Validator Payout Overview
Era Points
For every era (a period of time approximately 6 hours in length in Kusama, and 24 hours in Polkadot), validators are paid proportionally to the amount of era points they have collected. Era points are reward points earned for payable actions like:
- issuing validity statements for parachain blocks.
- producing a non-uncle block in the relay chain.
- producing a reference to a previously unreferenced uncle block.
- producing a referenced uncle block.
An uncle block is a relay chain block that is valid in every regard, but which failed to become canonical. This can happen when two or more validators are block producers in a single slot, and the block produced by one validator reaches the next block producer before the others. We call the lagging blocks uncle blocks.
Payments occur at the end of every era.
Era points create a probabilistic component for staking rewards.
If the mean of staking rewards is the average rewards per era, then the variance is the variability from the average staking rewards. The exact DOT value of each era point is not known in advance since it depends on the total number of points earned by all validators in a given era. This is designed this way so that the total payout per era depends on Polkadot's inflation model, and not on the number of payable actions (f.e., authoring a new block) executed. For more information, check this stackexchange post.
With parachains now on Polkadot, a large percentage of era points will come from parachain validation, as a subset of validators are selected to para-validate for all parachains each epoch, and those para-validators can generate more era points as a result. Para-validators are rewarded 20 era points each for each parachain block that they validate.
In this case, analyzing the expected value of staking rewards will paint a better picture as the weight of era points of validators and para-validators in the reward average are taken into consideration.
This should only serve as a high-level overview of the probabilistic nature for staking rewards.
Let:
pe= para-validator era points,ne= non-para-validator era points,EV= expected value of staking rewards,
Then, EV(pe) has more influence on the EV than EV(ne).
Since EV(pe) has a more weighted probability on the EV, the increase in variance against the
EV becomes apparent between the different validator pools (aka. validators in the active set and
the ones chosen to para-validate).
Also, let:
v= the variance of staking rewards,p= number of para-validators,w= number validators in the active set,e= era,
Then, v ↑ if w ↑, as this reduces p : w, with respect to e.
Increased v is expected, and initially keeping p ↓ using the same para-validator set for
all parachains ensures
availability and
voting. In addition, despite v ↑ on an e to e
basis, over time, the amount of rewards each validator receives will equal out based on the
continuous selection of para-validators.
There are plans to scale the active para-validation set in the future
Payout Scheme
No matter how much total stake is behind a validator, all validators split the block authoring payout essentially equally. The payout of a specific validator, however, may differ based on era points, as described above. Although there is a probabilistic component to receiving era points, and they may be impacted slightly depending on factors such as network connectivity, well-behaving validators should generally average out to having similar era point totals over a large number of eras.
Validators may also receive "tips" from senders as an incentive to include transactions in their produced blocks. Validators will receive 100% of these tips directly.
Validators will receive staking rewards in the form of the native token of that chain (KSM for Kusama and DOT for Polkadot).
For simplicity, the examples below will assume all validators have the same amount of era points, and received no tips.
Validator Set Size (v): 4
Validator 1 Stake (v1): 18 tokens
Validator 2 Stake (v2): 9 tokens
Validator 3 Stake (v3): 8 tokens
Validator 4 Stake (v4): 7 tokens
Payout (p): 8 DOT
Payout for each validator (v1 - v4):
p / v = 8 / 4 = 2 tokens
Note that this is different than most other Proof-of-Stake systems such as Cosmos. As long as a
validator is in the validator set, it will receive the same block reward as every other validator.
Validator v1, who had 18 tokens staked, received the same reward (2 tokens) in this era as v4
who had only 7 tokens staked.
Running Multiple Validators
It is possible for a single entity to run multiple validators. Running multiple validators may provide a better risk/reward ratio. Assuming you have enough DOT, or enough stake nominates your validator, to ensure that your validators remain in the validator set, running multiple validators will result in a higher return than running a single validator.
For the following example, assume you have 18 DOT to stake. For simplicity's sake, we will ignore nominators. Running a single validator, as in the example above, would net you 2 DOT in this era.
Note that while DOT is used as an example, this same formula would apply to KSM when running a validator on Kusama.
Validator Set Size (v): 4
Validator 1 Stake (v1): 18 DOT <- Your validator
Validator 2 Stake (v2): 9 DOT
Validator 3 Stake (v3): 8 DOT
Validator 4 Stake (v4): 7 DOT
Payout (p): 8 DOT
Your payout = (p / v) * 1 = (8 / 4) * 1 = 2
Running two validators, and splitting the stake equally, would result in the original validator v4
to be kicked out of the validator set, as only the top v validators (as measured by stake) are
selected to be in the validator set. More important, it would also double the reward that you get
from each era.
Validator Set Size (v): 4
Validator 1 Stake (v1): 9 DOT <- Your first validator
Validator 2 Stake (v2): 9 DOT <- Your second validator
Validator 3 Stake (v3): 9 DOT
Validator 4 Stake (v4): 8 DOT
Payout (p): 8 DOT
Your payout = (p / v) * 2 = (8 / 4) * 2 = 4
With enough stake, you could run more than two validators. However, each validator must have enough stake behind it to be in the validator set.
The incentives of the system favor equally-staked validators. This works out to be a dynamic, rather than static, equilibrium. Potential validators will run different numbers of validators and apply different amounts of stake to them as time goes on, and in response to the actions of other validators on the network.
Nominators and Validator Payments
A nominated stake allows you to "vote" for validators and share the rewards (but also slashing) without running a validator node yourself.
Although staking rewards are based on the activities of the validator node during a specific era,
the validator never has access to or ownership of staking rewards. In fact, staking.payoutStakers
or staking.payoutStakerByPage calls are necessary to payout staking rewards, can be called by
anyone, and the staking rewards are "generated" because of it and automatically sent to nominators
(i.e., rewards are produced or minted and sent to nominators, not sent from validators to
nominators).
This includes the stake of the validator itself plus any stake bonded by nominators.
Validators set their preference as a percentage of the block reward, not an absolute number of DOT. Polkadot's block reward is based on the total amount at stake. The commission is set as the amount taken by the validator; that is, 0% commission means that the validator does not receive any proportion of the rewards besides that owed to it from self-stake, and 100% commission means that the validator operator gets all rewards and gives none to its nominators.
In the following examples, we can see the results of several different validator payment schemes and split between nominator and validator stake. We will assume a single nominator for each validator. However, there can be numerous nominators for each validator. Rewards are still distributed proportionally - for example, if the total rewards to be given to nominators is 2 DOT, and there are four nominators with equal stake bonded, each will receive 0.5 DOT. Note also that a single nominator may stake different validators.
Each validator in the example has selected a different validator payment (that is, a percentage of
the reward set aside directly for the validator before sharing with all bonded stake). The
validator's payment percentage (in DOT, although the same calculations work for KSM) is listed in
brackets ([]) next to each validator. Note that since the validator payment is public knowledge,
having a low or non-existent validator payment may attract more stake from nominators, since they
know they will receive a larger reward.
Validator Set Size (v): 4
Validator 1 Stake (v1) [20% commission]: 18 DOT (9 validator, 9 nominator)
Validator 2 Stake (v2) [40% commission]: 9 DOT (3 validator, 6 nominator)
Validator 3 Stake (v3) [10% commission]: 8 DOT (4 validator, 4 nominator)
Validator 4 Stake (v4) [ 0% commission]: 6 DOT (1 validator, 5 nominator)
Payout (p): 8 DOT
Payout for each validator (v1 - v4):
p / v = 8 / 4 = 2 DOT
v1:
(0.2 * 2) = 0.4 DOT -> validator payment
(2 - 0.4) = 1.6 -> shared between all stake
(9 / 18) * 1.6 = 0.8 -> validator stake share
(9 / 18) * 1.6 = 0.8 -> nominator stake share
v1 validator total reward: 0.4 + 0.8 = 1.2 DOT
v1 nominator reward: 0.8 DOT
v2:
(0.4 * 2) = 0.8 DOT -> validator payment
(2 - 0.8) = 1.2 -> shared between all stake
(3 / 9) * 1.2 = 0.4 -> validator stake share
(6 / 9) * 1.2 = 0.8 -> nominator stake share
v2 validator total reward: 0.8 + 0.4 = 1.2 DOT
v2 nominator reward: 0.8 DOT
v3:
(0.1 * 2) = 0.2 DOT -> validator payment
(2 - 0.2) = 1.8 -> shared between all stake
(4 / 8) * 1.8 = 0.9 -> validator stake share
(4 / 8) * 1.8 = 0.9 -> nominator stake share
v3 validator total reward: 0.2 + 0.9 DOT = 1.1 DOT
v3 nominator reward: 0.9 DOT
v4:
(0 * 2) = 0 DOT -> validator payment
(2 - 0) = 2.0 -> shared between all stake
(1 / 6) * 2 = 0.33 -> validator stake share
(5 / 6) * 2 = 1.67 -> nominator stake share
v4 validator total reward: 0 + 0.33 DOT = 0.33 DOT
v4 nominator reward: 1.67 DOT