What is a Proof-of-Stake Validator?
Proof-of-stake blockchains are a true meritocracy. Members of these decentralized communities choose network validators based on what they have to offer. This choice is grounded purely in a validator’s merit. Rational stakeholders delegate their own skin-in-the-game (stake) to validators who will serve their and the network’s best interest. This has given rise to a new investment class. Stakeholders are rewarded financially for their participation. Staking rewards deliver a yield that far outstrips traditional savings or interest rates.
Validators provide a valuable service in securing the blockchain. The incentive for doing so is the blockchain’s native token. For new entrants to the proof-of-stake space or for outsiders looking in however, validators often appear undifferentiated. The lucrative rewards seeded out by these networks attracts a large cohort of validators. On the §surface, each validator in this growing group offers the same basic, commoditized service. Many new arrivals to Proof-of-Stake blockchains have the same basic question,
“Which validator do I stake with?”
Blockdaemon has prepared a list of four proof-of-stake validator criteria. This list helps shape your decision making process when choosing a validator. The four areas for consideration are:
- Validator Fees
- Validator Performance
- Validator Security
- Validator Ethos
Now, let’s get started.
1. Validator Fees
Fees are the most obvious metric that sets validators apart. Stakers can choose what validator to support with their stake based purely on these financial parameters. However, fees are only one part of the picture. There are many other considerations that should be looked at when choosing a validator.
Every Proof-of-Stake validator sets a fee. This fee covers the cost of running the validator node. These costs can include hardware, maintenance, power and operator time. Fees helps keep the validator up-and-running. Blockdaemon’s public validator node for Cardano is a good example of how fees work. The fees for this public validator include:
- Epoch Fee (340 ₳): This is a ‘fixed’ fee which is skimmed from the total block reward of a given epoch. An epoch is a period of time in Cardano in which a set of blocks are produced by validators. An epoch equates to roughly 5 days. This fee is received by the validator as long as they produce one or more blocks. Therefore, the fee is relatively small when a large amount of blocks are produced.
- Variable Fee (3%): This variable fee is a percentage of block rewards. Therefore, the variable fee that Blockdaemon takes depends on the amount of blocks produced. Unlike the epoch fee, this can change depending on how often a block is produced.
2. Validator Performance
Proof-of-stake validator performance is influenced by the following factors:
- Constant Uptime & Availability: Validators must be available to perform their duties around the clock. A validator can potentially miss a block production opportunity if they are offline. Not only would this result in loss of revenue, but would also incur slashing on some proof-of-stake networks. Ethereum’s proof-of-stake Beacon Chain slashes validators who are constantly offline. As offline validators cannot help the chain reach finality, slashing removes their ‘stake’ in the network. Online validators retain and grow their stake, while offline validators see theirs diminish.
- 24/7 Monitoring: High-performing validators monitor their nodes constantly. Monitoring checks for any potential faults, ensures the node is synced to the network and all network updates are applied.
- Experienced operators: Anyone can create a node by following instructions online with the requisite hardware. However, true expertise is needed to manage a node correctly. This comes from experience and the required technical knowledge.
A validator doing its duties consistently well is one that delivers a good staking performance. This performance is reflected in the amount of rewards it generates for itself and delegators. Blockdaemon’s SKALE validator node has a proven record of strong performance. This SKALE validator delivers rewards reliably. The strong performance of this node stems from Blockdaemon’s high-availability node architecture, consistent power and network uptime and around-the-clock monitoring. Blockdaemon’s engineers are experienced node operators across SKALE and a suite of other proof-of-stake protocols. All of this contributes to a high performing SKALE validator.
3. Validator Security
Stakeholders often outsource their security to trusted third parties. These include exchanges, crypto asset custodians and funds. These third parties provide a safe and secure experience for holders. Fireblocks’ reliance on Blockdaemon’s staking infrastructure for a portion of their proof-of-stake assets is a testament to the importance of gold-standard security. This is because Blockdaemon’s nodes are fault-tolerant, with high-traffic nodes include redundancies to handle high amounts of traffic, which ensures a node failure does not result in a drop in service. Blockdaemon also uses the highest-standard key management procedures possible.
Security is at the heart of proof-of-stake networks. It is therefore easy for individuals to get started. Thankfully, many proof-of-stake network validators only require delegation. Delegation requires a stakeholder’s permission to mint blocks on holders’ behalf. No transfer of funds is required. Furthermore rewards are distributed to delegators on-chain, on networks such as Cardano. This makes participating in staking incredibly safe.
4. Validator Ethos
The mission, vision and values of an operator play an important role in deciding which validator to support. Many stakers ask themselves, “does this validator support the network beyond simply validating blocks?” These stakeholders search for ‘value-added’ validators. These are operators who provide extra services to the blockchain community. Such validators could deliver educational content, build tooling or provide a product which adds value to the blockchain’s users.
Blockdaemon’s support of Terra is the perfect example of a supportive validator ethos. Blockdaemon operates a performant validator node on the Terra network. In addition to running a full validating node in the Terra ecosystem, Blockdaemon is also committed to providing public goods RPC endpoints, API access and other robust developer tools to the larger Terra community. This adds value to the Terra community beyond block production.
Staking empowers decentralized communities. A well informed community is the bedrock of this empowerment. Proof-of-stake networks are open-source communities which are dynamic and decentralized. This means validators can come and go at will. Therefore, a set of criteria when deciding which validator to go with can be extremely helpful.
There is a changing landscape of validators who are available at any given point in time. Blockdaemon hopes that this guide will provide a good starting point when choosing which one to support. If you would like to learn more about our staking services, be sure to check out our marketplace of 40+ supported protocols, or get in touch with our sales team today.