing costs for all of us. Delegators are not involved at all in that, we are more like shareholders of the protocol. I look at rewards similar to dividend payouts of a stock, which are naturally also not paid out on the same schedule as salaries and invoices, but are rather more spread out. I think it’s important to look at this in a more nuanced context.

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