This is the second article of our series on ICON, throughout which we introduce the various components and differentiating elements of the ICON project 🌕. In this article, we will explain how delegation and staking work on ICON. ICON protocol has adopted a Delegated Proof-of-Contribution model, a variant of Delegated Proof-of-Stake, where you can earn rewards based on the size of your stake.
Throughout the article, we will cover the following subjects:
- What is staking on ICON?
- What rewards can you expect?
- Unstaking period details
- When can you start earning rewards?
- How to stake your ICX?
- What are the risks?
What is staking on ICON?
Staking is a mechanism through which ICON token holders can support the decentralization of the network and earn rewards on their tokens. With staking, you can stake your ICX voting rights to a representative (e.g. P-Rep, DApp, EEP) for a period of time, and earn more ICX based on the size of your stake. Staking on ICX is non-custodial — meaning that you do not actually have to transfer your tokens. However, it does require you to lock-up your ICX for a certain period of time, which we detail in the “Unstaking period details” part of this article.
“The process is similar to a lottery in which the number of crypto coins you hold is equivalent to holding a given number of lottery tickets. Staking systems can also allow delegation in which each individual delegates their voting rights and earned income to a trusted party. Those delegates then earn all the rewards for block validation and pay their loyal supporters some form of dividends in return for their vote.”
Why should you stake your ICX?
There are various reasons to stake your ICX:
- Earn interests/rewards based on the size of your stake
- Do not get diluted by the inflation of the protocol
- Support the governance and decentralization of the network as well as the nodes maintaining it secure and efficient
- Support ecosystem participants such as P-Reps, DApps, EEPs. P-Reps are node operators such as POS Bakerz, DApps are decentralized applications built on ICON and EEPs are Ecosystem Expansions Projects
Rewards: between 2% and 36% depending on your staking strategy and the % of network staked
In exchange for staking your ICX to representatives (P-Rep, DApp, EEP), the ICON network will reward you with I-Score, which is convertible into ICX at a rate of 1,000 I-Score = 1 ICX.
The annual yield for delegators, measured in ICX, is a function of the percentage of tokens delegated over the total number of tokens in circulation. The higher the percentage of tokens staked within one ecosystem, the lower the reward rate, which will vary between 2% at the lower range — from 70% to 100% of the total network staked — and 12% at the higher range — 0% of the total network staked. Based on a 30% delegation rate assumption in one ecosystem, the average ICONist can expect 5.27% annual yield in this category.
What is interesting in ICON, it is that you can support different kinds of representatives within the ecosystem in parallel, namely P-Reps, DApps and EEPs. For each sector that you choose to support, you can earn between 2% and 12% annual yield, enabling you to actually earn between 6% to 36% annual yield in case you choose to allocate your voting rights in all of the 3 categories of network participants. Hence, based on a 30% total network staked in all of the three categories, the average ICONist can expect 15.81% total annual yield (5.27% x 3).
Unstaking period: based on a 30% delegation rate assumption, the average ICONist can expect a 10-day unstaking period
Unstaking, also called unbonding in other protocols, is a lock-up period referring to the minimum number of days during which you should stake your tokens. Unstaking protects the network against malicious attacks, for example, it protects against a representative attacking the network and immediately withdrawing its stake.
The unstaking period for delegators is a function of the percentage of tokens in circulation delegation. The higher the percentage of network staked within one ecosystem, the smaller the unstaking period, which will vary between 5 days at the lower range — from 70% to 100% of the total network staked — and 20 days at the higher range — 0% of the total network staked. Based on a 30% delegation rate assumption in one ecosystem, the average ICONist can expect a 10-day unstaking period.
- August 2019: Starting from this month, ICONists will be able to take part in a pre-voting period to familiarize themselves with the staking process. During the pre-voting period, the ICX Foundation will release a pool of 3,000,000 ICX for staking rewards, and ICONists taking part in the pre-voting period will earn their first rewards! The average annual yield during this first period will be equal to 15.81% based on a 30% delegation rate.
- September 2019: During this month, ICONIsts will be able to vote on-chain for their chosen P-Reps. After the election, staking rewards will be generated on-chain by the elected P-Reps and you will be able to delegate more of your ICX or redelegate your voting rights to other P-Reps based on the unstaking period.
- Details on DApps and EEPs staking will be released in the next months by the Foundation, and we plan to update our article accordingly.
How to stake your ICX?
You can stake your ICX to three different kinds of representatives, namely P-Reps, DApps, and EEPs. We recommend to diversify your tokens among various P-Reps, DApps and EEPs, so that you can support the growth of the overall ecosystem, its governance, and decentralization, but also ensure that you do not have all your eggs in the same basket in case something wrong happens — e.g. if the node of your chosen representative is down, you do not earn rewards during this downtime period.
Various criteria can be used when conducting your own due diligence such as community involvement, size of the self-bond, node architecture setup, uptime stats, involvement in ICON projects, etc.
From August 2019 will start the Pre-voting period where you will be able to start allocating your ICX voting rights to various P-Reps and elect the top candidates. Among the 100 elected P-Reps, the top 22 will also be in charge of block production. If you’d like to take part in the pre-voting period, you can check our guide here (works for ICONEX and Ledger).
POS Bakerz is applying to be a P-Rep, and you can find more information about our application here. Additionally, feel free to reach out to us through our various social media channels, we’d love to meet you and discuss how we can work together on building the future of ICON.
What are the risks?
Delegating your ICX voting power does not require you to transfer your tokens, meaning that you remain responsible for the own security of your tokens and wallets. However, staking is not without any risk, and we have highlighted some below that you may want to take into consideration. For more information on the risks related to staking in general, you can check our article ‘Risks in Crypto Staking’.
- Downtime: If your chosen P-Rep or representative is down, due to poor setup/maintenance or other reasons, you will not be able to earn rewards from your delegations to him during the downtime period.
- Security: You remain responsible for the security of your own funds, we recommend using cold storage solutions such as Ledger for added security. Make sure to backup your keys properly as well, or you may not recover your account.
- Volatility: Although delegation enables you to earn rewards based on your ICX, you are still subject to price fluctuations in ICX/Fiat currencies, and may end up losing money when measured in some fiat currencies.
- Centralization: It is important to support the P-Reps that you trust, but also to diversify among many P-Reps in order to ensure that the network remains decentralized and that not the voting power is concentrated among a few players.
Get to know more about ICON
- POS Bakerz P-Rep Proposal
- How to vote for a P-Rep
- ICON Website, where you can also find the whitepaper, yellowpaper, and other valuable materials
- The Iconist: dedicated media about ICON and its ecosystem
- ICON Official Telegram Channel
- ICON Non-Official European Community Telegram
- POS Bakerz Medium on ICON
DISCLAIMER: This is not financial advice. Staking and cryptocurrencies investment involves a high degree of risk and there is always the possibility of loss, including the loss of all staked digital assets. Additionally, delegators are at risk of slashing in case of security or liveness faults on some PoS protocols. We advise you to DYOR before choosing a validator.