Staking vs Candidate Node Ownership
To stake or not to stake? Or even better, should I choose to stake or should I create my own candidate node instead? Is it worth it? What are the benefits? This and more you can find answered in this article, brought to you by your Telegram admin, Ontology Harbinger and proud owner of candidate node “CZ/SK Ontology community node”, DuMonT.
Which one is better for me?
In order to make a correct decision, you should know what staking is, what it means to run a candidate node, and what are the main differences. To put it simply, staking means that you assign your ONTs to a candidate or consensus node. For doing this, you earn ONG rewards based on the distribution ratio set by the node owner. On the other hand, as a node owner, the main advantage is that you manage the distribution ratio. Let’s see the main pros and cons of both approaches.
Staking
(+) Low limit - you can stake as little as 1 ONT, while the upper limit depends on how much the specific node can accept from stakers.
(+) Higher flexibility - you can decide to cancel the full, or part of the stake at any time. Your tokens are unlocked when consensus round ends (in the case of unstaking from candidate nodes).
(+) No entry barrier - no extra fees applied, only a transaction fee of 0.05 ONG.
(-) Trust in the node owner - your rewards depend mainly on the node’s distribution ratio, the risk is that node owner can change it or even cut it to 0, which may force you to stake to a different node. To minimize the risk, it is recommended to either stake with nodes that have stable fee sharing ratio checkmark at node.ont.io, or regularly check whether the node you stake with changed the ratio to unfavorable values.
(-) Switching nodes - if you decide to change a node, cancelling the stake and staking to a different node will result in losing 1 consensus round of rewards.
Candidate node owner
(+) You manage the distribution ratio - you decide on how much % of generated rewards you keep, and how much is distributed to your stakers.
(+) Potentially higher rewards - explained in next parts of article.
(+) A way to promote yourself/your company.
(-) Higher entry limit - minimum amount to start a candidate node is 10,000 ONT.
(-) Lower flexibility — as a node operator you can not reduce your stake below 10,000 ONT, or unstake such an amount that would result in user stake being more than 10x higher than your remaining node stake (example: your node stake is 15K ONT, user stake is 100K ONT, at max you can unstake 5K ONT). In case you would need to unstake more, you must cancel your node entirely.
(-) Entry fee - to start a node you need to pay a fixed 500 ONG fee, + 0.05 ONG transaction fee.
Summary
Staking is a great way to get passive rewards for holding your ONTs. Moreover, it is suitable for everyone as you can stake from as little as 1 ONT, and it also provides more flexibility than when you run a node. You can learn more about staking in the Ultimate Ontology Staking Guide. On the other hand, if you have more than 10,000 ONTs, and you are a long term holder that wants to maximize your rewards, it is a good time to consider creating your own candidate node.
I want to run a candidate node!
So you decided to run a candidate node? In the next part, I will cover how to create a candidate node, the requirements, and possible strategies.
How it works?
Ontology candidate nodes are nodes which do not validate transactions. They could become active validators if they get to the top 15 by size, which would turn them to consensus nodes. A basic candidate node is something like staking pool, which creates room for stakers. Therefore, once you register a candidate node, and you are not in the top 15, you are not required to have your device online 24/7. This is all you need to start generating ONG rewards. In addition, you could run an online node, which synchronizes the blocks generated by consensus nodes. This would require your device to be online but does not bring you any extra rewards as you do not actively participate in consensus. If you still want to go in that direction, then you can find documentation at https://docs.ont.io/ontology-node/abstract, but it also requires some technical skill.
How to launch a candidate node?
The main tool you need is OWallet on your PC. It is a desktop wallet application developed by Ontology. Download it only from the official GitHub source: https://github.com/ontio/OWallet/releases.
Once you have OWallet installed, you can create a new wallet, import your existing wallet, or use a Ledger hardware wallet. Last but not least, you need at least 10,000 ONT in your wallet address, + at least 500.05 ONG. Ontology published a step-by-step guide on how to proceed within OWallet, you can find the guide here: https://ontology-1.gitbook.io/ontology-node-staking-docs/guides/sign-up-to-run-an-ontology-node
Once you launch the node within OWallet, and set important settings, you just need to wait until a new consensus round begins. At that point, your node generates rewards which will be available for you to claim after each consensus round ends.
Explanation of important settings in OWallet
There are few important settings, which you definitely should not miss because they define rewards distribution as well as how stakers see you.
- Allowed stake unit — located at the “User stake Authorization” page, determines how many ONT your node can accept from stakers. By default it is set to 0, which means stakers can not stake at your node. The maximum value you can set is 10x of your initial node stake, and you can also see this value in the table below. So, if your node stake is 10K ONT, you can set a maximum of 100K ONT.
- Fee sharing ratio — located at at “User Stake Authorization” page, determines the distribution ratio of rewards between the node operator and its stakers. You set the ratio for the node’s initial stake and user stake separately. Remember, in OWallet, you set reward values which you, as node operator, decide to keep. The remaining rewards are automatically distributed to stakers. The first value represents % of rewards generated by the node initial stake, while the second value represents % of rewards generated by the user stake. If you set it to 100/100, this would mean you keep all rewards and stakers get 0 (so nobody will stake with you). On the other hand, if you set it to 0/0 then all rewards will go to the stakers and you get 0. The trick is to find the ideal setting which fits your strategy. Some popular ratios are 90/10, or even more generous to stakers, 90/5. This would be displayed to stakers at node.ont.io as 10/95. Keep in mind that any change of ratio takes effect in the consensus round after the next one. (Example: you change the ratio in OWallet during round 150. When round 151 begins, it will be displayed to stakers at node.ont.io as the next round ratio and becomes effective when round 152 begins).
- Node info — it is a separate page where you can fill in all the information about your node. For instance, you can change the node name, set a logo, etc. If you want to obtain a “Verified” checkmark next to your node at node.ont.io, you need to also fill in the “Email to contact with Ontology”. You can learn more about checkmarks at https://ontology-1.gitbook.io/ontology-node-staking-docs/node-checkmark
When will I get rewards?
Reward distribution frequency is the same as when you are a staker. You do not get rewards for the round during which you launch a node, but you get your first rewards for the next consensus round. Rewards are added to your profit section each time when a consensus round ends. You can claim them after each round, or keep them accumulating and claim anytime you like. (Example: you launch the node during consensus round 150, you will get your first rewards when round 151 ends and the next rewards when round 152 ends, etc.)
Candidate node possible strategies
- Operator only — some candidate nodes decide not to allow user staking to their node so they participate only with their node initial stake. In this case, they keep all rewards generated by node initial stake, but lose the potential of getting additional rewards from user stake. The difference from normal staking is that they do not need to worry about changing the distribution ratio, because they are node owners.
- Self promotion — some nodes may decide to use their node for promotional purposes, such as Unifi Protocol node, which distributes 100% of all rewards to stakers. Node operator gets 0 rewards but in return is well visible in the community, which can help achieve long term goals of the operator in the future.
- Win/win — this strategy means that you set a distribution ratio, which gives you, as node operator, higher rewards than you would get with the “operator only” strategy, and at the same time gives good rewards to stakers, which motivates them to stake with you. Success of this strategy depends on the node operator’s ability to attract stakers, because the goal of such a node is to achieve 100% filling of the staking capacity. An example may be Harbinger nodes, which are represented by outstanding members of the Ontology community. Stakers can decide to stake with those Harbingers to support them and their work, instead of some company or corporation.
- Anything else — you can develop your own strategy which fits you best :)
In the end, I hope this article helped you with your decision making process. Now it is your turn, whether you decide to stake or run a candidate node, that fully depends on your own preferences. Should you pick any of them, I welcome you onboard!
If you have any questions, or to report missing or wrong content, or if you want to tip my wallet to buy me a cup of coffee, please reach me on Telegram or Twitter. See you!
Want more Ontology?
You can find more details on our website for all of our decentralized solutions across identity and data, or keep up with us on Twitter. Our Telegram is for discussion, whereas the Telegram Announcement is designed for news and updates if you missed Twitter!
