Elrond Genesis Staking Rationale and Incentives — Part 2
In our last post we have covered the general aspects about the Elrond Genesis staking, so in this post we will go into more detail on the Genesis launch, bootstrapping process, structure and rewards.
It is worth noting that at the time of this writing, Elrond is the most advanced state sharded proof of stake architecture having a fully integrated and working model that can process upwards of 10.000 transactions per second, with only 2 shards plus metachain. No other architecture is anywhere close to having solved cross shard transactions properly in production, not to mention the performance differences.
With this in mind, here are some of the most relevant details:
Rationale and structure
One of the main goals we had in mind when we designed the Elrond protocol was high scalability. We achieve this by partitioning the network into shards, to enable parallel transaction processing. More validators means more shards, and more shards means a more scalable network.
To bootstrap the Elrond protocol in a transparent way, we will use a Genesis smart contract deployed on Ethereum, which will act as a bridge to the Mainnet, and will gather all necessary data for the Elrond genesis block.
Validators numbers
At launch, the Elrond Mainnet will be bootstrapped by (1) community validators, (2) Staking as a Service validators, and (3) foundational validators, run by Elrond itself. Elrond has announced a phased launch approach, so the ratio at the launch will be 33% third-party validators and 67% Elrond’s foundational validators. The next 3–6 months after the launch, the Elrond foundational validators will gradually decrease, until the majority of the network is community run.
This means the Mainnet will be launched with a fixed number of 1500 nodes. 495 nodes will be run by third-party validators and 1005 nodes run by Elrond. These 1500 nodes will form 2 shards and 1 metachain, each with 500 nodes. Elrond’s foundational nodes will be run with stake delegated by the community.
Staking requirements
The amount of stake required to run a node at launch will be fixed to 2.5 Mil ERD.
After the launch of the Mainnet, our next milestone will be to enable an auction mechanism which will determine the optimal stake/node ratio dynamically. More details about the auction mechanism will be released during the next weeks with the Economics paper.
Delegation
Anyone holding ERD tokens will be able to participate in staking indirectly by delegation. Delegating ERDs is a way of investing one’s ERDs, and contributing to the security of the system. The larger the total amount of ERDs staked, the higher the system security, thanks to the increasing amount of stake needed by an adversary to get any nodes elected as validators.
At genesis all the delegations will go towards the Elrond foundational nodes. Community nodes will put up their own stake, and Staking as a Service providers will temporarily receive stake delegation from the special Elrond company reserve.
Since Elrond as a company is required to run a number of nodes for security reasons, Elrond will act briefly as a staking as a service provider at the launch of the Mainnet. There is a fixed number of 1005 nodes run by Elrond and a fixed stake per node of 2.5 Mil ERD, so the maximum amount of ERD possible to be delegated to Elrond before launch is: 2 512 500 000 ERD (2.51 Bil ERD).
After the launch, once the auction smart contract is live, there will be no limitation on the total amount of ERD that can be delegated, and validators will be able to create their own smart contract for delegation, defining their own rules for delegation (rewards distribution, fees, etc.).
Staking rewards
Staking rewards, possibility of slashing, or increasing/decreasing a node rating, are a set of incentives that encourage token holders and validators to secure the Elrond Network. In return for security, the validators can increase their relative share of token holdings in the network.
While some see staking rewards as a way to provide an income stream for contribution to token holders, we believe the economic rationale for staking can be better described as a way to increase relative interest and share of the network, which drives token appreciation as a second order effect.
If issuance rate is a dilution rate, then staking is the best way to grow your token holdings and interest in the Elrond Network.
Thus rewards in Elrond are calculated as follows:
- There will be a minimum guaranteed reward amount per year.
- The minimum guaranteed rewards will come from (1) fees and (2) issuance.
- If the cumulative sum of fees during one year is higher than the minimum guaranteed rewards, issuance rate becomes zero, and the distributed rewards will be higher than the minimum guaranteed rewards. Otherwise, total fees will just decrease the issuance by the corresponding amount.
- So the maximum issuance rate per year, assuming fees are zero, will not exceed the following:
- 7.5% of the total supply in the first year
- 6.25% of the total supply in the second year
- 5% of the total supply in the third year and all subsequent years
By adopting this approach, we have created the premises for the transition to a very robust deflationary monetary system.
Rewards for the Genesis SC will be calculated as follows:
- Will begin once a transaction of staking or delegation is successfully registered in the Genesis SC, and will last until the first day when the launch of the Mainnet takes place
- Rewards will be a fixed APR of 25%, which is in line with the rewards for Mainnet staking
Here is a detailed overview of the rewards calculator for validators after the Mainnet launch:
Un-staking and un-bounding period
For a short period of time after the launch of Mainnet (estimated to be around 1 month), un-staking and the withdrawal of one’s delegation will not be enabled.
When this un-staking is enabled, once a validator will want to un-stake, he will initiate a transaction that indicates he wants to un-stake a number of nodes. The un-bounding period is set at 10 days, after which the node will be able to retrieve its previously staked funds. We estimate that the same period of 10 days will apply to the delegated ERD.
You can also find all this information in the AMA recording of today:
In the Part 3 of this process, which is scheduled for tomorrow, we will cover the process of how to staking/delegate safely to the Genesis Smart Contract via MetaMask.
Thank you for your amazing support!
Disclaimer: Nothing in this article or elrond.com website is an offer to sell, or the solicitation of an offer to buy, any tokens. Elrond is publishing this post solely to receive feedback and comments from the public. Nothing in this post should be treated or read as a guarantee or promise of how Elrond’s business or the tokens will develop or of the utility or value of the tokens. This post and elrond.com website outlines current plans, which could change at its discretion, and the success of which will depend on many factors outside Elrond’s control, including market-based factors and factors within the data and cryptocurrency industries, among others. Any statements about future events are based solely on Elrond’s analysis of the issues described in this post or elrond.com website. That analysis may prove to be incorrect.
