Difference between revisions of "Staking and Delegation"

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===Ouroboros: Epochs, slots and slot leaders===
 
Rest: in other chapter...
 
Rest: in other chapter...
 
In Ouroboros time is divided into epochs. One epoch corresponds to 5 days on the mainnet, one day on the incentivised testnet. Rewards are distributed after an epoch ended. Each epoch is divided into slots, once every 20 seconds. At the end of each epoch, stake pools are nominated as slot leaders on a random basis but depending on their actual pool stake. Stake pools are run by a pool operator who operates the stake node and represent the stake of the operator and the delegators who joined the stake pool. A slot leader has the right to generate and sign/approve one or multiple blocks during certain slots of the actual epoch. If he succeeds in generating his blocks, he will receive a reward in the form of ADA at the end of the epoch. If he misses out blocks, his rewards are being reduced. Therefore a stake pools needs to be up and running reliably to be financially interesting for its delegators. After each epoch the rewards for each stake pool are calculated and distributed automatically by the protocol. Thus staking can be lucrative and a way to generate passive income from ADA you hold.
 
In Ouroboros time is divided into epochs. One epoch corresponds to 5 days on the mainnet, one day on the incentivised testnet. Rewards are distributed after an epoch ended. Each epoch is divided into slots, once every 20 seconds. At the end of each epoch, stake pools are nominated as slot leaders on a random basis but depending on their actual pool stake. Stake pools are run by a pool operator who operates the stake node and represent the stake of the operator and the delegators who joined the stake pool. A slot leader has the right to generate and sign/approve one or multiple blocks during certain slots of the actual epoch. If he succeeds in generating his blocks, he will receive a reward in the form of ADA at the end of the epoch. If he misses out blocks, his rewards are being reduced. Therefore a stake pools needs to be up and running reliably to be financially interesting for its delegators. After each epoch the rewards for each stake pool are calculated and distributed automatically by the protocol. Thus staking can be lucrative and a way to generate passive income from ADA you hold.

Revision as of 15:54, 31 December 2019

This page needs updating according to new information, but is maybe just about good enough to function as an introductory overview. Those seeking more detail and/or up-to-date info should go to the official page or forum page.

All About Staking

Staking refers to the process of allowing ADA in your wallet to be part of the system that both manages and secures the Cardano protocol. Staking is an anticipated feature of Shelley, the next major release for Cardano, and is expected sometime in the first half of 2020. In preparation on staking on the mainnet, staking on the incentivised testnet is possible already right now. When staking on the mainnet starts we will have entered the third of three phases of the platforms maturity: The Reward Era.

Why

In a central database it is easy to decide who is allowed to create new entries, while in a trustless and decentralised database like a blockchain it is a complicate task that has do be well designed. All blockchains require some method to come to a consensus about which blocks are valid and which ones are not.

Bitcoin, for example, uses Proof of Work (PoW). Miners compete for the right to produce a block by trying to solve a very complicate but easy to verify problem. If a miner solved the problem, the other miners verify it and if there is agreement, the miner has the right to create a block and receives a reward to creating this block. In the meantime everyone starts again with trying to solve the next problem. This consensus model has been proven to be unshaken by attacks during the first ten years of existence but on the other hand is tending towards centralisation in the hands of very few very large mining pools and the arms race for more and more hash rate requires more and more energy and dedicated hardware.

Cardano uses Proof of Stake (PoS) and more specifically a protocol called Ouroboros. The consensus mechanism isn't based on hash rate of powerful mining computers but on the amount of ADA staked by different pools. Therefore the effort in needed hardware and energy as well as the environmental impact is way below it is for Bitcoin. While in former years PoS was thought of to be less secure than PoS, research has shown that this is not true [citation to be insertet]. The Ouroboros protocol was developed on to of these findings and is one of if not THE most secure existing consensus protocol.


Ouroboros: Epochs, slots and slot leaders

Rest: in other chapter... In Ouroboros time is divided into epochs. One epoch corresponds to 5 days on the mainnet, one day on the incentivised testnet. Rewards are distributed after an epoch ended. Each epoch is divided into slots, once every 20 seconds. At the end of each epoch, stake pools are nominated as slot leaders on a random basis but depending on their actual pool stake. Stake pools are run by a pool operator who operates the stake node and represent the stake of the operator and the delegators who joined the stake pool. A slot leader has the right to generate and sign/approve one or multiple blocks during certain slots of the actual epoch. If he succeeds in generating his blocks, he will receive a reward in the form of ADA at the end of the epoch. If he misses out blocks, his rewards are being reduced. Therefore a stake pools needs to be up and running reliably to be financially interesting for its delegators. After each epoch the rewards for each stake pool are calculated and distributed automatically by the protocol. Thus staking can be lucrative and a way to generate passive income from ADA you hold.

Two Ways to Stake

There are two ways to participate and earn these rewards.

  • You may solo stake which means you spin up a server running the Cardano SL node and stake your ADA to that node. You will want to ensure your node is online 24 hours a day, 7 days a week, 365 days a year to ensure that if you are selected your server responds and generates the block. Otherwise you will be skipped and will miss out on rewards for that round.
  • You may delegate your stake to a "staking pool". By being part of a larger pool all participants share in the cost of keeping a node up and running all the time and also share chances of being the slot leader. Rewards and running costs are shared with all participants in the pool. Averaged out over the long term, the rewards per ADA before costs and fees should be the same, and the fee charged by the pool administrator will be offset by the more efficient use of resources. This method will be the obvious choice for most ADA holders.

How

  • Daedalus will have a separate area to allow you to delegate your stake to specific staking pools. All staking pools must be approved by Cardano and will be part of an official list in Daedalus.
  • THERE IS NEVER ANY REASON TO SEND YOUR ADA TO A STAKING POOL. If someone asks you to send ADA to them for staking it is a scam.
  • Staking is per epoch: what matters most is the "state of play" at the beginning of each epoch (5 days). ADA registered as staked by an individual or in a pool at the beginning of an epoch can be spent or assigned to a different pool during the epoch and that change then takes effect at the beginning of the next epoch.
  • Here is an unofficial list of staking pools

Reward Amounts

A new block is generated every 20 seconds and each block needs a slot leader. IOHK has not defined what the staking rewards are yet so nobody knows. Once the rewards are defined this section will be updated with specifics, but until then here are the factors that will go into it:

  • A slot leader will be randomly selected from all stakers. Right now there is about 31,000,000,000 ADA in circulation. Assuming half of that will be staked that means your ADA is competing with about 15,000,000,000 ADA to become a slot leader. Your chances, therefore, increase depending on how much ADA you control and stake. If you have 1 Billion ADA then your chances of being a slot leader are 1/15 every 20 seconds.
  • The reward will likely be some combination of transaction fees, block size fees and block signing rewards. The current fees as defined in the protocol are ~0.15 ADA per transaction (a) and ~0.000044 per byte (b). There is an unsubstantiated rumor of 1500 ADA per slot reward.
  • The more transactions in a slot the higher the reward. Also the more bytes in the slot the higher the reward. Therefore as the network gets more active the higher the rewards based on transactions will be. Its likely that as transaction volume increases the per slot reward will decrease to compensate (pure conjecture).
  • Treasury take. Part of a sustainable organization is the ability for it to self fund ongoing development activity. It's not clear how this will be funded for Cardano, but it's expected to be funded through transaction fees that are split with the staking rewards. Again, there are no specifics provided so far, but other entities take 20% so this is as good of an assumption as any for now.

An example calculation for all this can be found here: Spreadsheet and there is now a Cardano Staking Profits Calculator but please heed disclaimer at top of page.