We recently announced our staking economics with this blog post – https://blog.matic.network/matic-network-staking-economics/ . We have been constantly working on improving our staking approach and this note highlights some important updates.
To reiterate, 1.2 billion Matic tokens (12% of our total supply) are allocated towards staking rewards. During the initial years of Matic Network’s full launch, we’ve decided upon a gradual decoupling of staking rewards, until transaction fees gain enough traction and are able to fully support the network on their own.
Yearly rewards, as mentioned above, are to be considered absolute. Irrespective of the overall stake or the target bonding rate in the network, the said amount will be given out as a reward to all checkpoint signers periodically.
In Matic Network, there is an additional element of committing periodic checkpoints (a Merkle tree hash representation of the Matic sidechain blocks) to the Ethereum mainnet. This is a major part of the validator responsibilities and they are incentivized to perform this activity. This constitutes a cost to the validator which is unique to a Layer 2 solution such as ours. We strive to accommodate this cost in the validator staking reward payout mechanism as a bonus to be paid to the proposer, who is responsible for committing the checkpoint. Rewards, minus the bonus is to be shared among all stakers; proposer and signers, proportionally.
How is the proposer bonus calculated?
Let’s have a look at a scenario affecting the checkpoint cost with the following assumptions:
ETH Price: $200
MATIC Price: $0.013
Gwei considered: 30
Gas considered: 1,000,000
Checkpoint interval: 15 mins
Checkpoint cost-to-reward ratio pertaining to the checkpoint reward during the first year of live network based on the above assumptions comes to 5.18%.
If we were to update the interval to 30 mins, then the same ratio comes down to 2.59%.
Let’s say that during the initial phase, if we were to go ahead with the same assumptions as stated above with the checkpoint interval being 15 mins, then the bonus to be paid out to the checkpoint proposer will be 5.18% and the algorithm will derive this bonus number dynamically depending upon the current checkpoint cost. Please note that the bonus percentage is also dependent on the governance mechanism among validators.
If at some point in time during the first year, and proposer bonus being at 5.18%, if the total bonded tokens in the system is 1 billion, then the network reward rate is 30% and the effective reward rate for every staker other than the proposer, after deducting the bonus component from the checkpoint reward, is 28.45%
Please note that the cost has been calculated pre-istanbul and will decrease significantly now.
Encouraging the proposer to include all signatures
To avail the bonus completely, the proposer would need to include all signatures in the checkpoint. Because the protocol desires ⅔ +1 weight of the total stake, the checkpoint will be accepted even with 80% votes. However, in this case, proposer gets only 80% of the calculated bonus.
Each block producer at Bor will be given a certain percentage of the transaction fees collected in each block. Selection of producers for any given span is also dependent on the validator’s ratio in the overall stake. The remaining transaction fees flow through the same funnel as the rewards which get shared among all validators working at the Heimdall layer. What exact percentage of transaction fees will be shared with every block producer will be decided at a later point in time taking into consideration the overall statistics of the live network. Until then, the transaction fees flow through the same funnel disbursing everything collected among all validators.
Becoming a Validator
We had earlier mentioned that we are thinking of having a minimum self-stake requirement from the validators, as we do hope that validators also have their skin in the game. However, since we will be moving to a robust replacement strategy because the number of validator slots is limited as of now, the Matic Network staking program will not have a minimum self-stake requirement. It is, however, logical that over time, the average/median stake by a validator will tend upwards and become substantial.
Thus, to begin with, becoming a validator on Matic Network requires a minimum self stake of 1 MATIC.
The replacement strategy involves the calculation of a comprehensive validator scoring mechanism. If all validator slots are filled, a new validator can only replace one from the current set if it can beat the score of the least ranked validator. Bidding in the real world is simple, whoever gets the most stake gets the spot. However, the way to elect validators is not limited in this ecosystem.
Our initial bidding design takes a combination of stake, age, rewards earned and deductions, if any, to rank validators. One can revise one’s self stake, for example, to replace an existing validator.
To replace a new validator with more stake should be easier than replacing an old one with the same amount of stake because of the effect of age on the validator scoring equation, assuming that both of these validators from the current set have the same stake ratio as compared to the total pool and that no deductions have occurred in this example.
We’ll be disclosing the exact equation after our public testnet event where we’ll be formulating above mentioned factors with appropriate weightages.
Launching our first Incentivized Public Testnet Event – Counter Stake
We hereby invite you all to participate in our incentivized testnet event to help us test and make our network robust. In exchange for your time and efforts, 3 million mainnet MATIC tokens will be shared with the winners and participants.
We’re now officially accepting registrations for the Testnet Event!
Click here to know more: Counter Stake
We’ll soon be releasing additional technical details such as the node setup guide soon. The core Matic team is committed to assist interested Validator program participants to help them through the Staking program and will be there to help you set up your nodes and make the process as seamless as possible.
Stay tuned for more details about the event. And we hope to see you there!
Join our Discord channel to stay updated on every announcement linked to Counter Stake.