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It’s Time to Grow: Phase 3 Staking Proposal


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This proposal is focused on expanding the Elrond staking economy. Please read the information below carefully in preparation for our feedback sessions.

The changes we are proposing are meant to open a new era of growth for Elrond, specifically increasing the token distribution and decentralization, strengthening the security of the network,  and enabling sustainable business models around staking-as-a-service providers. In short, by enabling more eGold to be staked, more people and validators will participate, more tokens will be locked, security will improve, potentially increasing the value of the locked assets. 

A secure environment will give confidence to more businesses to start building on Elrond, increasing the demand of eGold, in a perpetual virtuous circle.

The following changes are proposed:

  1. Increasing the staking cap:

    1. increasing the maximum number of Validator nodes

    2. Increasing the amount of stake per node, and enabling compounding feature

  2. Enabling open delegation via system smart contracts

 

1. Increasing the staking cap

There are 2,169 Validator nodes active in the Elrond network, each with a 2,500 eGold stake, totalling 5,422,500 eGold staked. This is 37.49% of the circulating supply.

The Delegation Queue enabled additional participants to engage with staking and increase the amount of eGold locked to more than 8 million, or 55% of the circulating supply.

We therefore propose to increase this staking cap by a) increasing the number of Validators and b) adding a compounding rewards function that enables each validator to increase the amount staked per node.

  1. Increasing the number of Validator nodes

We propose increasing the maximum number of Validator nodes from 2,169 currently to 3,200.

The number of shards will remain the same: 3 shards and one metachain. Also the number of eligible nodes per epoch remains at 400. What is changing is the number of nodes per shard that are not eligible but are on the shard waiting list that will increase from a maximum of 142 to 400 (not to be confused with the queue from Phase 1). The minimum number of nodes on the waiting list will be 80, instead of 142 as it used to be, so the minimum number of nodes will also change from 2169 to 1920.

With 2,500 eGold staked per node, the total amount of eGold staked will be exactly 8,000,000 eGold, on par with the current locked amount.

The change in the maximum number of nodes is more complex and will enable a variable number of active nodes on the Elrond network:

1920 minimum, 3200 maximum. The actual number will be driven by the market demand for eGold staking. Since the amount of rewards is fixed per year (2,16 Mil eGold in the first year) the change in number of nodes will directly affect the rewards earned by validators and delegators as well.

Please find below the rewards for Validators & Delegators in the min & max scenarios:
 

Validator

Min. nodes: 1920

Current: 2169

Max. nodes: 3200

APR %

40.65%

36%

24.40%

 

Delegator

Min. nodes: 1920

Current: 2169

Max. nodes: 3200

APR %

32.75%

29%

19.65%

 

What the limits mean:

  • Minimum 1920 Validators: unStake is not possible when only 1920 Validators are in the network. Elrond Foundational nodes will be added in this (unlikely) scenario, to enable community validators flexibility

  • Maximum 3200 Validators: creating a new Validator is not possible when 3,200 Validators are already staked. Elrond Foundational nodes will be progressively removed in this scenario, to allow more community nodes

  1. Increasing the amount of stake per node

Another important part of this proposal is enabling people to stake an amount larger than 2500 eGold per node. The minimum value will remain 2,500 eGold, but the maximum value will be uncapped. Validators will be able to add more stake to their nodes and therefore earn more.

The amount of eGold staked per Validator does not influence its chances of being selected as block proposer or consensus member, but rewards will be proportional to that amount.

A diminishing returns mechanism will be applied, so it will be more profitable to i.e. run 2 nodes with 2,500 eGold each, instead of 1 node with 5,000 eGold. Please see the rewards system details taking into consideration top-up stake at the end of this post in the Appendix.

Some simulation data can be found below. This is based on year 1 inflation (10.84%), considering 100% hit rate (no missed blocks) and the proposed values in Appendix.

 

Scenario for 1920 Validator nodes in the network (minimum)

Avg stake per node

2,500.25 eGLD

3,000 eGLD

4,000 eGLD

5,000 eGLD

Total stake on the network

4,800,480 eGLD

5,760,000 eGLD

7,680,000 eGLD

9,600,000 eGLD

APR base stake

40.67%

38.65%

35.43%

33.47%

APR top-up stake

10.36%

10.12%

8.73%

7.20%

Average APR per node

40.66%

33.89%

25.41%

20.33%

 

Scenario for 2169 Validator nodes in the network (current)

Avg stake per node

2,500.25 eGLD

3,000 eGLD

4,000 eGLD

5,000 eGLD

Total stake on the network

5,423,042.25 eGLD

6,507,000 eGLD

8,676,000 eGLD

10,084,500 eGLD

APR base stake

36.02%

33.99%

30.78%

28.81%

APR top-up stake

10.36%

10.12%

8.73%

7.20%

Average APR per node

36.01%

30.01%

22.51%

18.00%

 

Scenario for 3200 Validator nodes in the network (maximum)

Avg stake per node

2,500.25 eGLD

3,000 eGLD

4,000 eGLD

5,000 eGLD

Total stake on the network

8,000,800 eGLD

9,600,000 eGLD

12,800,000 eGLD

16,000,000 eGLD

Average APR base stake

24.40%

22.38%

19.16%

17.20%

APR top-up stake

10.36%

10.12%

8.73%

7.20%

Average APR per node

24.39%

20.33%

15.25%

12.20%

 

This will be a powerful mechanism for Validators to compound their rewards on a daily basis, while further increasing the value of assets locked for staking and therefore the network security, with all the benefits detailed above.

Increasing the stake of a node will be possible using eGold from any source, not just Validator rewards. 

  1. Enabling open delegation

Presently, everyone delegating eGold is doing so towards the Elrond Foundational Nodes. This interim solution was instrumental to securely bootstrap the Elrond blockchain. Our common goal is to decentralize the network and decrease the number of Elrond Foundational Nodes, in favor of more community nodes. Open delegation enables us to achieve that.

Open delegation will be enabled at protocol level through system smart contracts. This enables Staking Providers to build a great business model around their services, creating very secure staking products without the need to invest in smart contracts programming resources such as developers and audits. Staking Providers will be able to tailor their staking terms according to the interests of their respective customer base.

Staking through regular (non-system) smart contracts will be possible as well, and we look forward to these options gaining in popularity and complementing the system smart contracts with innovative staking products.

The Delegation System Smart Contracts will enable Staking Providers to register their nodes and define parameters related to their individual staking products, such as the maximum amounts to be delegated, and service fees.

End users looking to delegate their eGold will be able to select their preferred Staking Provider and delegate their eGold towards them.

Most importantly, every staking as a service provider will be able to start marketing Elrond, offering compelling and differentiated services to the Elrond investors and community, increasing their eGold amount delegated and growing their revenue, while at the same time significantly increasing the Elrond network exposure and overall security.

The specific details about the Delegation System Smart Contracts can be found here: https://github.com/ElrondNetwork/elrond-specs/blob/main/sc-delegation-specs.md 

Outlook on Phase 4

The Phase 4 of the Elrond Staking mechanism will cover a soft-auction mechanism, but this will only come into play at a later stage, once the maximum number of 3,200 Validators is reached and most of them staked more than 2,500 eGold. A separate post will detail the mechanism and begin community discussion once components are ready.

Appendix

You can find a copy of this formula in this document.

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Two suggestions for improving the clarity of this proposal:

- explain whether becoming a Staking Provider who can use the Delegation System Smart Contracts is going to be purely an on chain process which is open to any existing validator, or if it requires some kind of whitelisting through establishing a partnership  with Elrond.

- clarify this sentence: 'Minimum 1920 Validators: unStake is not possible when only 1920 Validators are in the network. Elrond Foundational nodes will be added in this (unlikely) scenario, to enable community validators flexibility'. Is this a promise by Elrond, or something enforced by the protocol based on some reserve collateral locked for the purpose.

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About Delegation System Smart Contracts:

I suggest by default to have some variables that helps to define:
standard fee (without lock commitment)
3 months fee
6 months fee
12 months fee

If a provider only "fill" the variables standard fee and 12 months fee, only this 2 options will be available in the SC

This change will cover a lot of scenarios for staking providers

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On 11/21/2020 at 8:02 AM, josefcoap said:

About Delegation System Smart Contracts:

I suggest by default to have some variables that helps to define:
standard fee (without lock commitment)
3 months fee
6 months fee
12 months fee

If a provider only "fill" the variables standard fee and 12 months fee, only this 2 options will be available in the SC

This change will cover a lot of scenarios for staking providers

Should we also have a flow in the main DSSC where people will choose lock commitment for a higher APR comparing with no lock commitment ?

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