The Chainlink Economics 2.0 Staking Protocol and Staking v0.1 Launch Details
We’re excited to announce that the beta of Chainlink Staking (v0.1) is planned to go live on Ethereum mainnet on December 6, 2022 at 12PM ET. Addresses that qualify for Early Access will have the opportunity to stake up to 7,000 LINK in the capped v0.1 staking pool. The capped v0.1 staking pool will then open to General Access two days later on December 8, 2022 at 12PM ET, at which point anyone will have the chance to stake up to an initial limit of 7,000 LINK per address, subject to the initially limited 25M LINK pool cap and other applicable participation requirements.
Staking is a core initiative of Chainlink Economics 2.0, enabling LINK token holders and node operators to earn rewards for helping increase the cryptoeconomic security of oracle services. The following blog post will provide greater insight into the underlying pool design and initial parameters set forth in Chainlink Staking v0.1. Learn more about Economics 2.0 in this recent keynote at SmartCon 2022.
Staking v0.1 Pool Design Overview
Chainlink Staking is a cryptoeconomic security mechanism in which stakers commit LINK tokens in smart contracts to back certain performance guarantees around oracle services. For a deeper understanding of Chainlink Staking, refer to the Chainlink Staking roadmap to learn more about the long-term goals and progression of Chainlink Staking.
To briefly recap, the first phase of Chainlink Staking is a beta release (referred to as v0.1), which will consist of a staking pool that supports the ETH/USD Data Feed on Ethereum mainnet. Stakers will earn rewards for helping secure the Data Feed, specifically by participating in a decentralized alerting system that flags if the Data Feed has not met certain performance requirements regarding uptime.
The staking pool will initially be capped at 25M LINK, representing approximately 5% of the current circulating supply and 2.5% of the total supply, with plans to scale up to 75M LINK over time. The staking pool will initially contain only two types of stakers: Node Operator Stakers and Community Stakers, with additional types of stakers being possible in the future. Node operators actively servicing Chainlink Data Feeds will each have an initial 50,000 LINK allotment.1
Node operators may opt to create or use a third-party delegation system that allows their 50,000 LINK allotment to be filled by LINK token holders from the Chainlink community. Third party and unofficial delegation systems should be viewed as an experiment that are independent from the Staking v0.1 beta.2
In order to determine which community members get access to the limited pool space, a fair-entry mechanism was created that provides qualifying addresses with an opportunity to obtain Early Access into the capped v0.1 staking pool. Community members who qualify for Early Access will have the opportunity to stake up to 7,000 LINK in a first-come, first-served manner until the current cap for the community allotment is reached. Once the Early Access period ends, any LINK token holder who meets the applicable participation requirements can stake up to an initial 7,000 LINK per address limit in the v0.1 staking pool until the current cap for the community allotment is reached.3
The three sets of qualifying criteria for v0.1 Early Access can be seen below. Early Access provides an opportunity to stake but does not guarantee someone a spot given the initially capped pool size.
|Hodler||Token holders who fall into either category:
|Builder||Participating teams in any Chainlink-hosted hackathon from Fall 2020 to Spring 2022.|
|Educator||Chainlink Advocates, Developer Experts, and others who have demonstrably hosted or spoken at Chainlink meetups about the Chainlink Network or Chainlink Ecosystem.|
To learn more about the fair-entry mechanism, including the rationale and methodology behind the Early Access Eligibility List, refer to the following blog post.
When v0.1 launches, 22.5M LINK will be allotted for Community Stakers on a first-come-first-serve entry, while 2.5M LINK will be allotted and reserved for Node Operator Stakers. Over time, as the space-limited pool expands, the proportional difference between different staking allotments may be adjusted to further enhance the security of the pool.
Due to the security parameters of the Staking system, both Node Operators and Community Stakers will initially have their staked LINK and accumulated rewards locked up in a smart contract until a future release of Staking. Research and development is already underway for Staking v0.2, planned for release in approximately 9-12 months, at which point v0.1 stakers can unlock or migrate their staked LINK and rewards.
It’s important to note that Chainlink Staking is an early and evolving design that will launch across multiple phases. Note that v0.1 has initial beta parameters only, which may be changed in later versions, such as varying rates and the metrics/methods for determining reward rates, meaning the long-term design is still fluid in order for improvements and adaptations to be made that account for feedback and unforeseen changes in the Chainlink Network’s design/needs and the wider Web3 industry. As such, Staking v0.1 plays a crucial role by allowing for the testing of parameters, serving as a valuable opportunity to collect data and learn more about how cryptoeconomic security in the Chainlink Network can evolve to meet the needs of users.
With the goal of increasing cryptoeconomic security, Staking v0.1 is focused on introducing decentralized alerting capabilities—a foundational component for creating a slashing mechanism in a future Staking release based on properly incentivized rewards and penalties. The alerting mechanism allows stakers to raise a flag if they observe an event where the oracle service has not met certain predefined performance standards. If the alert is valid, the alerting staker will earn an alerting reward.
In v0.1, stakers can raise a valid alert on the ETH/USD Data Feed on Ethereum mainnet if a new oracle report has not been submitted on-chain for more than three hours since the previous on-chain update. This condition serves as the initial parameter for validating the design of alerting in v0.1.
Node Operator Stakers will start out with priority in alerting, with the ability to raise a valid alert in the first 20 minutes (aka “Priority Period”) if it has been more than three hours since the latest on-chain oracle report. Node operators are initially given priority as they’re the ecosystem participants with the most experience monitoring feed performance and already operate robust infrastructure.
Once the Priority Period has ended, any staker can raise an alert if a valid alert has not yet been raised. Once the first valid alert for the feed has been raised, any additional alerts raised during the same downtime event will be invalid. This alerting mechanism is designed to incentivize timely alerts while minimizing constraints on blockchain network bandwidth.
Alerts can be raised by directly interacting with the Staking v0.1 smart contract or via a Staking frontend. Because oracle reports are submitted on-chain, the v0.1 smart contract will automatically adjudicate the validity of any alert by checking the time between the alert and the last on-chain update. Invalid alerts (i.e. if the downtime threshold is not met) will result in reverted transactions while valid alerts will enforce penalties as described in a later section.
In exchange for raising the first valid alert during v0.1, stakers can earn up to 7,000 LINK in alerting rewards.4 Alerting conditions and rewards may evolve in future Staking releases, which can include adjusting the downtime threshold and introducing other alertable performance metrics on a per-feed basis.
In v0.1, staked LINK from node operators serves as a direct quantifiable commitment to their performance, while community stake adds an additional layer of incentivization to the honest and reliable performance of node operators. All Node Operator Stakers in v0.1 will earn a small percentage of the Community Stakers’ staking rewards—referred to as delegation rewards—given that node operators are providing a service on behalf of Community Stakers (i.e. performing oracle computation for the Data Feed).
The design is similar to existing stake-based delegation designs as the rewards derived from community stake are used to further increase network security through the economic alignment of node operators. Community Stakers in v0.1 will see their stake automatically delegated to Node Operator Stakers, without node operators taking control of community stake. This mechanism is referred to as “Auto-Delegation”.
Community Stakers will start out having their staked LINK automatically delegated equally across all actively staking node operators in order to validate the Auto-Delegation design during the initial v0.1 beta phase, allowing node operators to start from an equal position before a more advanced reputation system planned for a future Staking release is implemented. Auto-Delegation fuels a dynamic where the greater the amount of community stake in the v0.1 pool, the greater the incentives for node operators to perform reliably, given that the delegation rewards paid out to node operators are higher.
In a future Staking release, Auto-Delegation may evolve into a dynamic mechanism, a design where community stake is automatically delegated across actively staking node operators in variable amounts based on reputation metrics, such as historical performance, length of time LINK is staked, and amount staked.
Staking Rewards and Penalties
With community participation via Staking being a key component of Economics 2.0, rewards will be established to fairly incentivize early participants for their contribution to the evolving cryptoeconomic security of Chainlink oracle networks. Staking rewards and alerting rewards in v0.1 will be supported by native LINK emissions in order to create an initial baseline of rewards for stakers. However, the long-term goal is for token emission-based staking rewards to taper off over time and be replaced by other sources of rewards, as described below.5
Node Operator Stakers
Node Operator Stakers are expected to have a baseline rate of 5% per year in LINK against their committed stake, as well as rewards sourced from the 5% delegation fee derived from Community Staker rewards. Assuming an entirely filled 25M LINK pool, Node Operator Stakers can earn an effective annualized reward rate of ~7%.
The total annualized rewards for a Node Operator Staker will depend on the amount of staked LINK by the node, the total amount of community stake, and the number of actively staking node operators.6 As previously mentioned, a dynamic version of the Auto-Delegation mechanism introduced in a later Staking release may adjust the delegation amounts to Node Operator Stakers based on their reputation.
Node Operator Stakers will not see their committed stake slashed during v0.1. However, if a valid alert is raised for excessive downtime, then up to three months of accrued staking rewards can be slashed from node operators currently serving the ETH/USD Data Feed on Ethereum. Actively staking node operators who are not serving the ETH/USD Ethereum Data Feed will not see their rewards slashed during v0.1. Stake slashing is planned for a future release of Staking.
In v0.1, the community stake portion of the pool is expected to have a baseline rate of 5% per year in LINK against their committed stake for helping secure the Chainlink Network. From those annualized rewards, a 5% portion of Community Staker rewards is expected to be directed to Node Operator Stakers as a delegation reward. The result is an effective reward rate of 4.75% on an annualized basis for Community Stakers in v0.1.8 This rate of effective rewards was selected to balance the requirement for economic sustainability while enabling stakers to be fairly rewarded for helping secure the Chainlink Network.
The 5% delegation rate serves as the initial parameter to test this part of the system’s effectiveness and the delegation rate may be adjusted in a future Staking release based on further research, development, and the results from v0.1. Moreover, the baseline 5% annualized reward rate reflects the initially capped size of the staking v0.1 pool, rewarding early active participants who join v0.1. Note that the staked LINK and staking rewards earned within the Community Staker allotment will not be subject to penalties or slashing in Staking v0.1.
User Fee Rewards
One of the key goals of Economics 2.0 is to begin a new chapter in Chainlink’s value capture and cryptoeconomic security. This v0.1 beta of Chainlink Staking will test how staking rewards can be earned by various types of stakers who support the operation of Chainlink oracle services.
In order to help ensure a long-term sustainable Chainlink Network, user fees that enter the Chainlink ecosystem will be used to offset node operating costs and reward other key ecosystem participants. In a future version of Chainlink Staking, this user fee economic model is expected to be expanded, enabling different types of stakers to earn varying portions of the fees for their services.
This approach aligns with the long-term goal of emission-based staking rewards tapering off over time and becoming replaced by non-emission-based sources, with these user fee rewards being shared among key participants in the protocol’s security. As the Chainlink ecosystem continues to evolve, so too will the economic model of user fees.
Chainlink BUILD Incentives for Stakers
In addition to the rewards described above, stakers in v0.1 will also be eligible to accrue additional incentives, dependent on per-project qualifications, which will be made available through the Chainlink BUILD program in a future version of staking. The Chainlink BUILD Program aims to accelerate the growth of early-stage and established projects within the Chainlink ecosystem by providing enhanced access to Chainlink services and technical support in exchange for commitments of fees and other incentives to Chainlink service providers such as stakers.
Projects that have confirmed their participation in the Chainlink BUILD program include Krypton, Interest Protocol, Pier Two, Cask Protocol, Truflation, Dolomite, Space and Time, Galaxis, bitsCrunch, and ChainML, with more expected in the future. These projects have committed a portion of their total token supply to Chainlink BUILD, commonly between 3% to 5%. Portions are planned to be made available over time to Community Stakers, Node Operator Stakers, and other key community participants that help secure the oracle services that BUILD participants rely upon, which may expand in scope to other feeds and services in future versions. Portions of BUILD rewards may be, in part, determined by reputation metrics such as stake amount, length of time staked, and other key metrics.
As an additional component of Economics 2.0, one of the long-term goals of Staking is establishing a robust reputation framework to determine how nodes are selected to participate in decentralized oracle networks. As such, Staking metrics will be introduced in the initial reputation system during Staking v0.1 as a way to improve tracking the performance of individual node operators and general Data Feed performance. Over time, a reputation system creates an incentive for node operators to maintain high levels of performance, setting the foundation for more explicit incentives to be introduced as the Auto-Delegation mechanism evolves in a future Staking release.
Node operator reputation metrics including latest answers and the corresponding timestamps are already made available today to track the general performance of node operators servicing Data Feeds. Over time, additional metrics for node operators will be tracked, such as:
- Node Stake—The amount of LINK staked by a specific node operator and the length of time it has been staked.
- Node Report Rate—The percentage of on-chain oracle reports that include a specific node operator’s observation.
- At-Fault Alerted Events—The number of valid alerts that can be attributed to a specific node operator’s performance fault on feeds supported by Chainlink Staking.
The reputation metrics planned to be tracked over time will continue to be refined based on feedback and additional research as reputation will play an increasingly larger role in determining future reward opportunities such as job selection. Note that while third-party reputation systems may exist and provide useful information around node and network performance, only the Chainlink reputation system is connected directly to the operation of the network and rewards. For a future Staking release, it is being explored how the reputation system could be expanded to a broader group of participants beyond node operators, including Community Stakers for their role in raising useful alerts.
The upcoming launch of Chainlink Staking v0.1 serves as an inflection point for both the Chainlink Network’s security and its economic design. Combined with other key Economics 2.0 programs such as Chainlink BUILD and Chainlink SCALE, the Chainlink ecosystem is entering its next stage of sustainable growth, increased cryptoeconomic security, and entirely new levels of value capture across the network.
To learn more about Chainlink Staking and Economics 2.0, check out the following resources:
1. Node Operator Stakers have a minimum staking requirement of 1,000 LINK if choosing to participate in v0.1.
2. The Chainlink Foundation makes no assurances around the performance or security of third-party delegation systems created or employed by Node operators or other ecosystem participants.
3. Community Stakers have a minimum staking requirement of 1 LINK if choosing to participate in v0.1.
4. A valid alert from a Node Operator Staker during the Priority Period can earn 7,000 LINK. Any staker who raises a valid alert after the Priority Period can earn 20% of their staked amount, up to a maximum of 7,000 LINK based on the following formula: min(7,000, 0.2 * staked_link).
5. The introduction of non-emission based rewards for stakers is dependent on a number of factors including the general adoption and revenue of Web3 applications.
6. The total annualized rewards a Node Operator Staker can receive is: (node_staked_LINK * 0.05) + (total_community_stake * 0.05 * 0.05 / num_node_staking), assuming the variables stay constant.
7. Reward penalization for actively staking node operators servicing the ETH/USD Ethereum Data Feed once a valid alert is raised is as follows: min(node_net_accumulated_rewards, (0.05 * min_required_node_stake / 4 + three_months_delegation_rewards)).
8. 5% total annualized rewards minus 0.25% in delegation rewards (5% of 5%), results in the effective reward rate of 4.75% for Community Stakers.
Disclaimer: This post is for informational purposes only and contains statements about the future, including anticipated programs, products and features, developments, and timelines for the rollout of these new products and features. These statements are only predictions and reflect current beliefs and expectations with respect to future events; they are based on assumptions and are subject to risk, uncertainties, and change at any time. The Chainlink Eligibility App is provided “as is” without warranty of any kind. Eligibility does not guarantee your participation in the Chainlink Staking program. Staking eligibility and participation requirements are subject to modification at any time without notice. There can be no guarantee that any of the contemplated programs, products or features will be implemented as specified or at all nor any assurance that actual results will not differ materially from those expressed in these statements, although we believe them to be based on reasonable assumptions. All statements are valid only as of the date first posted and we may not update this post in response.