What is COSMOS Validators?
COSMOS Hub validators participate in consensus by broadcasting cryptographic signatures, or votes, to commit blocks. Tendermint requires a fixed known set of validators, where each validator is identified by their public key. Validators attempt to come to consensus one block at a time, where a block is a list of transactions. Voting for consensus on a block proceeds in rounds. Each round has a round-leader who proposes a block. The validators then vote in stages to accept the proposed block or move on to the next round. The proposer for a round is chosen deterministically from the ordered list of validators in proportion to their voting power, which is determined by the percentage of ATOMs delegated to a validator.
Tendermint-based blockchains slow down with more validators due to the increased communication complexity. On genesis day, the maximum number of validators will be set to 100 determined by the validators with the most delegated stake, and will increase at a rate of 13% for 10 years for a maximum of 300 validators. Staked has enough ATOMs committed for delegation to ensure a slot in the initial validator set of 100.
What is Staking?
Staking means you are locking your tokens and participate in securing and maintaining the COSMOS Hub, for which you are rewarded in the network’s native tokens (ATOMs). You can delegate your tokens to a validator that will run the required node infrastructure for you in exchange for a cut of the rewards.
Once you are bonded you start receiving rewards, these are influenced by the following factors:
- The amount of ATOMs you are staking
- The effective inflation rate in the network (see graph below), which is derived from:
- The global inflation rate, which gradually decreases to 7% when more than 2/3 of the total ATOM supply is bonded. If less than 2/3 is bonded, the global inflation rate will gradually adjusts up to a maximum of 20%.
- The staked ATOM supply. Rewards get calculated based on the total supply, but distributed only to those who are staking. So the fewer people stake, the higher the effective rate of rewards for those staking.
- The block time interval. The longer the block time interval, the lower the actual rewards paid out to stakers, as rewards are paid out on a per block basis.
- Fee revenues, which depend on the gas price and gas used in the network.
- The commission rate of your validator(s). This is the cut of rewards that your chosen validator(s) charge for running the consensus infrastructure.
- Validator uptime (see below for details).
- Your re-staking behavior (compounding interest).
- And finally, if you are thinking about rewards in fiat terms, the ATOM token price.
As the effective inflation rate, fee levels, and ATOM price are largely independent of your behavior, I will first focus on the impact of factors that you have an influence on. The important factors to consider here are (aside from the amount to stake) validator commission rates and uptime, as well as your re-staking behavior.
The higher the commission rate, the larger the share of rewards that go to the validator you delegate to.
Validator downtime results in slightly lower rewards if the validator is missing proposals because the proposer of a block receives a higher share of that particular block’s rewards.
Extended downtime results in a validator getting jailed, which means it is excluded from the consensus process. During the jailing period (at minimum 10 minutes, or until the validator “unjails” himself), no rewards are paid out to ATOM holders bonded to that validator.
How you choose to compound your rewards. For now, there is no option to automatically re-stake your rewards to let them compound, so you will have to manually withdraw and delegate rewards again. This requires you to send two transactions to the network (withdraw rewards and then delegate them), both of which will cost fees. The ideal interval to do these transactions depend on network conditions (fee level, effective inflation rate) and your delegated amount.