The Elrond Bootstrapping Process
Later edit (20 December 2019): we have updated the Spreadsheet link to rewards calculator v2. Changes reflect a minor correction in the formulas but the reward rate remains the same. The daily multiplier was changed to 0.5% to reflect the Smart Contract implementation. Examples have also been slightly modified to reflect how rewards are calculated. We’ve also added a disclaimer at the end.
After long months of research, coding and testing, we are excited to announce that Elrond is finally ready to start the MainNet bootstrapping process. Due to the complexity of a public blockchain architecture, the only possible scenario in which Elrond transitions from Testnet to MainNet is through a carefully executed phased bootstrapping process. Through this process we will address functionality, security, performance, and gradual decentralization in a logical order via 3 dedicated steps.
This article will briefly cover the 3 different phases of the bootstrapping process, and specifically zoom in on Phase 1.
The three phase process
Phase 1 — will deal with the security of the network, mainly viewed through the economics lens. Proof of Stake economics and security rest on aligning the incentives of all the network participants, and include a significant collateral to be locked up. The main implications of stake locking involve mitigation against Sybil attacks, lowering outstanding circulating supply, potentially increasing network value, to introduce prohibitively larger attack costs for malicious actors. Phase 1 focuses specifically on increasing the economical deterrents against network attacks by locking a sufficient amount of the circulating supply in for staking.
Phase 2 — once enough ERD is pre-staked(40%–50% of circulating supply), the final audits are done, and the Elrond network is running for 15 days without being taken down via attacks, phase 2 will begin. Phase 2 of the bootstrapping process will focus on publicly introducing core functionalities, while extending the security and robustness of the network. To protect against most adversarial node attacks, the validator infrastructure will be initially operated by a mix of trusted community members, professional infrastructure staking partners and Elrond itself. Thus phase 2 will start with a trusted validator set, enabling progressive feature activation.
Phase 3 — will focus on running a fully featured and secure network while extensively decentralizing it to the point where Elrond only operates a minimum fall-back infrastructure. The entire purpose of the phased bootstrapping process is to ensure a robust network and ecosystem, ready to stand on its own.
Phase 1: Start staking, contribute to reaching the economic security threshold, earn rewards
Kickstarting the staking process is an important milestone in the ERD token evolution. People actively contributing and supporting its inception will be able to earn a limited return on staking of up to 32% annual rewards.
Through this phase we are aiming for 50% of circulating supply or 5 Billion ERD to be committed and pre-staked. Provided the target is reached, the circulating supply will be drastically reduced, hence dramatically increasing costs of potential economic attacks and ensuring a necessary economic security threshold before genesis.
So how does the pre-staking process look?
Timeline & targets:
- Launch of staking process: 23–29 December (pending smart contract audits)
- Total staking cap: limited to 5 Billion ERD or ~50% of ERD circulating supply
- Process: 500 Million ERD staking tranches unlocked every 3 days
- Reward rate: 17%-32% annualized staking rewards
- Total staking period: until Elrond MainNet staking or max reward reached
- Incentives: The mechanism will strongly encourage (1) early staking, (2) staking as long as possible, and (3) staking as much as possible
- Max. total reward for phase 1: 400 Million ERD
User process:
- An ERC20 staking smart contract address will be published on the elrond.com website, with Twitter, Telegram & Medium posts confirming the contract address and the steps involved
- Token holders will be able to withdraw from Binance exchange ERD as ERC20 to an Ethereum wallet they control, with sufficient ETH funds to pay gas fees
- A dedicated staking website, with a user-friendly interface and Metamask integration will make the process simple and intuitive
- ERC20 ERD tokens will be deposited into the staking smart contract by first reserving a spot and then sending a special transaction
Terms & Conditions:
- Only one staking transaction per Ethereum address is permitted
- Only direct staking from an Ethereum account that you own is supported
- Staking via a 3rd party smart contract or directly from an exchange will not be possible
- Withdrawals are only possible after 30 days have passed since the staking Smart contract became active
- Only full withdrawals of the total amount deposited are possible
- 7 days unstaking period between signalling withdrawal intention and actual claim
- No rewards are accrued during the 7 day withdraw period
Competitive incentives aligning interests
The staking mechanism is designed with progressive incentives aimed at encouraging early involvement to reach security threshold, longer term staking, as well as collaboration on achieving the highest amount staked possible. The detailed mechanism looks as follows:
- The initial reward rate will start at 17%, annualized and calculated for each day the stake is not withdrawn. This will encourage staking as early as possible.
- A second individual bonus reward will apply a 0.5% increase to the reward rate every single day. So for example if on day one the reward rate is 17% on the next day will be increased with 0.085% and on the next day with an additional 0.085% and so on. If enough is staked at the global level and for example the reward rate becomes 19%, we will add 0.095% to the reward rate each day the reward rate stays at 19%.
- This will encourage stakers to keep staking for as long as possible.
- A third global bonus can increase the reward rate for everyone, based on the total sum staked by all deposits. Once a targeted amount milestone is reached (see below), a larger global bonus is unlocked and applied to all deposits. Global bonus milestones look as follows:
- 0–1.25 Billion staked — 17% annual reward rate
- 1.25 Billion — 2.5 Billion staked: — 19% annual reward rate
- 2.5 Billion — 3.75 Billion staked: — 21 % annual reward rate
- 3.75 Billion — 5 Billion staked: — 23% annual reward rate
To sum up, if someone stakes 1 Million ERD for 30 days, and the total amount staked is less than 1.25 Billion (< 25%), he will earn 16,068.49 ERD for an annualized reward rate of 19.55%. He will earn 36,328.77 ERD for an annualized reward rate of 22.10% after 60 days, and 60,780.82 ERD for an annualized reward rate of 24.65% after 90 days.
If he will stake the same amount for 30 days and the total amount staked is 5 Billion (100%), he will earn 19,093.15 ERD for an annualized reward rate of 23.23% after 30 days. After 60 days rewards will be 46,158.90 ERD for an annualized reward rate of 28.08%, and 78,895.89 ERD for an annualized reward rate of 31.997% after 90 days.
To get a detailed view on staking calculations, here is a Spreadsheet. Be sure to make a copy, and play with the numbers from the second sheet, called Variables: https://docs.google.com/spreadsheets/d/1aE0DzDU4HgA3TVWRJxvsEKlOEdn57KkBEADbx2DZaaA/edit?usp=sharing
Staking status and next steps
The staking procedure, reward rate and relevant figures are final. The staking smart contract is built accordingly, and in the process of undergoing final tests and security audits. Once the smart contract audit is done, we will go live with it.
We’ve designed the Smart Contract to have rewards enabled until delegation and staking will become live on the Elrond MainNet, or until a maximum of 400 Million ERD rewards will be reached. These rewards will be allocated from the Ecosystem rewards pool.
Please keep in mind that the economic model of the second phase will be different than the current one. The exact mechanism will be published in the Elrond Economic paper during the coming weeks.
We are pushing hard for a “before-Christmas” deadline, meaning we are just days away from going live with our phased bootstrapping process.
Let’s get the next phase started!
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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.
