Proposal 004 - Validator Selection (5L8KSzBZx)

Proposal 004 - Validator Selection
This is the fourth proposal submitted by the Staker Operations team (Ops) based on STKR token holder feedback. The primary purpose of this proposal is to select validators for Blend’s underlying assets.

Proposal Items:

  1. Ops team, in conjunction with STKR token holder feedback, is proposing the following validators: StakeNow, HappyTezos, Figment Networks, Cryptium Labs, CryptoDelegate, and Staked. Further information related to allocations per validator is below.

  2. Ops team is proposing to broaden the scope of emergency powers to the Staker Council.

  3. The minimum market cap for potential inclusion into the Blend basket will decrease from $500mn to $300mn.

ITEM 1:

Background:

All of the validators proposed in this cycle are represented by STKR token holders, directly or indirectly (e.g. a portfolio company). Detailed validator information can be found here.

Selection Criteria:

Section A:

The following questions must be answered with “Yes”

  1. Is the validator a STKR token holder or otherwise, represented by one?
  2. Has the validator operated its business for at least one year?
  3. Is the business operating in a region where Staker Services may pursue legal remediation in case of a dispute?
  4. Is efficiency +99%?
  5. In the case where delegates are responsible for slashing risks, has the validator not previously been slashed in the last year or if so, does the validator insure its slashing risk?
  6. Has the validator managed +$1mn for at least one year?
  7. Will the validator charge fees of 15% or less?
  8. Will Staker retain the private keys for its assets?

Section B:
Internally, Staker Ops will conduct one qualitative consideration, which is meant to safeguard against validators that may be detrimental to a network.

  1. Does the validator have a satisfactory reputation i.e. has not been viewed extremely negatively by the community?

Section C:
If the validators satisfy the requirements in Section A & B, we will allocate funds equally across 3 variables. These variables will be examined quarterly and will be rebalanced as necessary.

  1. Number of delegates*
    e.g. Validator A’s delegated tokens will be their respective share of the sum of all validators’ delegates.

*If Staker Ops suspects that a validator is artificially inflating its delegate count through a series of addresses with insignificant sums, Staker Ops will examine wallet balances across all of a validator’s delegates and compare balances to a minimum value each wallet must hold. This minimum value will not be disclosed, but will be reasonable.

  1. Assets under management
    e.g. Validator A’s delegated tokens will be their respective share of the sum of all validators’ AUM.

  2. Fees
    e.g. equal fees on absolute terms

Example:
Staker will delegate $100 of Cosmos to two validators, Val A and Val B.

  1. Val A: 500 delegates, Val B: 1000 delegates
    Val A: $33.3 * (500/1500) = $11.1, Val B: $33.3 * (1000/1500) = $22.2

  2. Val A: 25mn AUM, Val B: 15mn AUM
    Val A: $33.3 * (25/40) = $20.8, Val B: $33.3 * (15/40) = $12.5

  3. Val A: 10% fee, Val B: 15% fee
    Val A: 10% = 100, Val B: 15% = 66.7 so…
    Val A: $33.3 * (100/167) = $19.9, Val B: $33.3 * (67/167) = $13.4

Note: Staker will conduct best efforts to negotiate fees to a single rate across all validators.

Section D:
Finally, if a validator has reached capacity and is unable to accept additional delegations then the remaining validators will validate the balance left over for one quarter*. Distribution of the balance would follow the formula outlined in Section C. The validator which was unable to accept additional delegations may work to increase its capacity during this period of time. This period of time will also allow the remaining validators to adequately manage the delegated assets and unbond with sufficient notice if the original validator proves its ability to handle the additional capacity.

*If no validator is capable of additional delegations, then Staker Ops will select additional validators, which will require retroactive approval by the Staker Council.

Tezos:
The following validators will participate in baking: StakeNow, HappyTezos, Figment Networks, Cryptium Labs, CryptoDelegate, and Staked.

Cosmos:
The following validators will participate in validating: Figment Networks, Cryptium Labs and Staked.

Algorand:
Algorand’s validation process lacks complexity and therefore Staker intends to secure and validate these assets internally.

Disclosure:
In order to ease any concerns related to potential conflicts of interest, the following entities will not initially be delegated any assets: Polychain Labs, Coinbase, and Tezos Capital. These entities will only be used if less than 3 validators participate in validation for Blend’s underlying assets, which would create various risks. These entities would represent fail-safes at launch. However, over time and once the number of validators grows to sufficient distribution, these entities may be considered. Any consideration of these entities as validators would be formalized into a proposal and approved by the STKR Council at a later date.

ITEM 2:
In Proposal #002, Staker Ops and the STKR community approved emergency adjustments for Blend in extraordinary cases. The broadened scope proposed here would entail all of the Staker ecosystem and its products, but once again, is only to be used in an emergency situation. This could include an unforeseen issue with the Ethereum or Tezos network where our contracts live.

ITEM 3:
Given the recent sharp movements in crypto markets, Ops is proposing a decrease in the minimum market cap in Blend’s underlying assets from $500mn to $300mn. Previously, underlying assets traded at +$800mn, but severe drawdowns pushed assets briefly below $500mn. This item will proactively lower the market cap in the event that this may re-occur in the future and force unwanted rebalances in Blend.

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