Staking incentives
Election and staking
TON Blockchain uses the Proof-of-stake (PoS) consensus algorithm, meaning that, like all PoS networks, a set of network validators maintains the network's security and stability. 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 a 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 that 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 considering 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.
Elected validators are selected to secure the network by participating in the next consensus round. However, to achieve horizontal scalability, each validator verifies only a portion of the network, unlike many other blockchains:
Each ShardChain and MasterChain has a dedicated set of validators. Sets of MasterChain validators consist of up to 100 validators exhibiting the highest voting weight (defined as Network Parameter Config16:max_main_validators).
Each ShardChain is validated by 23 validators, as defined by Network Parameter Config28:shard_validators_num. These validators are rotated randomly every 1000 seconds according to 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
Selection algorithm review
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 TON, 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 TON and the minimum is 100k TON, but there's a rule capping at three times the minimum, their effective stake is considered as 300k TON).
-
It sums up the effective stakes of all candidates in this group.
-
- Final selection: The Elector chooses the group of candidates with the highest total effective stake as the validators.
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 TON 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 TON, but with amax_factorof 3, and the minimum stake in the list is 100k TON, then the effective stake will be min(310k TON, 3*100k TON) = 300k TON. 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 identifies such an i, where the total effective stake is maximized, we declare these i participants as validators.
Positive incentives
Similarly to all blockchain networks, each transaction on TON requires a computation fee called gas to process transactions and store data on-chain. On TON, these fees are accumulated within the Elector contract in a reward pool.
The network also provides a subsidy for block creation by adding an amount of 1.7 TON to the reward pool for each MasterChain block and an amount equal to 1 TON for each BaseChain block (refer to Network Parameters Config14:masterchain_block_fee and Config14:basechain_block_fee). It is important to note that when a BaseChain is divided into multiple ShardChains, the subsidy for each ShardChain block is distributed accordingly. This approach helps maintain a consistent subsidy per unit of time.
In June 2023, the Deflationary Burn Mechanism was introduced. With this mechanism, a portion of the TON generated by the network is burned instead of being allocated to the rewards pool.
After a validation cycle lasting 65536 seconds, or approximately 18 hours (as determined by the network parameter Config15: validators_elected_for), staked TON is not immediately released by each validator. Instead, it is held for an additional 32768 seconds, or about 9 hours (as specified by the network parameter Config15: stake_held_for). During this period, slashing penalties can be imposed on the validator as a consequence for any misbehavior. Once the funds are released, validators can withdraw their staked amount along with a share of the rewards 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).
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 deflate after the deflationary burn mechanism is activated and network utilization grows.
Learn current TON Blockchain stats here.
Negative incentives
On the TON Blockchain, there are generally two ways validators can be penalized for misbehaving: idle or malicious misbehavior. Both are prohibited and may result in fines (in a process called slashing) for their actions.
If a validator fails to participate in block creation and transaction signing for a significant period during a validation round, they may incur a fine based on the Standard fine parameter. As of April 2023, the Standard fine that can be accrued is 101 TON (Network Parameter ConfigParam 40: MisbehaviourPunishmentConfig).
On the TON network, slashing penalties—also known as fines imposed on validators—allow any participant to file a complaint if they suspect a validator is misbehaving. When submitting a complaint, the participant must provide cryptographic evidence of the alleged misbehavior for submission to the Elector smart contract.
During the stake_held_for dispute resolution period, all validators on the network assess the validity of the complaints and vote on whether to pursue each complaint collectively. They also evaluate the legitimacy of the provided evidence and determine the appropriate penalties.
If, based on weighted votes, at least 66% of the validators approve the complaint, the slashing penalty is applied. This penalty is deducted from the offending validator's total stake. Typically, the process of penalization and resolution of complaints is managed automatically using MyTonCtrl.
Decentralized system of penalties
Determination of poor work
TON provides the lite-client utility. In lite-client, there is a checkloadall command.
This command analyzes the number of blocks the validator should have processed and the number it actually processed in a given period of time.
If the validator processed less than 90% of the expected number of blocks during a validation round, it is considered to be performing poorly and should be penalized.
Learn more about the technical description of the process here
Complaint workflow
-
Anyone can make a complaint and get a reward for the right complaint.
-
Validation of complaints is maintained by validators and is fully decentralized.
Make a complaint
After each validation round (~18 hours), the validator stakes of the validators who participated in that round remain on the Elector smart contract for another ~9 hours.
During this time, anyone can send a complaint against a validator who performed poorly in that round. This happens on-chain on the Elector smart contract.
Validation of complaint
After each validation round, validators receive a list of complaints from the Elector smart contract. They then double-check these complaints by calling checkloadall.
If a complaint is validated, a vote is conducted on-chain in favor of that complaint.
These actions are integrated into MyTonCtrl and occur automatically.
When a complaint receives 66% of the validators' votes (weighted by their stake), the validator's stake is penalized.
No one has the authority to impose a fine on their own.
The list of penalized validators for each round is available at @tonstatus_notifications.
Fine value
The amount of the fine is defined by Network Parameter ConfigParam 40: MisbehaviourPunishmentConfig and is currently 101 TON (approximately equal to a validator’s income per round).
The value of the fine may change due to the rapidly growing audience and the number of transactions in TON, and it is vital that the quality of work is at its best.
Fine distribution
The fine is distributed among the validators minus network costs, and a small reward (~8 TON) is given to the first complainer who sends the correct complaint to the Elector.
Validator guidelines
To prevent your validator node from being fined, it is advisable to ensure that the hardware, monitoring, and validator operations are set up properly.
Please ensure you comply with the validator guidelines.
If you don't want to do this please consider using staking services.