Understanding few key features of Cosmos Hub
Description of Token distribution, governance and slashing for Delegators
There are a lot of reasons why Cosmos Network is evaluated very positively. Things such as Cosmos-SDK which enables developers to create blockchain application in a simpler manner, Tendermint Consensus Engine, connection to different chains through IBC, and theoretically unlimited scalabilities make Cosmos Hub a great chain, but behind all these technology, participation of Atom holders is also required for the Cosmos Hub. Unless you are a developer, there are not a lot of ways for holders of cryptocurrency such as Bitcoin and Ethereum, to join and contribute to the ecosystem. But on Cosmos Hub, anyone who holds Atoms can delegate their tokens to earn rewards and participate in governance.
But Cosmos, as it took a long time to develop, is not the simplest blockchain to understand. There are so many aspects and functions, which makes it extremely difficult for non-tech-savvy people to know which information is necessary.
This post aims to explain some of the key features of Cosmos-SDK, such as token distribution, staking and slashing specs in a shorter manner for potential delegators and delegators. Hopefully, this post helps you to understand what being a delegator is like, and help you participate in Cosmos Hub.
(This post has information that is published on https://cosmos.network and Cosmos official Github. You can find much more information on those pages)
Token Distribution
Distribution mechanism describes how rewards are shared between validators and delegators.
Rewards are gathered into a specific Pool. From here, reward is distributed among validators and delegators. Validator node plays a role in gathering the reward on behalf of delegators, thus, may charge Commission fee, which is validator service fee, to the delegators. This commission fee will gather up in Global Reward Pool and Validator Proposer Reward Pool (Validators receive a 1~5% bonus reward when they propose a block).
On Cosmos Hub, the following rewards are distributed to Delegators:
- Transaction Fee: Currently Atom is the only whitelisted token which can be used as transaction fee. In the future, new tokens can be whitelisted to be used as transaction fee.
- Proposer-Reward: If a validator is the proposer of a specific block, depending on the Pre-commits votes gathered within that block, 1~5% bonus reward is given.
- Block Provision: This is Atom reward which is created based on the inflation rate (which is 7~20%) of Cosmos Hub.
The rewards are distributed among delegator, based on the ratio of Atoms they’ve delegated to a certain validator.
The Cosmos official webpage has a good example of how the reward is distributed.
Let’s assume that there are only 10 validators on the network, each with same number of Atoms bonded. All validators will charge 1% commission fee. All validators have 20% of Atoms as their self-bonded amount, and 80% from delegation.
Let’s say that the total block provision is 1000 Atoms. Each validator on the hub currently holds the same number of Atoms, so each validator receives 100 Atoms.
Among the 100 Atoms received by the validator, except for the 20%, the 80% belongs to the delegator. Then delegators will receive:
- Commission Fee: 100 ATOM * 80% * 1% = 0.8 ATOM
- Delegator’s Share of Reward: (100 ATOM * 80%) — 0.8 ATOM = 79.2 ATOM
Each delegators will be shared their portion of 79.2 ATOM based on the ratio of their delegated Atoms to the other delegators.
Cases including Proposer Bonus, and more specific calculation examples can be seen from our other post:
Withdrawing Reward from the Pool
Delegators and validators can directly withdraw rewards from the pool by themselves. But in case of change in values which can affect the reward distribution rates, all rewards from the pool will be withdrawn automatically.
- When delegator redelegates to another validator or unbonds, all rewards will be withdrawn from the pool
- When the validator changes their commission fee, all rewards in global reward pool will be withdrawn
- If the validator gets Slashed, or gain/lose validator spot, all rewards dedicated to the validator will be withdrawn from the global pool
- You cannot withdraw just a part of reward. Every time you withdraw, all reward will be withdrawn.
Governance
Governance is an important feature, where delegators and validators vote for proposals submitted by anyone who holds Atoms.
Currently changing blocks per year parameter, enabling Atom transfers and other important proposals were submitted and passed through Cosmos governance. This is one way (maybe the most important!) delegators can directly influence what happens on Cosmos Hub.
There are 4 major stages to governance:
1. Proposal Submission: Regardless of if you are a delegator or not, if you have enough Atoms to pay for deposit, you can submit a governance proposal. Total of 512 Atom deposit is required for governance proposal to enter voting period, and deposit could be paid by participation of many people.
2. Voting Period: After 512 Atoms have been paid as deposit, voting period begins. Delegators and Validators can choose between, YES, No, NoWithVeto or Abstain.
3. Vote Inheritance: Even when the delegator does not vote, if their validator votes, they will inherit the decision of their validator. If the validator votes YES, the delegators who did not vote will be also voting YES.
4. Claiming Deposit: If the governance proposal passes, or never enters the voting period, all deposit will be returned to the people who paid them.
The voting period is 2 weeks long. For a governance proposal to pass, the below conditions must be met:
- Quorum must be at least 40% of the total staked Atoms
- Not counting Abstain votes, if 50% or more votes YES, governance proposal passes.
New suggestions and ideas are being discussed on developing the governance system of Cosmos Hub. Soon, these changes will be implemented:
- You can submit governance proposal to use funds from Community Pool for the purpose of Cosmos’ long-term good
- Deposit for governance will only be burned if the result is NoWithVeto
Please keep yourself updated to new changes that will come through governance!
Staking (bonding) and Slashing
Staking means Atom is bonded (delegated, and used as voting power) to the Cosmos Hub. If you are trying to vote on governance proposals or want to earn rewards, Atom must be staked to Cosmos Hub.
Right now, Cosmos Network chooses top 100 validators with the most bonded Atoms (including self-bond and delegated amount). Delegators can take the following actions regarding staking their Atoms:
- Delegation
- Unbonding / Undelegate: If an individual delegator wishes to take away their bonded Atoms from a validator, they will enter Unbonding Period. From the point when they send Unbonding Transaction, those Atoms will be locked, meaning they cannot send or delegate those Atoms, for 21 days (3 weeks). Also, during the Unbonding Period, delegator cannot receive rewards from the network.
- Redelegate: Delegators can immediately change their validators without unbonding. But after 1 redelegation, delegator has to wait 3 weeks to redelegate again.
If anyone is having trouble delegating, please refer to Node A-Team’s previous post:
Staking, or delegating will prevent your Atom value from being diluted by earning rewards, but there are always risks. When validator fails to sign too many pre-commits or causes double-sign, slashing can happen. When validator gets slashed, their delegators’ Atoms will be slashed as well.
- Downtime Slashing: Downtime happens when a validator misses pre-commits. Among the 10,000 blocks window, if a validator misses 9,500 pre-commits they will be slashed 0.01% of their total staked Atoms.
- Double Sign Slashing: This is the most critical error that a validator can get, which also endangers their delegators’ shares. Unlike downtime slashing, double sign slashing ratio is 5%, and that Validator will be tombstoned, meaning that their key is eternally blocked from the network.
Slashing can hurt delegators’ shares, so delegators must be aware of their validators’ past records such as downtime to pick the safest and most secure validator.
Slashing during Unbonding Period
But, what if I’ve already unbonded, and the validator gets slashed during my unbonding period? Simply, you can say unbonding means that you’ve already left that validator. So, any slashing which happens after unbonding will not affect the unbonding Atoms.
Closing
We’ve looked into some of the most important features of Cosmos-SDK for delegators. Many details are missing from this post, but hopefully this helps those who were not clear about how delegation works.
Thank you for reading this long post!
Node A-Team (Moniker: ATEAM) is a Cosmos-SDK and Tendermint-based Blockchain Validator, which currently participates in Cosmos, IRISnet and Terra. Based on the knowledge and experience gained from various testnets and mainnet, Node A-Team contributes to Cosmos Ecosystem and operates highly secure nodes.
> ATEAM History
— Cosmos: “Game of Stakes” — Never Jailed
— IRISnet: “FUXI Betanet” — Reward Winner
— Terra-project: “Genesis Drill” — Top Tier
[ATEAM Validator Address: cosmosvaloper14l0fp639yudfl46zauvv8rkzjgd4u0zk2aseys]
Webpage: https://nodeateam.com/
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E-mail: contact@nodeateam.com
