Rewards and Transaction Fees for the Axelar Network
Overview and Key Outcomes
The Axelar Network uses Proof-of-Stake (PoS) consensus to secure the network and validate transactions on chain. Validators earn token rewards for producing new blocks, participating in multi-party signing, and voting on external chain states. Token holders can delegate their tokens to a validator’s staking pool, and earn a portion of the validator’s rewards. Rewards on the network are inflationary, increasing the total supply of tokens.
The structures for inflation and transaction fees in the Axelar Network are engineered to achieve a set of key outcomes. Some of those key outcomes are explained below.
- Security. A proper incentives model with healthy staking rewards that achieves sufficient network security and market stability.
- Decentralization. Appropriate rewards that encourage validators to run nodes on supported external chains.
- Longevity. The tokenomics must encourage general maintenance of all critical Axelar-related processes (this includes axelar-core, tofnd, vald, etc.).
All parameters, rewards, and fees outlined in this document are preliminary and subject to change prior to the network launch. Following the network launch, they can be updated by the community through on-chain governance proposals.
Members of the Axelar team hosted a community AMA to provide context and answer questions around the content of this post. Watch it here:
https://www.youtube.com/watch?v=2KzJ66SMWL0
The Three Components of Inflation in the Axelar Network
Axelar Network’s overall inflation system is a function of three operations — rewards from participating in the underlying Tendermint (TM) Consensus, rewards from participating in the multi-party signing protocols (MSigs) on top (these two, collectively, determine the “base” inflation rate), and finally the rewards from verifying events on external chains.
Nodes can become a consensus validator with a minimum delegation of 1 Axelar token. Consensus validators can choose to participate in MSig protocols and voting on external chain events by registering a broadcaster/proxy account (created by the vald process) which will be used for broadcasting network related messages. This account must have a minimum of 5 Axelar tokens (but we recommend keeping a balance of 100). Gas costs for network-related messages from this account are auto-refunded.
- The base inflation rate is a function of the amount of stake delegated in the system, set at %. This is split 50–50% between:
- The underlying TM Consensus
- Participation in MSigs
2. For each chain interconnected through the Axelar Network, there is an external chain inflation rate introduced into the system. The external chain inflation rate will decline over time, according to the following schedule:
- Years 0–1: 1% per external chain.
- Years 1–2: 0.75% per chain.
- Years 2–3: 0.5% per external chain.
This inflation rate is set for each additional chain and is distributed among the validators who maintain nodes for those external chains and vote correctly on the events from those chains. Hence, external chains that have a few maintainers in years 0–1 will get a larger proportion of the 1% reward. This encourages validators to maintain more chains. Also, Cosmos-based chains are supported natively through IBC, so validators don’t need to add special support for it.
The foundation will work with the community and development team to implement the updated inflation rate following the schedule, subject to lessons learned from the first year. The above schedule is set to achieve the following objectives:
- Provide higher early inflation to incentivize staking and securing the network from the community.
- Gradually decrease the inflation as more chains are integrated through the Axelar network, while providing enough incentives for validators to continue supporting external chains.
Rewards are distributed to the validators, who then, in turn, take a commission and pass the remainder to the token holders that delegated to them. This commission is determined by the validator, and will depend on the number of nodes they run, the overall complexity of their operation, and the resulting operational costs.
Given higher resources required to maintain the network, the network will implement a minimum validator commission rate on the network of 5% [this parameter can be upgraded by governance, later].
Slashing and Locking in the Axelar Network
Rewards slashing in the Axelar Network is designed to incentivize validators to avoid undesirable behavior, such as losing liveness, failing to vote correctly on external chains’ events, double signing, etc. Rewards are accrued at the end of every block and released depending on the reward type. The slashing mechanisms in the Axelar Network are unique to each component of inflation.
Within the TM consensus rewards, the slashing rules are standard; validators will lose the TM Consensus rewards if they lose liveness. Validators need to sign 50% of the blocks in every 35000 block window. Given a block time of 5 seconds, this corresponds to maintaining total liveness for at least one day in every two day window. They lose 0.01% of rewards per block for downtime, and they lose 2% for double signing blocks. If the validators lose liveness for more than 50% of the window, then they are locked (“jailed” in Cosmos, forbidden from rejoining the validator set) for 2 hours (about 1440 blocks), after which they would need to unlock themselves. Axelar Network implements an unbonding period of seven days.
For MSigs, liveness of the broadcaster account is signaled through “heartbeat” messages that are sent every 50 blocks by vald. Validators are considered “active” if their latest heartbeat message was received within the last 50 blocks, they are not suspended from MSigs, they have missed signing less than 5% of the blocks in the last signed blocks window for consensus, and are considered “live” by the consensus layer. Accrued rewards are released whenever validators submit a heartbeat. A snapshot of “active” validators is taken to determine participation in MSig protocol. If an “active” validator failed to participate in MSigs, then they are considered to have lost liveness, and are suspended from further MSigs participation for 8500 blocks (which is about ½ day with 5 sec block times), along with losing their accrued rewards. If a validator fails to submit a heartbeat message, they stop accruing MSig rewards for every block until their next heartbeat. For example, in the diagram below, a validator missed the 3rd and 6th heartbeat, and so they don’t accrue (i.e lose) MSig rewards for 2 * 50 = 100 blocks.
For external chain voting, all validators that registered as chain maintainers can vote on events. A validator’s voting power corresponds to the fraction of total stake delegated to them. Validators who submitted the majority vote have their accrued rewards released. To incentivize liveness and good behavior, validators who fail to vote, or who submitted the minority vote lose their accrued rewards.
Transaction Fees in the Axelar Network
The Axelar Network leverages transaction fees, as is usual in any blockchain. There is a base fee for each cross-chain request in the Axelar network. Fee schedules are published in the Axelar docs. It’s important to note that the EVM contracts allow anyone to pay the transaction fees involved.
The key exception here are broadcaster accounts that are registered by validators. Messages from these broadcaster accounts are central to the consensus process, and therefore, are not subject to a transaction fee. The gas fees incurred by the broadcaster for network messages are automatically refunded by the network.
On the network level, there is a fee collector account that is registered that will collect fees for processing requests on the network. This account will be governed by the Axelar Foundation and used to pay the transaction fees for relaying of transactions across different chains, and to perform other community driven activities (e.g., perform token buybacks and burns, drive community programs, etc.)
The Axelar network token may end up being deflationary if the fees collected for cross-chain transactions are higher than the network processing cost, the potential Foundation token buy-backs, and burn mechanism.
Summary of inflation and fee parameters (15 Dec 21)
These are candidate parameters for the network rollout and will be subject to change at the sole discretion of the Axelar Foundation and it’s community members prior to the network launch. Subsequently after the network launch, these parameters can be updated through on-chain governance proposals.
Change log
