b-harvest/polkadot-auto-nomination-management-tool

polkadot-auto-nomination-management-tool

Polkadot-Auto-Nomination-Management-Tool

Objective

to provide an auto-nomination-management tool to maximize dot rewards with given nomination configuration

Brief Overview on Polkadot Staking

• Reference : https://wiki.polkadot.network/docs/en/learn-staking

• Validator Selection

  • 50~100 validators for each epoch(several hours) are selected by the NPoS election mechanism
  • NPoS election mechanism : calculating the backing DOTs for each mapping of nominator and validator by the blockchain
    • constraint : maximizing validator entrance hurdle
      • maximizing the amount of the backed dot of the smallest validator
    • nominator cannot decide the weights of each nomination towards each validator

• Staking Rewards Distribution

  • distribution to each validator pool
    • same amount of DOTs for each elected validator
  • distribution to each nominator in each validator-pool
    • proportional to the backing DOTs to the validator

• Rewards Mechanism

  • highlight : more stake on validator → less reward rate for nominator
    • nominators should distribute the nomination to validators with below characteristics
      • very high probability of validator election
      • as low stake on the validator as possible
  • claiming rewards : rewards are kept available for 84 eras(84 days)

• Nomination Management

  • unbonding takes 28 days
  • immediate nomination change is available
    • but is repeated nomination change in short time allowed?

• Accounts

  • Controller can manage nomination! (does not need stash account)

Reward-Optimization Tool

• Objectives

  • any nominator needs dynamic nomination strategy to maximize the staking reward rate
  • especially nominators with large DOT holding will need the nomination strategy
  • a reward-optimization tool : automatically adjust nomination to maximize the staking reward rate

• Setup and Security Conditions

  • control key : a local server should have a control key of the nominator
  • node api endpoint : there should be a node api endpoint to receive information and broadcast txs
  • firewall : every inbound except ssh can be blocked

• Configurations

  • validator_whitelist
    • definition : list of validators who can be nominated
  • min_stake, max_stake
    • definition : min/max staking amount for each validator
  • min_frequency
    • definition : minimum period of time to pause between nomination adjustment execution
  • min_valpool_percentage, max_valpool_percentage
    • definition : min/max validator-pool size in percentage of total global staking amount
    • characteristics
      • too low min : too high risk of the validator not elected
      • too high max : too inefficient staking reward rate
  • improvement_delta_threshold
    • definition : a threshold for expected staking reward rate improvement by nomination adjustment
    • characteristics
      • too low threshold : unnecessarily too frequent nomination adjustment
      • too high threshold : too lazy to stay long in inefficient nomination distribution
  • commission_rate_ignore
    • definition : whether to ignore commission rate of each validator or not

• Methodology

  • general idea
    • the program finds the nomination distribution with highest reward rate under given configurations
    • the program then automatically generates and broadcasts nomination adjustment transactions
  • algorithm
    • it is found by brute-force simulation
    • to be improved on next version
  • roadmap
    • we will find better algorithm to achieve better precision and faster calculation time

• Consideration on Execution of Nomination Target Change

  • problem : Polkadot only allows multiple nominations in one stash account by below restriction
    • the weights of each nomination toward each validator are decided by the blockchain
    • the nominator has no right on deciding the weights of each nomination
    • it will result in very inefficient reward rate
      • nominator should utilize very precise diversification strategy to acquire highest possible reward rate, especially for holders with large DOT quantity
  • solution : split into N stash accounts
    • nominate each splitted account to different validators
    • the nominator can diversify nomination to different validators with self-decided weights
    • the precision of diversification will be limited to 1/N %
      • if N=20, possible nomination size for each validator is 0%, 5%, 10%, ... (of total asset)
      • if N=100, possible nomination size for each validator is 0%, 1%, 2%, ... (of total asset)

• Operation and Security

  • Automatic vs Semi-automatic
    • Automatic
      • the program calculates the best diversification weights
      • the program then automatically creates and broadcasts nomination change transactions
    • Semi-automatic
      • the program calculates the best diversification weights
      • the program then alerts fund manager and print out necessary nomination change transactions to be signed and broadcasted
      • the fund manager signs to the transactions and broadcasts to the network
  • Security
    • Automatic
      • it needs controller keys of each stash account to operate
      • the controller key cannot create send transaction → limited risk of key stealing
    • Semi-automatic
      • the program does not need any key at all