Intro to Aleo staking

Aleo is gearing up for Phase III Testnet 3 that will introduce external 3rd-party validators and enable staking functionality in a final decentralized simulation for the launch of mainnet. We can infer how staking will function on Aleo by taking a look through the source files, credits.aleo, and other relevant parts of Aleo’s codebase. This article provides a sneak peek into what we can expect for staking on Aleo.

Please note that Aleo is still actively in the process of developing and finalizing how staking functions. This post has been written with available information on October 19, 2023.

What is staking?

Aleo is a Layer 1 that powers private applications using zero-knowledge proofs. Zero-knowledge proofs will need a special group of participants called provers. Provers help create cryptographic proofs of transactions without revealing its content. They play a critical and fundamental role in Aleo and are incentivized to generate proofs for the network by receiving coinbase rewards.

While provers play a critical part in ensuring privacy, Aleo will have another important group of participants: validators. Validators form consensus on new blocks and block history on Proof of Stake blockchains like Aleo. To prevent sybil attacks (i.e. malicious actors running multiple validators to rewrite blockchain history), validators are required to stake Aleo Credits. To be an active Aleo validator, 1 million Aleo Credits must be self staked. After becoming active, validators can receive stake from other token holders in the form of delegations. Both delegators and validators are considered stakers and receive staking rewards in return for performing their duties on chain.

How can you begin staking?

There are two ways to participate in Aleo staking.

1. You can become a validator. As a validator, you will need to run an Aleo node that communicates with other validators to form consensus on block history and new blocks to add.
2. You can become a delegator. As a delegator, you will select validators and stake your Aleo Credits to them. You retain full control of your assets through this process.

Running a validator could be a challenging task for most people. We recommend people to try running a testnet validator before deciding whether or not they have the technical knowledge to maintain a mainnet validator. Delegating will be the easier form of staking and is still a great way to contribute to Aleo’s security and earn rewards.

What should you know before staking by delegating?

Delegators will need a minimum of 10 Aleo Credits to start earning rewards. Once you stake, activation is immediate and you can expect to earn rewards in the same block. Rewards are added directly to your staking balance every block and do not need to be claimed.

It’s important to keep in mind that while Aleo Credits are staked, they are locked and cannot be transferred unless unstaked first. Unstaking is subject to an unbonding period of 1 hour. So after an unstaking transaction is made, you will need to wait approximately 1 hour before you can transfer your Aleo Credits.

What validator should you choose?

While non-custodial validators have no access to your funds when you delegate, it is still important to carefully research and do your due diligence on the validator you stake with. A blockchain cannot thrive without a strong validator set to support it, and this responsibility falls into the hands of stakers. So, what are some factors you should consider when choosing a validator?

Good performance

• A validator’s most fundamental role is to keep the blockchain running. Any validator who fails to maintain high uptime causes the entire network to underperform. Therefore, it’s critical to move stake away from underperforming validators.

Strong contributors

• Validators today do much more than just validate. Some provide public RPC endpoints. Some build out useful tools. Some build communities. The revenue they earn from running validators helps fund many of these contributions.

Commissions

• Validators typically charge commission for their services. While competition has helped keep commissions at a low range, you should stake with validators that have a reasonable commission rate.

Decentralization

• Having stake concentrated with a few validators is dangerous for the network. For example, if only 4 validators are required to form consensus on newer blocks, this means if any of those 2 get compromised, the entire network may be at risk. This is why decentralizing stake is important: it helps the network become more resilient.

Ecosystem reputation

• Many validators will be multichain validators with at least 10+ different networks supported. They will have a track record of how they’ve performed in other ecosystems. This could provide a good sneak peek on how they will do on Aleo in the future.

What should you know as a validator?

As a validator, you will have different requirements than a delegator. You need to have at least 1,000,000 Aleo Credits staked to be an active validator. Additionally, you will not receive any rewards if your stake exceeds more than 25% of total active stake.

A validator cannot exit from the active set as long as they have at least one active delegator. In order to exit, a validator must first halt accepting any newer delegations. After halting, the validator can forcefully unstake their delegators. Once no more delegators exist, a validator can then finally exit from the active set.

Rewards

There are two parts to the staking rewards. First, the protocol issues 5% of the starting total supply as staking rewards. Second, coinbase rewards are also distributed to Aleo stakers. Coinbase rewards are generated from the inclusion of coinbase solutions that Aleo provers provide to Aleo validators. These rewards are issued depending on the current difficulty target of the coinbase puzzles. As an incentive, stakers receive half of the coinbase rewards to include coinbase solutions provided by Aleo provers into new blocks.

Rewards are distributed every block directly to the staking balance of stakers. This means any rewards earned will be automatically staked and, in turn, start earning rewards. In order to realize any rewards, stakers will need to unstake.

Miscellaneous

It is typical for Proof of Stake blockchains to have penalties and slashing. Penalties are in place to punish validators who have lackluster performance (i.e. offline for a prolonged period). Slashing is more punitive and is enforced on malicious validators (i.e. attesting to two conflicting histories of the blockchain). There is no information yet on whether Aleo will have penalties and slashing in place.

Acknowledgement

Thank you to Daniel, Aleo’s validator ecosystem lead, and Haruka (はるか), creator of this wonderful Aleo explorer, for your helpful comments and feedback on this post.

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