Elrond Validator Economics Proposal
— Preliminary draft and likely subject to change —
We are very excited to share more information on the validator economic rewards, given the great interest we have seen from the Elrond community. You can see this as a first step in a series of conversations we will have while outlining the Elrond economic model. We appreciate your feedback so feel free to reach out!
Constants:
Total starting supply: 20 000 000 000 ERD
Minimum Stake: 500 000 ERD
Consensus Round (seconds): 5
Consensus Epoch (hours): 24
Minimum validators per shard: 500
Consensus group (no. of validators): 63
Hypothetical Maximum No. of Validators nodes assuming 20B ERD stake supply locking: = 20 000 000 000 / 500 000 = 40 000
Hypothetical Maximum No. of shards assuming 20B ERD stake supply locking: = 40 000/500 = 80
Important note: the above hypotheticals are not meant as desired targets but merely explanatory calculations outlining constraints.
Staking rewards model:
Elrond prevents attack vectors in 2 ways: incentivising validators to do a proper job, slashing malicious validators.
Most of the staking rewards are paid via new monetary supply emission. Based on preliminary calculations the overall monetary supply increase during the 1st year will be around 7.5%.
The supply emission algorithm is a function of: the number of shards, number of nodes, supply staked, and the incentive for targeted stake locked. The current model tries to keep the inflation rate between 7% to 8% no matter how much is staked. After the first year, the numbers and inflation rate are expected to be adjusted.
Please see this document for a more detailed overview on calculations.
Emission distribution will happen as follows: 90% of all newly issued ERD will go to validators, and 10% will go the the Elrond reserve pool.
Fees model:
We believe that relying on transaction fees too much creates the premises for potentially large and hard to analyse game-theoretic attacks.
Still, to create a strong incentive for validators to act in the best interest of the network we propose this fee model where:
- 50% are distributed to validators
- 40% are burned
- 10% are either (a) donated to the Elrond community fund or (b) also burned
Initial staking Targets
For the bootstrapping period of the network, we have set 2 clear initial targets for number of validators required for the network.
Target scenario 1:
In order to process around 11 250 TPS from the start, we would require a minimum of 5 shards plus metachain. Thus the calculation for this minimum threshold would look as follows:
11 250 TPS = 6 Shards (5 shards + metachain shard) = (500 nodes * 6) * 500 000 = 3000 nodes requiring 1 500 000 000 ERD for staking.
Targeted supply staked vs current circulating supply (as of June 2019):
1.5B ERD = 7.5% from 37.5%
Validator rewards/year for 7.5% supply staked: 90%
Target scenario 2:
In order to process above 22 500 TPS immediately after the beginning, we would require a minimum of 11 shards plus metachain. Thus the calculation for this scenario would look as follows:
22 500 TPS = 12 Shards (11 shards + metachain shard) = (500 nodes * 12) * 500.000 = 6000 nodes requiring 3.000.000.000 ERD for staking.
Targeted supply staked vs circulating supply: 3B ERD = 15% from 37.5%
Validator rewards/year for 15% supply staked: 45%
Simulations of Targeted stake locking, processing capacity and validator rewards
Minimum node requirements
Hardware: Elrond lowers the barrier to entry for validators, as nodes were designed to run on average consumer grade computer hardware. To be precise, you can run an Elrond node on an AWS T2 Medium, with dual-core processor, and 4GB ram.
Bandwidth: The optimal bandwidth required for an Elrond validator node to support full network performance is an average of 100Mbps.
Storage: The optimal storage capacity for a validator node to store 2 epochs of data with 15k transactions/block is 200GB.
Conclusion
Please note all the above is presented as a preliminary validator economics draft. The full economics design rationale will be presented in a paper scheduled to be published in the next period. Any feedback and suggestions are greatly appreciated in the meantime.
About Elrond:
Elrond is a new blockchain architecture, designed from scratch to bring a 1000-fold cumulative improvement in throughput and execution speed. To achieve this, Elrond introduces two key innovations: a novel Adaptive State Sharding mechanism, and a Secure Proof of Stake (PoS) algorithm, enabling linear scalability with a fast, efficient, and secure consensus mechanism. Thus, Elrond can process upwards of 10,000 transactions per second (TPS), with 5-second latency, and negligible cost, attempting to become the backbone of a permissionless, borderless, globally accessible internet economy.
Elrond is built by a team of experienced entrepreneurs along with 13 engineers and researchers with significant blockchain backgrounds and technical experience at Microsoft, Google, Intel, and NTT DATA. The team includes two PhDs in CS & AI, multiple math, CS, and AI Olympiad champions, and a former member of the NEM core team. For more information, visit: https://elrond.com
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