Proposal: Setting a 5% Minimum Validator Commission Fee for Polkadot

With the enactment of the governance proposal to reduce Polkadot's inflation rate to 120 million DOT per year and the recent increase in the validator set size from 297 to 500, we believe we should consider setting a minimum validator commission fee for Polkadot. This proposal aims to ensure the sustainability of smaller validator operators, maintain decentralization, and meet the growing hardware and operational requirements as Polkadot scales.

Motivation
Validator profitability has been significantly impacted by:

• Increased Validator Set: The expansion to 500 validators has diluted rewards.
• Reduced Inflation: The reduction to 120 million DOT per year has further lowered overall staking rewards.
• Increased Costs: New hardware requirements for running a validator, particularly with the upcoming JAM upgrade, have dramatically increased the costs of operation.

The average validator currently earns significantly less than a year ago, while the costs of running a validator are increasing due to:

Higher hardware standards:

1. CPU: Intel Ice Lake/AMD Zen 3 with 8 physical cores @ 3.4GHz.
2. Storage: 1 TB NVMe SSDs with mirror redundancy.
3. Memory: 32 GB DDR4 ECC.
4. Network: Minimum 500 Mbit/s symmetric speed.

Database size:
Polkadot blockchain expands by over 500 MB daily, with a pruned database exceeding 500 GB (StakeWorld Database Size Analysis). This limits the capacity to run multiple validators on a single machine, with most hosting providers limiting storage capacity to mirrored 1tb NVME’s.

Revenue Decline:
A year ago, 1% commission earned ~13.8 DOT per era.
Currently, 1% commission earns ~6 DOT per era—a 56% reduction.
At the average commission rate of 3.6% (excluding private 100% commission validators), a validator earns 21.6 DOT per era ($125.28 at $5.8/DOT) compared to 49.68 DOT per era ($288.14) previously.
These dynamics create unsustainable conditions for smaller operators, discouraging new entrants and increasing reliance on large staking providers.

Proposal
Introduce a Minimum Commission Fee of 5% for Polkadot Validators.
This aligns with Kusama’s existing practice, ensuring validator operators can cover operational expenses and reinvest in hardware and infrastructure while preserving network decentralization.

Benefits of a Minimum Commission Fee

Decentralization:

• Encourages diverse participation by smaller operators.
• Reduces dominance of large staking providers that can subsidize lower commissions.

Economic Sustainability:

• Allows validators to meet the increasing operational costs.
• Provides incentives for new operators to join the network, ensuring long-term validator diversity. It can take months for a new validator to gain enough nominations to get active.

Parity with Kusama:

• Establishing a 5% minimum commission aligns Polkadot with Kusama’s proven approach.

Security and Performance:

• Ensures validators can afford high-quality hardware, enhancing network reliability.