The role of validators is to run a full-node and participate in consensus by broadcasting votes which contain cryptographic signatures. Validators commit new blocks and receive rewards in exchange for their work. They must also participate in governance by voting on proposals. Validators are weighted according to their total stake.
What is 'staking'?
The Panacea is a public Delegated Proof-Of-Stake (dPoS) blockchain, meaning that the weight of validators is determined by the amount of staking tokens (MED) bonded as collateral. These MEDs can be self-delegated directly by the validator or delegated to them by other MED holders.
Any user in the system can declare their intention to become a validator by sending a create-validator transaction. Initially, only the top 50 validators with the most voting power will be active validators.
What is a full-node?
A full-node is a program that fully validates transactions and blocks of a blockchain. It is distinct from a light-node that only processes block headers and a small subset of transactions. Running a full-node requires more resources than a light-node but is necessary in order to be a validator. In practice, running a full-node only implies running a non-compromised and up-to-date version of the software with low network latency and without downtime.
Of course, it is possible and encouraged for users to run full-nodes even if they do not plan to be validators.
What is a delegator?
Delegators are MED holders who cannot, or do not want to run a validator node themselves. MED holders can delegate MEDs to a validator and obtain a part of their revenue in exchange.
Because they share revenue with their validators, delegators also share risks. Should a validator misbehave, each of their delegators will be partially slashed in proportion to their delegated stake. This is why delegators should perform due diligence on validators before delegating, as well as spreading their stake over multiple validators.
Delegators play a critical role in the system, as they are responsible for choosing validators. Being a delegator is not a passive role. Delegators should actively monitor the actions of their validators and participate in governance.
Becoming a Validator
How to become a validator?
Any participant in the network can signal that they want to become a validator by sending a create-validator transaction, where they must fill out the following parameters: link.
Once a validator is created, MED holders can delegate MEDs to them, effectively adding stake to their pool. The total stake of an address is the combination of MEDs bonded by delegators and MEDs self-bonded by the entity which designated themselves.
Out of all validator candidates that signaled themselves, the 50 with the most total stake are the ones who are designated as validators. They become validators If a validator's total stake falls below the top 50 then that validator loses their validator privileges: they don't participate in consensus and generate rewards anymore. Over time, the maximum number of validators may be increased via on-chain governance proposal.
What are the different states a validator can be in?
After a validator is created with a create-validator transaction, they can be in three states:
in validator set: Validator is in the active set and participates in consensus.
Validator is earning rewards and can be slashed for misbehaviour.
jailed: Validator misbehaved and is in jail, i.e. outside of the validator set.
If the jailing is due to being offline for too long, the validator can send an unjail transaction
in order to re-enter the validator set. If the jailing is due to double signing, the validator cannot unjail.
unbonded: Validator is not in the active set, and therefore not signing blocks.
Validator cannot be slashed, and does not earn any reward. It is still possible to delegate MEDs to this validator.
Un-delegating from an unbonded validator is immediate.
What is 'self-delegation'? How can I increase my 'self-delegation'?
Self-delegation is delegation from a validator to themselves. This amount can be increases by sending a delegate transaction from your validator's application key. For details about the application key, please see the Key Types guide.
Is there a minimum amount of MEDs that must be delegated to be an active (=bonded) validator?
The minimum is 1 med.
How will delegators choose their validators?
Delegators are free to choose validators according to their own subjective criteria. This said, criteria anticipated to be important include:
Amount of self-delegated MEDs: Number of MEDs a validator self-delegated to themselves.
A validator with a higher amount of self-delegated MEDs has more skin in the game, making them more liable for their actions.
Amount of delegated MEDs: Total number of MEDs delegated to a validator.
A high voting power shows that the community trusts this validator,
but it also means that this validator is a bigger target for hackers.
Bigger validators also decrease the decentralisation of the network.
Commission rate: Commission applied on revenue by validators before it is distributed to their delegators.
Track record: Delegators will likely look at the track record of the validators they plan to delegate to.
This includes seniority, past votes on proposals, historical average uptime and how often the node was compromised.
Do validators need to be publicly identified?
No, they do not. Each delegator will value validators based on their own criteria. Validators will be able to register a website address when they nominate themselves so that they can advertise their operation as they see fit. Some delegators may prefer a website that clearly displays the team operating the validator and their resume, while others might prefer anonymous validators with positive track records.
What are the responsibilities of a validator?
Validators have two main responsibilities:
Be able to constantly run a correct version of the software: Validators need to make sure that their servers are always online,
and their private keys are not compromised.
Actively participate in governance: Validators are required to vote on every proposal.
What does 'participate in governance' entail?
Validators and delegators can vote on proposals to change operational parameters (such as the block gas limit), coordinate upgrades, or make a decision on any given matter.
Validators play a special role in the governance system. Being the pillars of the system, they are required to vote on every proposal. It is especially important since delegators who do not vote will inherit the vote of their validator.
What does staking imply?
Staking MEDs can be thought of as a safety deposit on validation activities. When a validator or a delegator wants to retrieve part or all of their deposit, they send an unbonding transaction. Then, MEDs undergo a 3 weeks unbonding period during which they are liable to being slashed for potential misbehavior committed by the validator before the unbonding process started.
Validators, and by association delegators, receive block rewards, fees, and have the right to participate in governance. If a validator misbehaves, a certain portion of their total stake is slashed. This means that every delegator that bonded MEDs to this validator gets penalized in proportion to their bonded stake. Delegators are therefore incentivized to delegate to validators that they anticipate will function safely.
Can a validator run away with their delegators' MEDs?
By delegating to a validator, a user delegates voting power. The more voting power a validator have, the more weight they have in the consensus and governance processes. This does not mean that the validator has custody of their delegators' MEDs. By no means can a validator run away with its delegator's funds.
Even though delegated funds cannot be stolen by their validators, delegators are still liable if their validators misbehave.
How often will a validator be chosen to propose the next block? Does it go up with the quantity of bonded MEDs?
The validator that is selected to propose the next block is called proposer. Each proposer is selected deterministically, and the frequency of being chosen is proportional to the voting power of the validator. For example, if the total bonded stake across all validators is 100 MEDs and a validator's total stake is 10 MEDs, then this validator will proposer ~10% of the blocks.
What is the incentive to stake?
Each member of a validator's staking pool earns different types of revenue:
Block rewards: Native tokens of applications run by validators (e.g. MEDs on the Panacea) are inflated to produce block provisions.
These provisions exist to incentivize MED holders to bond their stake, as non-bonded MED will be diluted over time.
Transaction fees: The Panacea maintains a whitelist of token that are accepted as fee payment.
The initial fee token is the MED.
This total revenue is divided among validators' staking pools according to each validator's weight. Then, within each validator's staking pool the revenue is divided among delegators in proportion to each delegator's stake. A commission on delegators' revenue is applied by the validator before it is distributed.
What is the incentive to run a validator?
Validators earn proportionally more revenue than their delegators because of commissions.
Validators also play a major role in governance. If a delegator does not vote, they inherit the vote from their validator. This gives validators a major responsibility in the ecosystem.
What are validators commission?
Revenue received by a validator's pool is split between the validator and their delegators. The validator can apply a commission on the part of the revenue that goes to their delegators. This commission is set as a percentage. Each validator is free to set their initial commission, maximum daily commission change rate and maximum commission. The Panacea enforces the parameter that each validator sets. Only the commission rate can change after the validator is created.
How are block rewards distributed?
Block rewards are distributed proportionally to all validators relative to their voting power. This means that even though each validator gains MEDs with each reward, all validators will maintain equal weight over time.
Let us take an example where we have 10 validators with equal voting power and a commission rate of 10%. Let us also assume that the reward for a block is 1000 MEDs and that each validator has 20% of self-bonded MEDs. These tokens do not go directly to the proposer. Instead, they are evenly spread among validators. So now each validator's pool has 100 MEDs. These 100 MEDs will be distributed according to each participant's stake:
Then, each delegator can claim their part of the 72 MEDs in proportion to their stake in the validator's staking pool.
How are fees distributed?
Fees are similarly distributed with the exception that the block proposer can get a bonus on the fees of the block they propose if they include more than the strict minimum of required precommits.
When a validator is selected to propose the next block, they must include at least 2/3 precommits of the previous block. However, there is an incentive to include more than 2/3 precommits in the form of a bonus. The bonus is linear: it ranges from 1% if the proposer includes 2/3rd precommits (minimum for the block to be valid) to 5% if the proposer includes 100% precommits. Of course the proposer should not wait too long or other validators may timeout and move on to the next proposer. As such, validators have to find a balance between wait-time to get the most signatures and risk of losing out on proposing the next block. This mechanism aims to incentivize non-empty block proposals, better networking between validators as well as to mitigate censorship.
Let's take a concrete example to illustrate the aforementioned concept. In this example, there are 10 validators with equal stake. Each of them applies a 10% commission rate and has 20% of self-delegated MEDs. Now comes a successful block that collects a total of 1005 MEDs in fees.
First, a community tax is applied, but it is 0% on the Panacea for now.
So, the full of 1005 MEDs are distributed to validators and delegators. Let's assume that the proposer included 100% of the signatures in its block. It thus obtains the full bonus of 5%.
We have to solve this simple equation to find the reward R for each validator:
Delegators' rewards: 100 * 80% - Commission = 72 MEDs (each delegator will be able to claim their portion of these rewards in proportion to their stake)
What are the slashing conditions?
If a validator misbehaves, their delegated stake will be partially slashed. There are currently two faults that can result in slashing of funds for a validator and their delegators:
Double signing: If someone reports on chain A that a validator signed two blocks at the same height on chain A and chain B,
and if chain A and chain B share a common ancestor, then this validator will get slashed by 5% on chain A.
Downtime: If a validator misses more than 95% of the last 10,000 blocks, they will get slashed by 0.01%.
What are hardware requirements?
Validators should expect to provision one or more data center locations with redundant power, networking, firewalls, HSMs and servers.
We expect that a modest level of hardware specifications will be needed initially and that they might rise as network use increases. For details, please see the Join the Network guide.
What are software requirements?
In addition to running a Panacea node, validators should develop monitoring, alerting and management solutions.
What are bandwidth requirements?
The Panacea network has the capacity for very high throughput relative to chains like Ethereum or Bitcoin.
We recommend that the data center nodes only connect to trusted full-nodes in the cloud or other validators that know each other socially. This relieves the data center node from the burden of mitigating denial-of-service attacks.
Ultimately, as the network becomes more heavily used, multi-gigabyte per day bandwidth is very realistic.
What does running a validator imply in terms of logistics?
A successful validator operation will require the efforts of multiple highly skilled individuals and continuous operational attention. This will be considerably more involved than running a bitcoin miner for instance.
How to handle key management?
Validators should expect to run an HSM that supports ed25519 keys. Here are potential options:
Ledger Nano S
Ledger BOLOS SGX enclave
Thales nShield support
The Tendermint team does not recommend one solution above the other. The community is encouraged to bolster the effort to improve HSMs and the security of key management.
What can validators expect in terms of operations?
Running effective operation is the key to avoiding unexpectedly unbonding or being slashed. This includes being able to respond to attacks, outages, as well as to maintain security and isolation in your data center.
What are the maintenance requirements?
Validators should expect to perform regular software updates to accommodate upgrades and bug fixes. There will inevitably be issues with the network early in its bootstrapping phase that will require substantial vigilance.
How can validators protect themselves from denial-of-service attacks?
Denial-of-service attacks occur when an attacker sends a flood of internet traffic to an IP address to prevent the server at the IP address from connecting to the internet.
An attacker scans the network, tries to learn the IP address of various validator nodes and disconnect them from communication by flooding them with traffic.
One recommended way to mitigate these risks is for validators to carefully structure their network topology in a so-called sentry node architecture.
Validator nodes should only connect to full-nodes they trust because they operate them themselves or are run by other validators they know socially. A validator node will typically run in a data center. Most data centers provide direct links the networks of major cloud providers. The validator can use those links to connect to sentry nodes in the cloud. This shifts the burden of denial-of-service from the validator's node directly to its sentry nodes, and may require new sentry nodes be spun up or activated to mitigate attacks on existing ones.
Sentry nodes can be quickly spun up or change their IP addresses. Because the links to the sentry nodes are in private IP space, an internet based attacked cannot disturb them directly. This will ensure validator block proposals and votes always make it to the rest of the network.
It is expected that good operating procedures on that part of validators will completely mitigate these threats.