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Algorand Incentives pre-Guide

Algorand Incentives pre-Guide

Urtho
Urtho
guides

Algorand staking before Q2’24

Algorand belongs to the Proof Of Stake family of blockchains and is secured by a decentralized stake and thousands of nodes run by independent operators.

  • Neither node runners nor staking accounts are rewarded for securing the network.
  • Each node may vote on behalf of one or multiple accounts.
  • Accounts generate and sign secure participation keys that are limited only to voting activity and cannot be used for spending.
  • Individual account vote power and proposal frequency are proportional to the amount of Algo tokens in the account.
  • The stake is not locked and the proposal probability is recalculated in real-time (with 320 round lag).
  • There is no stake floor or ceiling - even accounts with less than one Algo can propose blocks.
  • DeFi & Bridge smart contracts allow for liquid staking. Users can lock their stake and receive equivalent tokens that allow them to participate in DeFi activities. The same locked stake can be registered to participate (vote & propose) on a user’s node.

Algorand 2024 incentives

2024 introduces a fundamental change to the model with protocol-level proposal rewards. The transaction fee-powered rewards are going to be boosted by Algorand Foundation incentives for the first 3 years after launch. Two protocol-level features are going to be the base of this new program:

  • Incentivization: Registered accounts with stake within specific bounds will be rewarded for each block proposal won.
  • Absenteeism: Accounts that fail to propose regularly (e.g. due to node or network failure) will be removed from the staking until they re-register by paying an extra fee.

There will be no change to the participation floor or ceiling. Both small accounts with less than 1 Algo and whales with 600 Million Algo will be able to register online for voting and proposals. New bounds will only make an account eligible for block proposal rewards.

Stake eligibility for rewards

The specific floor and ceiling that make the account eligible for rewards is yet to be decided but is expected to be

  • 30k Algo for the minimum stake (as per Gov #10)
  • 67MM to 135MM Algo for the maximum stake

Both minimum and maximum eligible stake values have important technical implications for network performance & security and should be carefully chosen.

Minimum eligible stake

Consider some facts about the minimum/floor eligibility stake value:

  • A low value increases the number of eligible accounts.
  • Tracking account eligibility is a memory-intensive task for each participating node.
  • Should not be increased in future releases as it might require the redeployment of pool smart contracts to maintain fair reward distribution.

Technically Algorand should opt for a higher floor as it makes the chain more green by lowering the minimal node hardware requirements.

While this appears to make the process less inclusive, a decentralized staking pool smart contract could allow smaller accounts to participate in block rewards. Small stake accounts might also consider DeFi liquid staking.

Decentralized staking pools

pools

Multiple teams are in the process of creating smart contract-based solutions to allow accounts below the minimum threshold to receive staking rewards.

Staking pools are going to introduce a lot of innovation and encourage daily engagement in the process compared to passive staking on private nodes.

Running a private/pool validator node

The following facts about participation might help you decide what hardware to use and where to run it.

  • For each block, approximately 20 nodes propose blocks but only one of them wins.
  • Only the winning proposal is rewarded.
  • The block time is constantly adjusted for observed proposal arrival times, so unusually slow proposals may be ignored by the network.
  • Upcoming upgrades to the minimum block time might cause your proposal to be too late if your network or node is slow.
  • Hosting more than 4 accounts’ participation keys on a single node might delay proposals by 500ms or more.
  • Opting only for the upcoming peer-to-peer gossip (survival) mode without any fast relay network connections might delay the propagation of the proposal.
  • Hosting the same account on more than one node will lead to “equivocation” events and account proposal being ignored for the whole round. Never do this!
  • Network transaction rate around or above 6k TPS might require more than 100Mbps of downstream Internet connection to the node.
  • The protocol detects offline nodes and removes their stake making sure the risk of a stall is not growing.

Private node

Algorand network allows validators to participate with low-powered machines and does not require an ultra-fast Internet connection.

Hosting only your account that has less than 0.005% of the total online stake can be safely done on a home PC. The risks of power or network outages are mitigated by the network. A low frequency of proposals means a low probability of hitting a perfect storm that causes the proposal to be missed by the network.

While there is no risk to your stake from leaked participation keys they should be unregistered ASAP so that bad actors cannot vote on your behalf.

Running a high-stake account on the other hand should be done on a cloud machine. Prices for such a service start from $35 monthly, but do read through T&C to make sure staking is allowed.

Pool’s validator node

It is anticipated that most pools are going to be based on permissionless contracts. In this scenario, the popularity of a pool (and the validator fees) is going to depend on the quality of the node that proposes on behalf of the whole pool.

Monitoring solutions will clearly show if pools meet the expected rewards and users will migrate to validators with higher quality.

High-stake pools are going to propose more frequently and node runners might need to invest in more expensive nodes or host only one pool per node to keep the best score.

Never run the same pool account on multiple nodes as it will lead to “equivocation” events and lost block proposal rewards.

External resources

This article will be updated with a list of tools and projects that can be used to streamline and monitor the decentralized Algo staking activity.

Discussion / more info

Consensus monitoring

Open Source Pools

@2024–03–14 TXN Labs announced plans to develop Réti 
- an open source solution for a smart contract based pools

Pool monitoring

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Node management

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Node monitoring

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DeFi liquid staking

…

Updates

@2024–03–15

  • added 30k minimum for reward eligibility
  • added RĂ©ti Open Pooling (TXNLabs) info
  • added link to node-runners channel
#guide #incentives #Algorand #staking