Commissions & Penalties

Validators earn a commission on all block rewards weighted by the staked tokens that are delegated to them, in exchange for their services in securing the blockchain and processing transactions.

Validator Commission depends on

• Validator Uptime; This is defined by a validator's consistency in participating in the consensus process by voting on blocks that are eventually added to the blockchain. A validator with high uptime is more likely to attract delegators and earn a higher commission.

• Amount of staked tokens delegated to a validator; This is defined as the percentage of total tokens staked with a validator. Validators with a higher percentage of tokens staked with them are likely to earn a higher commission.

• Commission Rate; Validators set their own commission rates, which can vary depending on the competition among validators on the network.

• Staking Rewards; Validators earn commission from a portion of the staking rewards for participating in the consensus process.

• Block Distribution Rewards; Block Rewards comprise of Token Emissions and Fee Rewards (Network Fees, Trading Commissions and Nitron Fees).

Calculation

To calculate validator commission, refer to the following steps:

1. Determine the total rewards earned by the validator in a given time period. This can be calculated by multiplying the total amount of tokens staked on the network by the staking reward rate.

2. Decide on the percentage of the rewards that the validator wishes to charge as a commission.

3. Multiply the total rewards earned by the percentage commission to determine the amount of commission earned by the validator.

Validator Commission per month = % of Total Stake * Daily Block Distribution Rewards * % of Staking Rewards from Block Rewards * Commission Rate * 30 days/month

The percentage of block rewards allocated to staking rewards can be adjusted via protocol governance. Currently, 65% of block rewards accrue to stakers.

Rewards are distributed proportionately to the amount of tokens staked, while unstaked tokens do not attract any rewards at all.

Validator Uptime

Validator uptime is a measure of the amount of time a validator node is online and actively participating in the consensus process on a blockchain network. Validators play a crucial role in securing the blockchain by verifying and validating transactions and adding them to the blockchain. Validator uptime is important because a validator that is offline or not participating in the consensus process cannot fulfil its role and may jeopardize the security of the network.

Validators are incentivized to maintain high uptime by earning commission rewards for their participation in the consensus process. However, if a validator's uptime falls below a certain threshold, they may be penalized with reduced rewards or even slashed (have their stake reduced) in order to maintain network security. Validators therefore have an incentive to ensure that their nodes are always online and participating in the consensus process to maximize their rewards and maintain the security of the network.

Distribution

Block rewards are calculated per epoch and distributed across the active delegated stake and validator set (as per validator commission).

Mechanism

Rewards are tallied at the end of each voting epoch by weighing the collective votes from all validators against the proportion of stake that has been delegated to them.

Not all validator’s votes are weighted equally.

Validator’s consensus votes are stake-weighted, meaning the more stake an individual validator has, the more influence that one validator has in determining the outcome of the consensus voting. Similarly, validators with less stake have less weight in determining the vote outcome, and validators with no stake cannot influence the outcome of a consensus vote.

Each time block rewards are issued, the commission is deposited in the validator’s account and the remaining rewards are deposited in all of the stake accounts that are delegated to that validator, proportionally to the amount of actively delegated stake in each account.

Validator commission and staking rewards are always issued simultaneously.

Slashing

Tokens delegated to a validator can be partially slashed if the validator misbehaves. Slashing means the delegated tokens are forfeited (burned) without the possibility of recovery.

On Demex, the following attributable fault can lead to slashing events for the delegated tokens:

Block Slash

• Slashing by 0.1% can occur if the validator is offline for too long. Uptime is achieved when the validator signs at least 3,600 out of the last 36,.000 blocks. If a validator does not sign minimum 3,600 (>10%) blocks out of the last 36,000 blocks, a downtime slash occurs.

• Slashing by 5% can occur if the validator signs two different blocks at the same height (double-signing). This fault is harder to anticipate, resulting from bad operation practices or outright malicious intent from the validator operator.

Oracle Slash

During the initial instances of oracle slash count, the penalty is insignificant to allow ample time for oracle service fixing:

• Your penalty increases as you accumulate more slash count;

• As the slash count accumulates, the penalty increases until it reaches a cap equivalent to a one-day worth of slash count.

Equation

$$Current\hspace{0.1cm} slash \hspace{0.1cm}factor = Initial\hspace{0.1cm} Oracle\hspace{0.1cm} Slash\hspace{0.1cm} Count + Oracle\hspace{0.1cm} Slash\hspace{0.1cm} Count\hspace{0.1cm} Increment * Max\hspace{0.1cm} (Continuous\hspace{0.1cm} Slash\hspace{0.1cm} Count, Max\hspace{0.1cm} Continuous\hspace{0.1cm} Slash\hspace{0.1cm} Count)$$

Parameters

• Initial Oracle Slash Count = 0

• Oracle Slash Count Increment = 0.000000491

• Max Continuous Slash Count = 24

With the above parameters,

Max Slash Count Factor

= 0 + 0.000000491*24

= 0.000011784 per hour

= 0.000011784*24 per day

= 0.000282816 per day

The maximum penalty for oracle slashing is approximately equivalent to the rewards you receive as a validator. This means that if your oracle service is down or not functioning as intended but you are still receiving validator rewards, the nett slashing impact should be minimal or negligible.