Staking Within the Umee Network
First of All, What Is Staking?
Staking is the process of dedicating your digital asset holdings to help secure a decentralized PoS (Proof of Stake) blockchain network like Umee.
When you stake your UMEE, your assets are “put to work” by the Umee blockchain utilizing the proof of stake consensus mechanism, which ensures all network transactions are sent, verified, and secured without the need for a third party (such as a financial institution).
How Exactly Does Staking Secure the Umee Network?
The Umee blockchain becomes increasingly more secure the more UMEE that is staked. Staking your UMEE “locks it” into the proof of stake consensus mechanism for at least 14 days, where it becomes directly utilized by validators to power and provide security to the network.
Staking your UMEE also grants you the right to participate in network governance and vote on governance proposals. This is highly important in the interest of decentralization, as the less amount of staked UMEE means the fewer amount of individual votes in the network, to vote on important matters. Staking keeps the network democratic and operationally functional at the same time. Simply put, the more value staked in the Umee network, the more secure the Umee network is.
Is There Any Incentive In Staking?
Absolutely! You’ve probably heard somebody through the crypto grapevine talking about some nice rewards they’ve earned from staking their assets.
It’s the same case for Umee — If you decide to stake your UMEE assets, you can earn staking reward yield as passive income for providing the Umee blockchain economic security.
How to Stake your Umee
As a Cosmos SDK blockchain, Umee’s staking process follows the regular protocol of the cosmos ecosystem, with some minor tweaks (undelegation / re-delegation unbonding periods)
For a detailed guide on how to stake your UMEE through Keplr, check out our document on staking your UMEE. For now, lets take a look at the main aspects and key considerations involved in staking your UMEE:
Delegation to a Validator
In order to stake your UMEE, you must delegate your UMEE to an active validator in the Umee network. In simple terms, this would entail bonding your UMEE assets that you hold to a validator’s operating address. Delegating is non-custodial, meaning that a validator cannot steal your tokens, after you delegate your UMEE to them.
What is a Validator?
A validator is a node (that’s operated by someone) that validates, and verifies transactions on Umee’s network, and in return they receive UMEE as rewards. They are the core puzzle pieces that power the proof of stake consensus mechanism — the method that enables processing transactions and creating new blocks on the blockchain.
Active Validator Set and Voting Power
On the Umee network, the number of active validators is limited to a certain number of spots. To break into the active set, it depends on which validators have the most stake delegated to them. The more stake a validator has delegated to them, the more voting power they will have in the network. Only validators that are in the active set will receive UMEE as block rewards for verifying transactions. Validators in the inactive set, will not receive UMEE block rewards.
Why is Voting Power Important?
Voting power determines how likely a validator is to be selected by the Umee network to vote on and propose a new block. Validators with higher delegated stakes will in turn enjoy higher voting power, and therefore propose more blocks. In determining which validator to delegate your UMEE to, voting power is essential to look at, especially from a decentralization perspective. Usually, the top validators in the network with the highest voting power %’s don’t need more delegation from the community as they are already sitting in the top network slots.
It is healthy for delegators to consider validators that are not in the top slots in the active validator set. Delegations to active validators with lower voting power can help maintain the integrity within the UMEE network, and keep it as decentralized and healthy as possible.
What You Should Consider Before Delegating to a Validator
Validator commission % — The percent of commission applied on block reward revenue by validators before the revenue is distributed to delegators. Two other aspects that coincide with validator commission % to be aware of:
- Max rate — the maximum commission rate that a validator can ever charge to delegators (cannot be increased)
- Max change rate — the maximum amount a validator’s commission can change in a given 24 hours (i.e, a validator has a max rate of 10%, and a max change rate of 5%. That validator raises its current commission rate from 5% to 10% on a given day, a 5% increase).
Uptime % — If a validator’s uptime is not close to 100%, it may mean the validator is not reliable, and could potentially be jailed and kicked from the active set due to downtime.
Voting power — The larger the delegation, the larger the voting power and revenue for a validator. It may be best to consider validators with lower voting power %’s in some cases , as delegating to lower voting power % validators can provide more decentralization to the network.
Self-Bonded — The amount of tokens a validator has delegated to themselves. A validator with a high self delegation is sharing operational risk with delegators, as a large amount of their own stake is also in the network.
Websites — Many validators have a websites describing themselves, their experience, and their organizations. This is a great place to learn more information about a validator’s background before delegating.
Risks Associated With Staking
Staking your UMEE offers the potential to earn some nice block rewards and passive income. However, you do need to be aware of the risks involved with staking, that derive from the validator you choose to delegate to.
Slashing — Slashing results in a certain % of a validator’s funds being wiped, and instantly burned if they make a mistake. But, it’s not only a validators personal stake (self bonded) that is slashed, a percentage of the validators entire stake including those who delegated to them is slashed.
There are 2 scenarios where validator slashing occurs:
Validator downtime — A validator in the active set, and it’s delegators could get slashed for downtime in the network. Downtime occurs when a validator is offline, and not participating in block validation. A validator will get “jailed” and thereafter “slashed” of 0.01% of all staked tokens on the node for downtime.
Double Signing — A validator in the active set will suffer severe penalties for “double signing”. Double signing occurs when a validator signs two different proposed blocks at the same block height. When this happens , the validator is slashed 5% of the total amount of staked tokens on the node.
What Else Comes with Staking?
Rewards Withdrawal — After delegating assets to a validator, your staked UMEE will earn interest over time. You will see your balance of staking rewards increase substantially, depending on how long you keep your assets staked.
One thing to keep in mind is that your reward balance is a separate balance from your primary balance of staked tokens. Your staking rewards accumulated value over time does not represent your delegated balance, your delegated balance remains the same (unless you add to it of course).
As long as your primary assets remain staked, pending staking rewards can be easily claimed at any time through the Keplr interface, which are then available for your use.
Undelegation
Let’s say you have UMEE delegated to a validator, and you want to undelegate that UMEE, so that you can use it as collateral on Umee’s DeFi Hub. That UMEE will be subject to a mandatory 14-day lockup (unbonding period) enforced by the network. This 14-day lockup period is built into the network as a security measure to prevent potential network attacks.
During this period, your account will not earn any staking rewards while your funds are being undelegated, and the funds will not be transferable until the undelegation period is complete. Once the unbonding period is complete, you will be able to access, and use your original staked funds anywhere you choose.
Re-delegation
If you have a current allocation of staked assets delegated to a validator, you can actually re-delegate those assets to another validator without being penalized with the 14-day lockup (unbonding) period.
This allows those with staked assets who may not be happy with a particular validator, to re-delegate their stake and change validators on the fly to immediately begin earning rewards with a new validator. The first time you choose to re-delegate, it is immediate, however after this first “freebie” occurrence, re-delegation can only take place once every 14 days.
How Do I Get Started Staking?
The staking process for Umee will follow the regular Cosmos ecosystem process, and the Keplr wallet is a great way to get started!
Keplr Wallet — If you’re looking for a way to begin staking from an easy to use user interface, see the following Keplr Guide to start staking in the Cosmos Hub! Kepler is the leading IBC-enabled wallet for the Cosmos ecosystem, and you can easily stake your Umee within Keplr.
Conclusion
Staking is an integral part of PoS blockchains like Umee to provide the network economic security. We hope you learned something new today, and are excited to show off Umee’s unique staking features upon release in the near future, such as the ability to use staked assets as collateral for cross chain borrowing, without sacrificing your staking rewards.
Thank you for reading!
About Umee
Umee is a decentralized finance (DeFi) hub that was created for cross-chain interactions between networks. As a start, Umee will create an interchain lending and borrowing platform between the Ethereum and Cosmos blockchains.