Introduction to Staking · Polkadot Wiki (2024)

Here you will learn about what staking is, why it is important and how it works onPolkadot.

Proof-of-Stake (PoS)​

Blockchain networks use consensus mechanisms tofinalize blocks on the chain. Consensus is the process of agreeing on something, in this case, theprogression of the blockchain or how blocks are added to the chain. Consensus consists of twoactions:

• Block production, i.e. the way multiple blocks candidates are produced, and
• Block finality, i.e. the way only one block out of many candidates is selected and added tothe canonical chain (see this articlefor more information about finality).

Proof-of-Work (PoW) and Proof-of-Stake (PoS) are well-known mechanisms used to reach consensus in asecure and trustless way on public blockchains, where there are many participants who do not knoweach other (and probably never will). In PoW, network security relies on the fact that the minerswho are responsible for adding blocks to the chain must compete to solve difficult mathematicpuzzles to add blocks - a solution that has been criticized for the wastage of energy. For doingthis work, miners are typically rewarded with tokens.

In PoS networks like Polkadot the security ofthe network depends on the amount of capital locked on the chain: the more the capital locked, thelower the chance of an attack on the network, as the attacker needs to incur a heavy loss toorchestrate a successful attack (more on this later on). The process of locking tokens on the chainis called staking.

Similar to the miners in PoW networks, PoS networks have validators, but they do not have tocompete with each other to solve mathematical puzzles. They are instead pre-selected to produce theblocks based on the stake backing them. Token holders can lock funds on the chain and for doing so,they are getting staking rewards. There is thus an economic incentive for token holders tobecome active participants who contribute to the economic security and stability of the network. PoSnetworks in general are therefore more inclusive than PoW networks, as participants do not need tohave either technical knowledge about blockchain technology or experience in running miningequipment.

PoS ensures that everybody participating in the staking process has "skin in the game" and thus canbe held accountable. In case of misbehavior, participants in the staking process can be punished orslashed, and depending on the gravity of the situation, their stake can be partly or fullyconfiscated by the network. It is not in a staker's economic interest to orchestrate an attack andrisk losing tokens. Any rational actor staking on the network would want to get rewarded, and thePoS network rewards good behavior and punishes bad behavior.

Nominated Proof-of-Stake (NPoS)​

Polkadot implementsNominated Proof-of-Stake (NPoS), a relatively noveland sophisticated mechanism to select the validators who are allowed to participate in itsconsensus protocol. NPoS encouragesDOT holders to participate as nominators.

Any potential validators can indicate their intention to be a validator candidate. Their candidaciesare made public to all nominators, and a nominator, in turn, submits a list of up to16 candidates that it supports, and the networkwill automatically distribute the stake among validators in an even manner so that the economicsecurity is maximized. In the next era, a certain number of validators having the mostDOT backing get elected and become active. Formore information about the election algorithm go to this page on the wiki orthis research article. As anominator, a minimum ofis required to submit an intention to nominate, which can be thought of as registering to be anominator. Note that in NPoS the stake of both nominators and validators can be slashed. For anin-depth review of NPoS seethis research article.

Nominating Validators​

Nominating on Polkadot requires 2 actions:

• Locking tokens on-chain.
• Selecting a set of validators, to whom these locked tokens will automatically be allocated to.

How many tokens you lock up is completely up to you - as are the validators you wish to select. Theaction of locking tokens is also known as bonding. You can also refer to your locked tokens asyour bonded tokens, or staked tokens. Likewise, selecting validators is also known as backing ornominating validators. These terms are used interchangeably by the community. From now on lockedtokens will be referred to as bonded tokens.

Once the previous 2 steps are completed and you are nominating, your bonded tokens could beallocated to one or more of your selected validators, and this happens every time the activevalidator set changes. This validator set is updated every era onPolkadot.

Unlike other staking systems, Polkadotautomatically chooses which of your selected validators will be backed by your bonded tokens.Selecting a group of validators increases your chances of consistently backing at least one who isactive. This results in your bonded tokens being allocated to validators more often, which meansmore network security and more rewards. This is in strong contrast to other staking systems thatonly allow you to back one validator; if that validator is not active, you as a staker will also notbe. Polkadot's nomination model solves this.

Polkadot uses tools ranging from electiontheory to game theory to discrete optimization, to develop an efficient validator selection processthat offers fair representation and security, thus avoiding uneven power and influence amongvalidators. The election algorithms used byPolkadot are based on the ProportionalJustified Representation (PJR) methods like Phragmen. For more informationabout PJR methods visit thisresearch article.

Eras and Sessions​

The stake from nominators is used to increase the number of tokens held by such candidates,increasing their chance of being selected by the election algorithm for block production during aspecific era. An era is a period of 24 hoursduring which an active set of validators is producing blocks and performing other actions on thechain. This means that not all validators are in the active set and such set changes between eras.Each era is divided into 6 epochs or sessions during which validators are assigned as blockproducers to specific time frames or slots. This means that validators know the slots when theywill be required to produce a block within a specific session, but they do not know all the slotswithin a specific era. Having sessions adds a layer of security because it decreases the chance ofhaving multiple validators assigned to a slot colluding to harm the network.

Staking Rewards​

Validators who produce a block are rewarded with tokens, and they can share rewards with theirnominators. Both validators and nominators can stake their tokens on chain and receive stakingrewards at the end of each era. The staking system pays out rewards equally to all validatorsregardless of stake. Thus, having more stake in a validator does not influence the amount of blockrewards it receives. This avoids the centralization of power to a few validators. There is aprobabilistic component in the calculation of rewards, so they may not be exactly equal for allvalidators. In fact, during each era validators can earn era points by doing different tasks onchain. The more the points, the higher the reward for a specific era. This promotes validators'activity on chain. To know more about era points, and how and on which basis they are distributedvisit the dedicated page. Distribution of therewards is pro-rata to all stakers after the validator's commission is deducted.

Skin in the game when Staking​

The security of PoS networks depends on the amount of staked tokens. To successfully attack thenetwork, a malicious actor would need to accrue a large number of tokens or would need differentparticipants to collude and act maliciously. If there is an attack in the case of NPoS, both thevalidator(s) and nominators will be slashed resulting in their stake being partially or fullyconfiscated by the network and then deposited to the treasury. There is little interest for arational network participant to act in a harmful way because NPoS ensures that all participants canbe held accountable for their bad actions. In NPoS, validators are paid equal rewards regardless ofthe amount of stake backing them, thus avoiding large payouts to few large validators which mightlead to centralization.

Being a Nominator​

Tasks and Responsibilities of a Nominator​

Validators. Since validator slots are limited, most of those who wish to stake theirDOT and contribute to the economic security ofthe network will be nominators, thus here we focus on the role of nominators. However, it is worthmentioning that validators do most of the heavy lifting: they run the validator nodes and managesession keys, produce new blockcandidates in BABE, vote and come to consensus inGRANDPA, validate the state transition function ofparachains, and possibly some other responsibilities regarding data availability andXCM. For more information, you can take a look at thevalidator docs to understand what you need to do as a validator. If you wantto become a validator you can consultthis guide.

Nominators. Nominators have far fewer responsibilities than validators. These include selectingvalidators and monitoring their performance, keeping an eye on changing commission rates (avalidator can change commission at any time), and general health monitoring of their validators'accounts. Thus, while not being completely set-it-and-forget-it, a nominator's experience isrelatively hands-off compared to that of a validator, and even more withnomination pools. For more information, you can take a look at thenominator guide to understanding your responsibilities as a nominator.

If you want to become a nominator, see this guide. If you are abeginner and would like to securely stake your tokens using the Polkadot-JS UI, refer tothissupport article.

Pools. Pools are "built" on top of NPoS to provide a very low barrier to entry to staking,without sacrificing Polkadot's strict security model.

Selection of Validators​

The task of choosing validators is not simple, as it should take into account nominator reward andrisk preferences. Ideally one aims to maximize the reward-to-risk ratio by maximizing rewards andminimizing risks, with sometimes having to compromise between the two, as minimizing risks mightdecrease rewards as well. Nominators should pay attention, especially to six criteria whennominating validators (not in order of importance):

• recent history of the era points earned across eras
• validator's self stake (shows skin in the game)
• total stake backing the validator (which is the sum of self stake and the stake coming fromnominators)
• commission fees (i.e. how much validators charge nominators)
• verified identity
• previous slashes

The diagram below shows how the selection of those criteria affects the reward-to-risk ratio.

Validator Selection Criteria​

To maximize rewards and minimize risk, one could select those validators that:

• have era points above average (because they will get more rewards for being active),
• have the total stake backing the validator below the average active validator stake (because theywill pay out more rewards per staked DOT),
• have high own stake (because if slashed they have something to lose),
• have low commission fees but not 0% (because it makes sense that for doing the heavy lifting,validators ask for a small commission),
• have on-chain registered identity (because it adds a layer of trust and possibly provides accessto their website and contact details),
• and have not been slashed (meaning that their on-chain behavior is genuine).

Network Providers​

For successful operation, a Validator node should always be ensured to meet the requiredsoftware, hardware, and network bandwidth specifications.Understandably, most of the validator nodes run on cloud service providers that guarantee highhardware specifications and high levels of availability and connectivity. Keep in mind that avalidator in the active set is supposed to be fully online and available for producing blocks. Ifthe active validator node goes offline due to network interruptions or a power outage, thatvalidator might be subject toslashing due to unresponsiveness. AsPolkadot's block production mechanism is reasonablyresilient to a small proportion of validators going offline, no slashing is imposed until 10% of thevalidators in the active set go offline. Hence, if multiple nodes are running on a single cloudservice provider and go offline simultaneously due to an outage or due to a change in their termsand conditions policy regarding the support of Proof-of-Stake (PoS) operations, the offlinevalidators and all the nominators backing them can be slashed up 7% of their stake on Polkadot.Hence, it is recommended that you check if you are nominating the validator nodes that are runningon cloud service providers, and if they do, check if they allow for Proof-of-Stake operations.

Keeping Track of Nominated Validators​

Although the theory can be used as a general guideline, in practice it is more complicated andfollowing the theory might not necessarily lead to the desired result. Validators might have thetotal stake backing them below average, low commission and above average era points in one era andthen have a different profile in the next one. Selection based on the criteria like on-chainidentity, slash history and low commission make the staking rewards deterministic. But some criteriavary more than others, with era points being the most variable and thus one of the key probabilisticcomponents of staking rewards. Part of this probability is directly related to the fact that avalidator can produce blocks for a parachain (i.e. para-validators) or the relay chain, withpara-validators earning more era points per unit time (seethis page for more information). Therole can switch between sessions, and you can look atthe staking tab on the Polkadot-JS UI to know whichvalidator is producing blocks for the relay chain or parachains.

It is not recommended to change nominations because of the low era points of a validator in a singleera. Variability in rewards due to the era points should level out over time. If a validatorconsistently gets era points below average, it makes sense to nominate a better-performing validatorfor the health of the network and increased staking rewards. Seethissupport article to understand in detail how to select the set of validators to nominate.

Stash Account and Staking Proxy​

Two different accounts can be used to securely manage your funds while staking.

• Stash: This account holds funds bonded for staking, but delegates all staking functions to astaking proxy account. You may actively participate in staking with a stash private key kept in acold wallet like Ledger, meaning it stays offline all the time. Having a staking proxy will allowyou to sign all staking-related transactions with the proxy instead of using your Ledger device.This will allow you:

  • to avoid carrying around your Ledger device just to sign staking-related transactions, and
  • to and to keep the transaction history of your stash clean

• Staking Proxy: This account acts on behalf of the stash account, signalling decisions aboutnominating and validating. It can set preferences like commission (for validators) and the stakingrewards payout account. The earned rewards can be bonded (locked) immediately for bonding on yourstash account, which would effectively compound the rewards you receive over time. You could alsochoose to have them deposited to a different account as a free (transferable) balance. If you area validator, it can also be used to set your session keys. Stakingproxies only need sufficient funds to pay for the transaction fees.

This hierarchy of separate keys for stash and staking accounts was designed to add a layer ofprotection to nominators and validator operators. The more often one exposes and uses a private key,the higher its vulnerability for hacks or scams. So, if one uses a key for multiple roles on ablockchain network, it is likely that the account can get compromised. Note that the damage linkedto stolen private keys is different depending on the type of account derivation. In the case of softderivation, all derived accounts are compromised. More information about account derivation can befound here.

Claiming Staking Rewards​

Rewards are calculated per era (approximately six hours on Kusama and twenty-four hours onPolkadot). These rewards are calculated based on era points, which have a probabilistic component.In other words, there may be slight differences in your rewards from era to era, and even amongstvalidators in the active set at the same time. These variations should cancel out over a long enoughtimeline. See the page on Validator Payout Guide.

The distribution of staking rewards to the nominators is not automatic and needs to be triggered bysomeone. Typically the validators take care of this, but anyone can permissionlessly trigger rewardspayout for all the nominators whose stake has backed a specific validator in the active set of thatera. Staking rewards are kept available for 84 eras. The following calculation can be used toapproximate this length in days on Polkadot:

84 eras × 24 hours in a single era ÷ 24 hours in a day = 84 days

For more information on why this is so, see the page on simple payouts.

Rewards can be directed to the same account used to sign the payout or to a completely unrelatedaccount. It is also possible to top-up / withdraw some bonded tokens without having to un-stake allstaked tokens.

If you wish to know if you received a payout, you will have to check via a block explorer. Seethe relevant Support pagefor details. For specific details about validator payouts, please seethis guide.

Slashing​

Slashing will happen if a validator misbehaves (e.g. goes offline, attacks the network, or runsmodified software) in the network. They and their nominators will get slashed by losing a percentageof their bonded/staked DOT.

Any slashed DOT will be added to the Treasury. The rationale for this(rather than burning or distributing them as rewards) is that slashes may then be reverted by theCouncil by simply paying out from the Treasury. This would be useful in situations such as faultyslashes. In the case of legitimate slashing, it moves tokens away from malicious validators to thosebuilding the ecosystem through the normal Treasury process.

Validators with a larger total stake backing them will get slashed more harshly than less popularones, so we encourage nominators to shift their nominations to less popular validators to reducetheir possible losses.

It is important to realize that slashing only occurs for active validations for a given nominator,and slashes are not mitigated by having other inactive or waiting nominations. They are also notmitigated by the validator operator running separate validators; each validator is considered itsown entity for purposes of slashing, just as they are for staking rewards.

In rare instances, a nominator may be actively nominating several validators in a single era. Inthis case, the slash is proportionate to the amount staked to that specific validator. With verylarge bonds, such as parachain liquid staking accounts, a nominator has multiple active nominationsper era (Acala's LDOT nominator typically has 7-12 active nominations per era). Note that you cannotcontrol the percentage of stake you have allocated to each validator or choose who your activevalidator will be (except in the trivial case of nominating a single validator). Staking allocationsare controlled by the Phragmén algorithm.

Once a validator gets slashed, it goes into the state as an "unapplied slash". You can check thisviaPolkadot-JS UI.The UI shows it per validator and then all the affected nominators along with the amounts. Whileunapplied, a governance proposal can be made to reverse it during this period(days). After the grace period, the slashes are applied.

The following levels of offense aredefined. However, theseparticular levels are not implemented or referred to in the code or in the system; they are meant asguidelines for different levels of severity for offenses. To understand how slash amounts arecalculated, see the equations in the section below.

• Level 1: isolated unresponsiveness, i.e. beingoffline for an entire session. Generally no slashing, only chilling.
• Level 2: concurrent unresponsiveness or isolatedequivocation, slashes a very small amount of thestake and chills.
• Level 3: misconducts unlikely to be accidental, but which do not harm the network's security toany large extent. Examples include concurrent equivocation or isolated cases of unjustified votingin GRANDPA. Slashes a moderately small amount of the stake and chills.
• Level 4: misconduct that poses serious security or monetary risk to the system, or mass collusion.Slashes all or most of the stake behind the validator and chills.

If you want to know more details about slashing, please look at ourresearch page.

Chilling​

Chilling is the act of stepping back from any nominating or validating. It can be done by avalidator or nominator at any time, taking effect in the next era. It can also specifically meanremoving a validator from the active validator set by another validator, disqualifying them from theset of electable candidates in the next NPoS cycle.

Chilling may be voluntary and validator-initiated, e.g. if there is a planned outage in thevalidator's surroundings or hosting provider, and the validator wants to exit to protect themselvesagainst slashing. When voluntary, chilling will keep the validator active in the current session,but will move them to the inactive set in the next. The validator will not lose their nominators.

When used as part of a punishment (initiated externally), being chilled carries an implied penaltyof being un-nominated. It also disables the validator for the remainder of the current era andremoves the offending validator from the next election.

Polkadot allows some validators to bedisabled, but if the number of disabled validators gets too large,Polkadot will trigger a new validator electionto get a full set. Disabled validators will need to resubmit their intention to validate andre-garner support from nominators.

For more on chilling, see the "How to Chill" page onthis wiki.

Fast Unstake​

If your bonded balance did not back any validators in the lastdays, you are eligible to perform fast unstaking. Thestaking dashboard will automatically check if youqualify. For more information, visit the"Fast Unstake" section in this support article.

Why and Why not to Stake?​

Pros of Staking​

• Earn rewards for contributing to the network's security through staking.
• Low barrier of entry through Nomination Pools.
• Can choose up-to 16 validators which can helpto decentralize the network through the sophisticatedNPoS system
• 10% inflation/year of the tokens is primarily intended for staking rewards.

When the system staking rate matches with the ideal staking rate, the entire inflation of thenetwork is given away as the staking rewards.Up until now, the network has been following an inflation model that excludes the metric of active parachains.The ideal staking rate is a dynamic value - as the number of active parachains influences theavailable liquidity that is available to secure the network.

Any divergence from the ideal staking rate will result in the distribution of a proportion of thenewly minted tokens through inflation to go to the treasury. Keep in mind that when the system'sstaking rate is lower than the ideal staking rate, the annual nominal return rate will be higher,encouraging more users to use their tokens for staking. On the contrary, when the system stakingrate is higher than the ideal staking rate, the annual nominal return will be less, encouraging someusers to withdraw. For in-depth understanding, check theinflation section on the Wiki.

Cons of Staking​

• Tokens will be locked for aboutdays on Polkadot. No rewards will be earnedduring the unbonding period.
• Possible punishment in case of the active validator found to be misbehaving (seeslashing).
• Lack of liquidity i.e. You would not be able to use the tokens for participating in crowdloans ortransfer them to different account etc.

Unbonding Period Length​

The unbonding period provides a safety net for slashing offenses identified inpast eras,which can hold the respective validators and their nominators accountable. The-dayunbonding period is crucial in mitigating ex post facto slashing, particularly in guarding againstlong-range attacks. When a client encounters a chain finalized byGRANDPA that originates more thandays in the past, it lacks the security of slashing protection.

Essentially, this period establishes a cadence for synchronizing with the chain or acquiring acheckpoint within a timeframe that engenders trust. It's worth noting that while the choice of a-dayperiod is somewhat arbitrary, it unquestionably provides a higher level of security compared to ashorter period.

How many Validators?​

Polkadot currently hasvalidators. The top bound on the number of validators has not been determined yet, but should onlybe limited by the bandwidth strain of the network due to peer-to-peer message passing.

The estimate of the number of validators that Polkadot will have at maturity is around 1000.Kusama is already operating at this threshold.

Why am I not receiving rewards?​

Nominating on Polkadot is not a set-and-forgetaction. Nominators need to monitor their nominations and ensure they are eligible to receive stakingrewards. Otherwise, they would be risking their funds to secure the chain with no reward. If you arebonding significantly more than the Minimum Active Bond and yet not receiving rewards, yournominations are all waiting, or your active validator has 100% commission. However, if you bondfunds close to the Minimum Active Bond, there could be several possibilities for not receivingstaking rewards. The table below can be used to troubleshoot why you might not be receiving stakingrewards using Polkadot-JS UI.

Staking FAQ​

Resources​

• How Nominated Proof of Stake will work in Polkadot -Blog post by Web3 Foundation researcher Alfonso Cevallos covering NPoS in Polkadot.
• Validator setup
• Polkadot validator selector tool - A toolthat helps nominators find reliable validators that meet quality-control criteria, includingcommission rates, verified identity, etc.