Validator Incentivization Procedures Archive

Introduction

This report complements a collection of data highlighting the various validator incentivization methods used across multiple blockchain networks. By examining a variety of metrics, we observe how these methods are both similar and distinct in their implementation.

Most of the information has been sourced from official documentation and whitepapers, abridged appropriately to explain the mechanics in a brief yet comprehensive manner.

Standard Procedure

A clear trend emerges: the widespread use of the “Block Rewards + Transaction Fees” model. At its core, this is an inflationary system where new tokens are minted and awarded to validators, bringing them into active circulation. Transaction fees, meanwhile, are the gas fees charged for processing transactions.

The underlying vision behind this validator incentivization model is that, eventually, block rewards will phase out, leaving transaction fees as the primary income source for validators.

Innovations to the Standard

While the “block rewards + transaction fees” model forms the backbone of validator incentivization, some blockchain networks stand out by introducing unique innovations or entirely different approaches. These chains aim to address specific objectives like sustainability, performance optimization, or community-driven consensus through their tailored reward systems.

Sui - For Storage

Consensus Mechanism: Delegated Proof of Stake (dPoS).
Incentivization: Rewards are derived from gas fees and staking, distributed based on validator stake and performance. Validators serving institutions take a non-zero commission set by themselves (around 5-10% for most cases) from the rewards. Rest goes to the delegators.

Distinguishing Factor:

• Innovation on Block Rewards + Gas Fees:
  • Storage Fund Integration: Network users pay a storage fee as part of their gas fees, which is included in staking rewards.
    • The storage fee is set using infrequent governance proposals, currently set at 76 MIST(0.000000076 SUI) per storage unit.
    • Each storage unit represents one data byte, a kilobyte represents 100k storage units.
    • This ensures long-term sustainability for storage while incentivizing validators and promoting network functionality.

Pros:

• Sustainable storage solution enhances network longevity.

Cons:

• Smaller validators may face challenges in attracting delegations and maintaining competitiveness in staking dynamics.

Polygon - For Scalability

Consensus Mechanism: Proof of Stake (PoS) with dual-layer architecture: Heimdall (consensus layer) and Bor (execution layer).
Incentivization: Rewards come from block production, transaction fees, and a 12% allocation of the total 10 billion MATIC supply over five years. Validators and delegators earn proportional rewards, and validators charge commissions on these rewards.

Distinguishing Factor:

• Innovation on Block Rewards + Gas Fees:
  • MATIC Allocation: 12% of MATIC’s total supply is allocated for rewards during the first five years, ensuring predictable and early incentivization.
    • 1.2 billion tokens are a staking incentive for the first five years, as a jump-start, distributed as part of rewards.
  • Checkpointing Mechanism: Validators submit Merkle root hashes to Ethereum for Layer 2 finality, earning proposer bonuses for including more validator signatures.
    • Incentive Structure: The proposer receives a fixed bonus for submitting checkpoints to Ethereum. This bonus is paid to the proposer and is proportional to their stake. The remaining rewards are shared among all validators and stakers.
    • Signature Inclusion: To receive the full bonus, proposers must include 100% of the signatures. If only 80% of signatures are included, the proposer receives 80% of the bonus. The protocol requires at least 2/3 + 1 weight of the total stake in signatures for the checkpoint to be accepted.
    • Transaction Fees: Each block producer at Bor (Polygon’s block producer layer) receives a share of the transaction fees based on their validator stake ratio. The amount earned depends on their proportional stake in the overall network, with remaining fees distributed among validators at the Heimdall layer.

Pros:

• Secure checkpointing reinforces Ethereum-Layer 2 integration.
• Predictable MATIC rewards bootstrap early validator participation.
• Non-custodial staking contracts ensure transparency and security for delegators.

Cons:

• Reward reliance on MATIC inflation decreases as fee-based incentives grow.
• Slashing risks for prolonged downtime or malicious activity.

Polkadot - For Interoperability

Consensus Mechanism: Nominated Proof of Stake (NPoS).
Incentivization: Validators are rewarded through inflation, transaction fees, and tips provided by users for transactions. Rewards are equally distributed among validators regardless of stake size, with additional incentives from era points earned through activities like parachain validation.

Distinguishing Factor:

• Innovation on Block Rewards + Gas Fees:
  • Era Points: Validators earn era points for actions like validating parachain blocks and producing valid blocks. The reward for each validator is proportional to the era points earned during a 6-hour (Kusama) or 24-hour (Polkadot) era.
    • Para-validators: 20 era points per validated parachain block.
    • Other tasks: Contribute fewer points, but para-validation is the primary contributor.
    • Reward Distribution:
      • Higher era points increase the likelihood of receiving a larger reward.
      • The reward per era point varies based on total points in the network and inflation model.
      • Tips: Validators can receive tips directly from users for faster transactions.
  • Payout Scheme:
    • Equal Block Rewards: All validators share the same block reward, regardless of stake. Example: With 8 DOT, each validator gets 2 DOT.
    • Era Points Impact: More era points may lead to higher rewards.
    • Tips: Validators can receive 100% of user tips.
  • Running Multiple Validators:

    • Single Validator: 18 DOT staked = 2 DOT reward.

    • Multiple Validators: Splitting 18 DOT across 2 validators (9 DOT each) results in 4 DOT reward per validator.

    • Validator Set Size: Only top validators by stake are included. More DOT increases chances of staying in the set and boosting rewards.

  • Nominators and Validator Payments:
    • Nominators: Stake with a validator to share in rewards and slashing.
    • Validator Payment: Validators set a commission rate (percentage of the reward) before sharing with nominators.
    • Lower Commission: Validators with lower commissions tend to attract more nominators.

Pros:

• Era points encourage activity, ensuring validators stay engaged.
• Flexible commissions foster competition among validators.
• Parachains enable interoperability, extending blockchain functionality.

Cons:

• Reward variability due to era point distribution.
• Operational complexity for validators managing both relay and parachain tasks.

Livepeer - For Media

Consensus Mechanism: Delegated Proof of Stake (DPoS).
Incentivization: Transcoders and delegators earn rewards through inflationary token issuance and transaction fees. The rewards depend on the performance and stake of the transcoders. Each transcoder can set a percentage of the block reward they keep, as well as the fee share, which determines the portion of the transaction fees they will share with the delegators who have bonded their tokens to the transcoder.

Distinguishing Factor:

• Innovation on Block Rewards + Gas Fees:

  • Algorithmic Inflation: New LPT tokens are issued at an adjustable inflation rate to maintain a target staking participation rate, balancing liquidity and engagement.

  • Rounds:

    • New tokens are minted every round in Livepeer, with one round equal to 5760 Ethereum blocks (~20.31 hours).
    • This is the frequency at which rewards are issued to stakers, assuming the Orchestrator is performing well.

  • Inflation Rate:

    • Current Inflation Rate: 0.0224% per round.
    • Current Token Supply: 27,440,696.99 Livepeer tokens.
    • Newly Minted Tokens: ~6,146.72 per round.

  • Dynamic Inflation:

    • The inflation rate adjusts based on the participation rate (the percentage of tokens staked).
    • Target Participation Rate: 50% (balance between network security and liquidity).
    • Mechanism:
      • If staked tokens are below 50%, inflation increases by 0.00005% per round.
      • If staked tokens are above 50%, inflation decreases by 0.00005% per round.

  • This approach incentivizes validators to remain active and aligns rewards with network needs.

Pros:

• Dynamic inflation adjustments ensure consistent participation.
• Decentralized video transcoding supports the Web3 media infrastructure.

Cons:

• Delegators face slashing risks tied to transcoder performance.
• Scalability challenges as transcoding demand grows with adoption.

Solana - For Speed

Consensus Mechanism: Proof of Stake (PoS) with Proof of History (PoH).
Incentivization: Validators earn rewards from inflationary issuance and transaction fees. Rewards are distributed for vote credits and block production, with validators setting commissions on delegators’ stakes. Validators can also earn smaller fees from submitting votes as "leaders," but these are typically negligible unless they control a large portion of the network's stake.

Distinguishing Factor:

• Innovation on Block Rewards + Gas Fees:
  • Proof of History: Enhances transaction finality with a cryptographic clock, enabling faster throughput.
  • Deflationary Mechanic: Burns 50% of transaction fees to support long-term token value.
  • Validator Voting Cost: Validators must pay approximately 3 SOL every epoch (every 2-3 days) to be eligible to vote and participate in block production.
  • These features optimize scalability and reward structure.

Pros:

• High-speed architecture suitable for Web3 apps.
• Deflationary mechanics benefit long-term SOL holders.
• Performance-based rewards encourage validator reliability.

Cons:

• High initial costs and need to market deter smaller validators.
• No commission protection, risking "rug pulls."

Alternative Models

TRON

Consensus Mechanism: Delegated Proof of Stake (DPoS).
Incentivization: Block Rewards + Voting Rewards.

Distinguishing Factor:

• Radically Different Model:
  • Combines block rewards with a voting rewards system.
  • Super Representatives (SRs): Earn 16 TRX per block, sharing rewards with voters.
  • Super Representative Partners (SRPs): Earn rewards from votes only, without block production.
  • Voters stake TRX to gain TRON Power (TP) and vote for SRs and SRPs, influencing governance and reward distribution.

Pros:

• High throughput with 3-second block time.
• Decentralized governance through elected participants.

Cons:

• TRX whales can centralize power in SR elections.
• Dependence on voter engagement for decentralization.

Aptos

Consensus Mechanism: Proof of Stake (PoS).
Incentivization: Rewards are distributed based on validator proposer performance and active stake.

• Validators earn rewards for block proposal and validation. Only leader-validators (those proposing blocks) receive proposer rewards during an epoch, incentivizing high performance.
• Delegators earn rewards proportional to their staked amount after the operator’s commission. Rewards are compounded automatically to increase the staked balance over time.

Distinguishing Factor:

• Alternate Model:
  • Introduces a modular Owner-Operator-Voter model, separating roles into:
    • Owner: Controls funds and sets commission rates.
    • Operator: Runs validator nodes and earns commissions.
    • Voter: Handles governance participation.
  • Focuses on proposer performance to directly reward reliability and active participation.

Pros:

• Rewards tied to proposer performance encourage reliability.
• Modular staking roles enhance security and delegation flexibility.

Cons:

• High minimum stake (1M APT) limits validator accessibility.
• Reward mechanics complexity may deter newcomers.

Cardano

Consensus Mechanism: Ouroboros Praos (Proof of Stake).
Incentivization: Rewards combine transaction fees and monetary expansion.

• Rewards are drawn from transaction fees pooled from all blocks and monetary expansion of the reserve fund.
• The protocol handles the calculation, deduction, and distribution of rewards to delegators based on their delegated stake. Stake pool operators (SPOs) set fixed costs and margins, which are automatically deducted by the protocol when rewards are distributed.
• Saturation mechanics cap rewards for pools with >0.5% of total ada supply, ensuring delegation across smaller pools.

Distinguishing Factor:

• Alternate Model:
  • Rewards come from transaction fees and a controlled monetary expansion to sustain staking and ecosystem funding.
  • Saturation limits discourage oversized pools, promoting fair decentralization across 200 optimal pools (k=200).
  • A portion of rewards supports Cardano’s treasury, funding ecosystem development.

Pros:

• Highly decentralized with >3,000 active pools.
• Predictable and gradual monetary expansion ensures sustainability.

Cons:

• Complex reward and fee structure can confuse new participants.
• High pledging thresholds may exclude smaller operators. Pools with lower pledges (i.e., those with less ADA staked by the operator) may face difficulties attracting delegators and thus receive fewer rewards.

Ocean Protocol

Consensus Mechanism: Proof of Stake (PoS).
Incentivization: Rewards are based solely on uptime, adjusted by Ocean Node Boosters (ONBs).

• Weekly rewards are distributed proportionally based on node uptime. Nodes with ≥90% uptime qualify for rewards.
• ONBs (Soulbound ERC721 tokens) provide reward multipliers (1.5x to 2x), incentivizing participation across multiple launch phases.

Distinguishing Factor:

• • Rewards Based on Uptime:
    • Rewards are primarily based on node uptime rather than staking or transaction fees.
    • Ocean Node Boosters (ONBs) create a long-term incentive structure, rewarding consistent participation.
    • Decentralization and privacy features, such as NFT-based trusted node lists, ensure robust network security.

• Incentivization and Rewards

• Uptime-Based Rewards:

  • Ocean Protocol rewards nodes based on their uptime. Nodes must maintain ≥90% uptime to qualify for rewards.

• Ocean Node Boosters (ONBs):

  • ONBs are non-transferable ERC721 tokens that provide reward multipliers based on node uptime.
  • Holding multiple ONBs increases the reward multiplier.

• ONB Reward Multipliers:

  • ONB1: 1.5x
  • ONB2: 1.3x
  • ONB3: 1.2x

• Combined Multiplier:

  • ONB1 + ONB2: 1.8x
  • ONB1 + ONB3: 1.7x
  • ONB1 + ONB2 + ONB3: 2x (maximum multiplier)

• Reward Calculation:

  • A total of 5,000 $FET is distributed weekly based on uptime and ONB multipliers.
  • The formula for calculating rewards is:
    R0 = Xt * U0 / Ut
    • R0 = Node's reward
    • Xt = Total rewards available
    • U0 = Node uptime
    • Ut = Total uptime across all nodes

• Example:
  For a week with 5,000 $FET rewards:

  • Node A: 10 sec uptime, holds ONB1 (1.5x) → Adjusted uptime: 15 sec
  • Node B: 20 sec uptime, no ONB → Adjusted uptime: 20 sec
  • Node C: 10 sec uptime, holds all ONBs (2x) → Adjusted uptime: 20 sec
  • Node D: Excluded from rewards

• Total Adjusted Uptime:
  15 sec (Node A) + 20 sec (Node B) + 20 sec (Node C) = 55 sec

  Rewards Distribution:

  • Node A: (15/55) * 5,000 ≈ 1,364 $FET
  • Node B: (20/55) * 5,000 ≈ 1,818 $FET
  • Node C: (20/55) * 5,000 ≈ 1,818 $FET
  • Node D: 0 $FET (excluded)

Pros:

• Clear and fair reward mechanisms based on uptime.
• ONBs reward long-term engagement and reliability.

Cons:

• No delegation system limits non-operator participation.
• Nodes below 90% uptime are excluded from rewards.

Bittensor

Consensus Mechanism: Proof-of-Authority (PoA) + Yuma Consensus (YC).
Incentivization: Rewards distributed based on subnet-specific performance.

• 1 TAO token is minted every 12 seconds (7,200 TAO daily) and distributed among subnet miners and validators.
• Validators earn 41% of rewards for their performance, calculated via weight vectors that rank miners. Subnet owners receive 18%, and miners receive the remaining 41%.
• Rewards are recalculated every 360 blocks (~72 minutes) to dynamically align with subnet goals.

Distinguishing Factor:

• Alternate Model:
  • Multi-subnet structure where rewards are tied to task-specific performance.
  • Yuma Consensus ranks miners and validators, aligning incentives with subnet objectives.
  • Custom subnet mechanisms allow tailored incentive models to optimize performance.

Pros:

• Adaptable reward mechanisms tailored to subnet needs.
• Encourages specialized validator and miner behavior.

Cons:

• Complex incentive and ranking mechanisms.
• Dependence on subnet owners for reward structures may create inconsistency.

Analytics

The adoption of a blockchain and the eagerness of validators to support it depend on multiple factors. While validator incentivization systems vary across chains, profitability remains the cornerstone for validator participation. Some validators may support chains like XRP out of personal passion for the technology or its mission, but financial incentives are essential for fostering long-term support and building a sustainable ecosystem.

Validator count often varies significantly across chains due to their unique architectures.

For example:

• TRON limits its validator set to 27 Super Representatives (SRs), enabling faster block production but requiring a robust election process to maintain decentralization.
• In contrast, Ethereum has a rapidly growing validator count, which raises concerns about the strain on network infrastructure despite increasing decentralization.

Validator count is a critical metric for assessing decentralization, but it must be interpreted alongside network-specific architecture and governance mechanisms.

The staking ratio is a valuable metric for understanding the community's commitment to supporting the chain's infrastructure. A higher staking ratio reflects a strong, active validator set, demonstrating the community's trust in the network's governance and long-term vision. Chains with high staking ratios are generally perceived as more secure and decentralized.

Another way to evaluate a chain's validator success is by analyzing its adoption among top validator service providers (VSPs). These providers are highly selective, prioritizing chains that align with profitability, reliability, and ecosystem potential.

We aggregated data on chains supported by VSPs tagged by Staking Rewards. The following chains are supported by the most leading VSPs, showcasing their adoption among trusted infrastructure providers:

Chain	Providers Supporting
Solana	Kiln, P2P, Allnodes, Stakefish, StakingFacilities, Stakin, Luganodes, Chorus One
NEAR Protocol	Kiln, P2P, Allnodes, Stakefish, Stakin, Luganodes, Chorus One
Sui	P2P, Allnodes, StakingFacilities, Stakin, Luganodes, Chorus One
Polygon	Kiln, P2P, Allnodes, Stakin, Luganodes, Chorus One
Cosmos Hub	Kiln, P2P, Allnodes, Stakefish, Chorus One
Aptos	P2P, StakingFacilities, Stakin, Luganodes, Chorus One
Avalanche	Kiln, P2P, Allnodes, Stakin, Luganodes, Chorus One

Conclusion

In summary, each blockchain network has designed its validator incentivization system to align with its specific objectives and use cases. Validators choose partnerships and select chains that best align with their business goals and values. At the heart of these systems are the users, whose participation through staking is essential for the functioning and security of Proof-of-Stake (PoS) networks.

This guide serves to bridge the knowledge gap between validators, chains, and users, providing a comprehensive resource to educate all parties. We hope that this compilation helps clarify the intricacies of validator incentivization and fosters a better understanding of how these systems work.

If you would like to explore further analyses or suggest additional chains for consideration, please feel free to reach out. We welcome feedback and will include new insights in future updates. This article is intended to be a continuously evolving reference.

About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 45+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.