Currently delegating or redelegating funds to an indexer in The Graph Network incurs a 0.50% delegation tax.
Delegators cannot be slashed for bad behavior, but there is a tax on Delegators to disincentivize poor decision-making that could harm the integrity of the network.
It is important to understand that every time you delegate, you will be charged 0.5%. This means if you are delegating 1000 GRT, you will automatically burn 5 GRT.
This means that to be safe, a Delegator should calculate what their return will be by delegating to an Indexer. For example, a Delegator might calculate how many days it will take before they have earned back the 0.5% tax on their delegation.
A 0.50% delegation tax poses a high barrier of entry to a lot of new users, especially given the average network APR being around ~10%. This would mean it would take about 2 weeks to actually get a rate of return.
The feeling of being at a loss after interacting with a protocol is also a big psychological hurdle. The delegation tax’s purpose is to encourage correct decisions, but should I also pay a tax if I make a seemingly correct and informed decision from the getgo ?
Our proposal is to only charge a delegation tax when a user is redelegating GRT to another indexer. Currently a first bad decision (needing to redelegate after initial delegation) would be taxed twice.
- This preserves the characteristic of disincentivising poor decision making as the redelegation is still taxed
- Simplifies the delegation process for first-time delegators
- Decreases the psychological barrier for first-time delegators