I do agree that showing the protocol cuts instead of the effective cuts is quite unintuitive for delegators, having said that I don’t think that changing how the underlying system works is the right approach, at least right now.
I’ll address the problem, but as two separate problems, since I don’t think they are intrinsically tied:
As I said, I do agree the currently shown rates are not super intuitive, but this can be fixed quite easily (and has been done by third parties), by swapping the currently displayed cut to actually display the effective cut.
Effective cut volatility:
Effective cut is quite volatile at the initial part of the curve, passed the inflection point, the effective cut becomes quite stable within a certain range, and you can even set your parameters to avoid going higher than a certain effective cut. You certainly would need to frequently update if you want to set a fixed effective cut, but you could get away with updating every once in a while (or maybe almost never) if you have no problems working within a certain effective cut range, as long as your delegations don’t swing massively.
Here’s an example of an effective cut curve
We found it quite useful for our particular strategy of incentivizing delegators at lower amounts of delegated stake.
As you can see, after you have at least 20% delegation capacity filled, you will start to experience a more stable effective cut. Changing your protocol cut will only move the curve higher or lower, but it won’t change the shape of the curve, so that relationship should still be valid.
This means that after a certain point, you won’t need to update your cuts frequently, as long as you don’t need to be exactly fixed to a specific effective cut and can still run your business with a flexible effective cut.
Will an implementation be possible to maintain a fixed cut?
Without going too much into smart contract development, I think we can already see some possible issues.
How would you maintain the fixed cut to the delegated stake if delegated stake changes?
It would greatly depend on what you understand for effective cut, since if you only care about allocated delegated stake (which would probably be the only way to implement it), if the amount of delegated stake changes, and you don’t immediately fully allocate, you would have some distortion because a part of your delegation is not generating rewards but is getting rewarded anyways.
Taking that into consideration, your effective cut for the total delegated stake would still be volatile, depending on your optics of what the effective cut means.
Pros and Cons of the proposal:
As previously discussed, I don’t think that unintuitive cuts aren’t fixable with the current implementation, since we can just display them instead of the protocol cuts.
- Being able to set a fixed effective cut easily
- Needs a relatively major refactor of the reward system
- Variable effective cuts strategies will need to be constantly updated to be able to work (just as fixed effective cut strategies are maintained now)
- Might still suffer volatility of the cut depending on the implementation
- You might lose the possibility of negative cuts to incentivize delegations (depending on the implementation)