ATOM is the staking token of the Cosmos Hub and represents the right to participate in the Hub. One can participate by voting, delegating, or validating and can be a delegator or validator. Delegators can put their ATOM under one or several validators. There is a need to know how to choose a validator, the benefits, and risks involved in staking it.
Independent blockchains are connected by a network known as Cosmos. The Cosmos Hub is a proof-of-stake (PoS) blockchain that relies on validators for securing the network and is founded upon Tendermint. The role of validators is to run a full-node and broadcast votes by participating in consensus. A program that fully validates the blocks and transactions of a blockchain is a full-node. The only staking token of the Cosmos Hub is called ATOM. ATOM owners have the right to participate, and in exchange, they earn inflationary block rewards and transaction fees.
It is different from a light-node that can only process block headers and a small number of transactions. One needs more resources to run a full-node than a light-node. Validators must run full-node. Practically speaking, running full-node is running an up-to-date and uncompromised software version without any downtime.
ATOM holders who cannot or do not want to run validators are known as Delegators. They can delegate ATOM to validators and get a share of their revenue and risks. In case the validator misbehaves, the delegator is partially responsible, and the earnings get slashed in proportion to their stake. Delegators are accountable for choosing validators and are being assumed to monitor the activities of the validators actively.
Validators receive revenue by committing new blocks in the blockchain. They are also expected to vote on proposals as a means of participating in governance.
How To Choose An ATOM Validator In Atomic
The process of staking ATOM with Atomic Wallet is not hard. You can bond your ATOM to a validator in less than a minute. Have a look at our step-to-step guide on how to do it from your Atomic wallet.
Simply download and install the app and follow these instructions.
- Open your Atomic Wallet.
- Buy ATOM. You can buy it with your credit card or exchange with other cryptocurrencies already in the wallet.
- Click on ATOM on the coin list.
- Click stake.
Once you click stake, you will see the staking interface, available balance, and information on your staked and unstaked ATOM and rewards. If the information is correct, you can proceed by clicking stake.
- Choose or change your validator by clicking on the name and see your annual earnings. Once you are satisfied with the information, proceed by clicking stake.
- You are done. All you need to do now is wait for your rewards. You can withdraw your rewards to your address by clicking claim.
Since delegators share the revenue and risks with validators, they need to be careful when choosing validators. Delegators choose validators according to their subjective criteria that include:
- The number of self-delegated ATOM: When choosing a validator, it is better to get one with many self-delegated ATOM. That is because they have a higher stake and will be more responsible when transacting.
- The number of delegated ATOM: When a large number of delegated ATOM is seen on a validator’s profile, it means that the community trusts them. However, it also means that the validator is a bigger target for cybercriminals. They also decrease the process of decentralizing the network.
- Commission rate: Delegators can choose validators with high commission rates since they share the validator’s revenue.
- Track record: Delegators need to look at the validator’s track record. It includes past proposal votes, seniority, average uptime, and how often they compromise the node.
Other than this, validators might need to have a website address included in their resume. Validators need to build their reputation for them to attract delegators. One way they can do this is through having third-party audits. However, it is important to note that the Tendermint team will not approve or participate in any audits.
Responsibilities Of Delegators
Being a delegator requires one to be active. Here are the primary responsibilities when it comes to being a delegator.
- Delegators need to exercise due diligence when choosing validators since they are directly affected by the validators’ actions.
- Delegators should continuously monitor the validator after delegating their ATOM. Doing this will ensure the validator behaves well, and their ATOM do not get compromised and get slashed due to their misconduct.
- If the delegators are not happy with their current validators, they can immediately switch to different validators at no charge.
- Delegators are expected to participate in governance by voting on proposals. The voting power of a delegator is directly proportional to their ATOM stake. If delegators do not exercise their voting rights, their vote is considered the same as their validators. When all delegators vote, they can act as a counterbalance to the validators.
Types of Validators
After a validator is established, there are three states a validator can exist:
- In the validator set: Here, the validator is active and participates in consensus. The validator earns rewards, and they can be slashed if there is any misbehavior.
- Jailed: Here, the validator is in jail (outside the validator set) because of misbehaving. If the validator is “jailed” due to being online for a while, they can send an un-jail transaction to be allowed back into the validator set. The validator cannot be unjailed if there is a case of double signing.
- Unbounded: This state occurs when the validator is not active and is not signing blocks. It is possible to delegate ATOM to the validator, but they cannot be slashed. It is easy to delegate from an unbounded validator to a different one.
Benefits And Risks Of Staking ATOM
Like any other investment, staking ATOM has its benefits and risks.
There are two main benefits to validators and delegators when it comes to staking ATOM.
- They can earn block provisions, which is revenue paid when new ATOM tokens are created. They encourage delegators to stake their ATOM.
- There are various transaction fees when delegators transfer their ATOM on the Cosmos hub. The fees are payable in any currency whitelisted by the Cosmos Hub’s governance and then distributed to ATOM owners in proportion to their stake.
- Validators receive commissions based on the total ATOM stake. Delegators are responsible for paying the commission before they get any revenue from the validator.
There are risks involved when it comes to staking ATOM.
- Staked ATOM can be locked, and retrieving them requires a 3-week unbinding period.
- Also, if a validator misbehaves, part of their stake can be slashed. Two conditions need to be fulfilled for slashing to occur:
- Double signing: If a validator signs two different accounts with the same ID, they can get slashed. At the moment, the slashing is 5% of the staked ATOM.
- Downtime: When the validator does not sign a pre-commit, downtime happens. For instance, if a validator fails to sign 9,500 blocks in the 10,000 block window, 0.01$ of the total ATOM gets slashed.
If the unstable validator nodes crash or the private key gets compromised, or the validator involuntarily commits a faulty action, their staked ATOM tokens will get slashed.
Staking Perspectives And Takeaways
Staking ATOM is like the safety deposit when it comes to validation. When delegators or validators want to reclaim part of or all their deposit, they send unbonding transactions. Once they initiate this transaction, the ATOM undergoes an unbonding period of 3 weeks. During this time, they are liable to be slashed for potential misbehaviors that the validator commits before the process starts.
Validators and delegators receive fees and block rewards and participate in governance. If a validator misbehaves, a part of the total ATOM stake is slashed. The total revenue obtained is always divided between the validator and delegator in proportion to their respective stakes. There is a commission that is applied to the revenue belonging to the delegators before it gets distributed.
The staking pool of a validator can earn different types of revenue:
- Block rewards that are native application tokens validators run that get inflated to produce block rewards. They are available to bonded ATOM tokens encouraging delegators to bond their ATOM.
- Transaction fees that are tokens are accepted as payment. In this case, they are ATOM.
Specifics of Validating the Cosmos Network
For one to become a validator, they need to send a create-validator transaction and fill out the following areas:
- Validators Pubkey: It is a private key used to sign pre-commits and pre-votes.
- Validator’s Address: It is the address used to identify the validator publicly.
- Validator’s name (moniker)
- Validator’s website (optional)
- Validator’s description (optional)
- The initial commission rate is the commission rate on fees and block rewards charged to delegators.
- The maximum commission is the maximum commission rate that the validator can charge and cannot be changed after the create-validator is processed.
- Commission max change rate is the maximum daily increase of the validator’s commission and cannot be changed after the create-validator is processed.
- Maximum self-delegation is the minimum number of bonded ATOM the validator needs to have. The staking pool will be unbound if the stake falls below the validator’s limit.
Once a validator is established, ATOM holders can delegate their ATOM to them, enabling them to add to their stock. Only 100 out of the validator candidates who signaled themselves are chosen to be validators. Eventually, the number of validators might increase through on-chain governance proposals.
FAQ About PoS, Validators
Do validators need to be identified publicly?
No! Delegators value validators based on their criteria. Validators can register website addresses during the nomination phase to help market themselves. Some delegators choose validators based on their public profile, while others select anonymous validators with proven track records.
Can a validator run away with the delegator’s ATOM?
Delegators give the validators their voting power once they are under them. The more voting power a validator has, the more weight they have when it comes to governance. However, validators do not have the ability to take custody of the ATOM owned by the delegator. Delegators are still held liable when the validator misbehaves.
What are the responsibilities of validators?
The responsibilities of validators are:
- To always run the correct software version. They need to ensure that their private keys are not compromised and the servers are always online.
- To actively take part in governance by voting on proposals.
How do validators participate in governance?
Validators and delegators participate in governance by voting on proposals. The proposals are usually on changing things like the block gas limit. They represent the delegators under them when voting even if the delegators do not vote.
What measures can be taken to prevent stake concentration in the hands of few validators?
The community has put measures in place to decentralize the concentration of stakes. This includes the penalty-free re-delegation where delegators can switch from one validator to another. Wallets can also give delegators warnings when they want to choose a validator who already has high stakes.
The community is also self-preserving when a lot of mining power is directed to one crypto.
Delegators need to perform due diligence when it comes to choosing validators. Just because they take part in major decisions does not mean that they can do anything they want. If a validator misbehaves, the delegators will lose a share of their revenue, as they are also held liable. Delegators can reduce the risk by using multiple validators, and they can switch if they feel like their validator is not performing well.