DISCLAIMER: This forum post is not intended as a critique on the recent lowering of the i_rep. This is an analysis done by the P-Rep teams Espanicon and Transcranial Solutions to evaluate the impact of lowering the i_rep on the capacity of the P-Rep teams (mainly subs P-Rep since B1 rewards are not taking into account) to place the 5% bond that will be required once IISS 3.0 is implemented.
IISS 3.0 is the latest update of ICON Incentives Scoring System. The proposal was presented on March 11th and later approved via on-chain vote with a 100% approval of the main P-Rep.
IISS 3.0 introduces many important and positive changes into the overall governance of the ICON Project. One of them is the introduction of a 5% of total delegation bond (6% at the time) to be placed by all the teams as a way to have “skin in the game”.
The details of the discussions regarding IISS 3.0 can be seen in this forum thread. Overall, the vast majority of the teams were in approval of the changes proposed in IISS 3.0.
During the discussions of the IISS 3.0 proposal, the economic structure of the reward system for the P-Reps was different from what we have right now, by that time the i_rep (value used to calculate the rewards of the node) was around 40,000.
Last week a guide titled “Path to Sustainable Economics: P-Rep Commission Rates” was published by the ICON Foundation as an analysis of our current economic state and a guide to improve the ICON Network overall. This guide was received very positively by ICONists and the majority of the P-Reps, and immediate changes were made by the top 22 P-Rep teams lowering the i_rep value from around 40,000 to 18,000 in the span of 15 days. The following chart shows the i_rep values since October of 2019 until June 2020.
The following charts represent the “saving” capacity of the teams to be able to place a bond with 5% of the total delegation with the i_rep historical data until June 6th and projecting from there with the 14,000 i_rep target set by the guide presented by the ICON Foundation.
The first chart shows the cumulative earnings saved according to the values in table 1 for a period of 6 months since January 1th 2020.
|date node started earning rewards||1/1/2020|
|avg % savings since start||75%|
|date IISS 3.0 was proposed||03/11/2020|
|avg % savings since IISS 3.0 was proposed||90%|
As shown in the table for the case of a team that saved 75% of their earnings since the beginning of their operations and increased their savings to 90% after IISS 3.0 was proposed, even after 6 months the 5% of node delegation bond was not achieved with the rewards of the node.
For accuracy, the last calculated value was compared with the official calculator in the icon.community website and we got a 4.4% error which was taken into account in the chart.
The following chart is a linear projection for the hypothetical case of the value of i_rep staying at a value of 14k, as we can see even after 1 year of saving 100% of the rewards the 5% bond was not achieved.
For this case since it is not possible to predict how other variables like total delegation are going to change we added a 15% error margin to the chart.
Lowering the i_rep is a positive change for the overall economic structure of the ICON Network as also is the bond requirement that will be implemented with IISS 3.0.
Given that the idea behind the bond requirement is to show that P-Reps have “skin in the game”, assigning the percentage of the bond to the total vote allocation of each P-Rep appears to be detrimental to the success of any team. This is because the amount of votes delegated to each team is irrelevant - the important factor is the actual annual return each team will get depending on the total delegation and the i_rep (commision rate).
The results indicate that it takes more than 6 months of aggressive savings for the current P-Reps to ‘break-even’, without considering other expenses including P-Rep registration fee (2000 ICX), server/infrastructure cost, and other business-related costs. With 14k i_rep, it takes approximately 600 days based on our model, provided that total delegation stays the same.
Based on this, we would like to propose that the bond be represented as a percentage of the annual earnings of the nodes instead of the total delegation. This will serve various purposes:
- It will represent more effectively the relationship between the earnings of a node with the amount of bond required
- It will allow all the teams to budget their operations more effectively
- It will discourage teams to raise the commission rate since increasing the commission rate will increase the required bond
We recommend for the bond to be a maximum of 25% of the annual earnings. Why 25%? Using 25% as the value would mean that any team will take approximately 4 months (instead of more than 7 months) to earn enough rewards to be able to place the bond which is a more reasonable timeframe. This is in our opinion a reasonable amount that will allow teams to save enough rewards to be able to place the bond before the implementation of the IISS 3.0 while still showing “skin in the game”.
In the following google sheet, you can see the data used to make the charts and how the calculations were done, also you can modify the green cells to evaluate different conditions: