Staking Incentives
Election and Staking
TON Blockchain makes use of the Proof of Stake (PoS) consensus algorithm which means, like all PoS networks, that the network’s security and stability is maintained by a set of network validators. In particular, validators propose candidates for new blocks (made up of transaction batches), while other validators validate and approve them via digital signatures.
Validators are chosen using special Elector governance contract. During each consensus round, validator candidates send an application for election along with their stake and desired max_factor (a parameter which regulates the amount of maintenance the validator performs per consensus round).
During the validator election process, the governance smart contract chooses the next round of validators and assigns a voting weight to each validator to maximize their total stake, while also taking into consideration the validator’s stake and max_factor. In this respect, the higher the stake and max_factor, the higher the voting weight of the validator and vice versa.
Validators that are elected are chosen to secure the network by participating in the next consensus round. However, unlike many other blockchains, to achieve horizontal scalability, each validator validates only a portion of the network:
For each shardchain and masterchain a dedicated set of validators exists. Sets of masterchain validators consist of up to 100 validators that exhibit the highest voting weight (defined as Network Parameter Config16:max_main_validators).
In contrast, each shardchain is validated by a set of 23 validators (defined as Network Parameter Config28:shard_validators_num) and rotated randomly every 1000 seconds (Network Parameter Config28:shard_validators_lifetime).
Values of Stakes: Max Effective Stake
The current max_factor in config is 3, meaning the stake of the smallest validator cannot be more than three times less than the stake of the largest one.
The formula with the config parameters:
max_factor = max_stake_factor / validators_elected_for
(Simplified) Selection Algorithm
This algorithm, run by the Elector smart contract, selects the best validator candidates based on the stake they have committed. Here's a breakdown of how it works:
Initial Selection: Elector considers all candidates who have staked more than a set minimum amount (300K, as specified in the configuration).
Ordering Candidates: These candidates are then arranged from highest to lowest based on their stake.
Narrowing Down:
- If the number of candidates exceeds the maximum allowed number of validators (see configuration), those with the lowest stakes are excluded.
- The Elector then evaluates each potential group of candidates, starting from the largest group and moving to smaller ones:
- It examines the top candidates in the ordered list, increasing the number one by one.
- For each candidate, Elector calculates their 'effective stake'. If a candidate's stake is significantly higher than the minimum, it's adjusted down (e.g., if someone staked 310k and the minimum is 100k, but there's a rule capping at three times the minimum, their effective stake is considered as 300k).
- It sums up the effective stakes of all candidates in this group.
Final Selection: The group of candidates with the highest total effective stake is chosen as the validators by the Elector.
Validator Selection Algorithm
Based on the available stakes of potential validators, optimal values for the minimum and maximum stake are determined, with the aim of maximizing the magnitude of the total stake:
Elector takes all applicants who have a stake higher than the minimum (300K in config).
Elector sorts them in descending order of stake.
If there are more participants than the maximum number of validators, Elector discards the tail of the list. Then Elector does the following:
- For each cycle i from 1 to N (the remaining number of participants), it takes the first i applications from the sorted list.
- It calculates the effective stake, considering the
max_factor. That is, if a person has put in 310k, but with amax_factorof 3, and the minimum stake in the list is 100k Toncoins, then the effective stake will be min(310k, 3*100k) = 300k. One validator node may use up to 600k TON (in this example) in two rounds (half in odd rounds, half in even rounds). To increase the stake, it is necessary to set up multiple validator nodes. - It calculates the total effective stake of all i participants.
Once Elector finds such an i, where the total effective stake is maximal, we declare these i participants as validators.
Positive Incentives
Similarly to all blockchain networks, each transaction on TON requires a computation fee called gas used to conduct network storage and the transaction processing on-chain. On TON, these fees are accumulated within the Elector contract in a reward pool.
The network also subsidizes block creation by adding a subsidy to the reward pool equal to 1.7 TON for each masterchain block and 1 TON for each basechain block (Network Parameters Config14:masterchain_block_fee and Config14:basechain_block_fee). Note, that when splitting a basechain into more than one shardchain, the subsidy per shardchain block is split accordingly. This process allows the subsidy per unit of time to be kept near constant.
TON Blockchain is planning to introduce a deflationary mechanism in Q2 of 2023. In particular, a portion of TON generated via network use will be burned instead of going to the rewards pool.
After a validation cycle round lasting 65536 seconds or ~18 hours (Network Parameter Config15:validators_elected_for), staked TON is not immediately released by each validator, but instead held for an additional 32768 seconds or ~9 hours (Network Parameter Config15:stake_held_for). During this period, slashing (a penalization mechanism for misbehaving validators) penalties can be deducted from the validator. After funds are released, validators can withdraw their stake along with a share of the reward pool accrued during the validation round proportional to their voting weight.
As of April 2023, the total reward pool per consensus round for all validators on the network is approximately 40,000 TON, with the average reward per validator being ~ 120 TON (the maximum difference between voting weight and the accrued rewards is ~3 TON).
Given the total supply of Toncoin (5 billion TON) has an inflation rate of approximately 0.3-0.6% annually.
This inflation rate, however, is not always constant, and may deviate depending on the network’s current state. Eventually it will tend to deflation after Deflation mechanism activation and growth of network utilization.
Learn current TON Blockchain stats here.
Negative Incentives
On TON Blockchain, there are generally two ways validators can be penalized for misbehaving: idle and malicious misbehaving; both of which are prohibited and may result in being fined (in a process called slashing) for their actions.
If a validator does not participate in block creation and transaction signing for a significant amount of time during a validation round, it is potentially fined using the Standard fine parameter. As of April 2023, the Standard fine accrued is 101 TON (Network Parameter ConfigParam40:MisbehaviourPunishmentConfig).
On TON, slashing penalties (fines given to validators) allow any network participant to file a complaint if they believe a validator is misbehaving. During this process, the participant issuing the complaint must attach cryptographic proofs of misbehavior for Elector submission. During the stake_held_for dispute resolution period, all validators operating on the network check the validity of complaints and vote whether they will pursue the complaint collectively (while determining the legitimacy of misbehaving proofs and fine allotment).
Upon reaching 66% validator approval (measured by an equal voting weight), a slashing penalty is deducted from the validator and withdrawn from the validator’s total stake. The validation process for penalization and complaint resolution is typically conducted automatically using the MyTonCtrl.