Native Staking Phase 1 On Hedera Network

Published on: 29.07.2022

Updated July 27th, 2022, To reflect the CoinCom vote to reduce the minimum node stake value from 1/2 of the max node stake to 1/4 of the max node stake.

Native Staking Phase 1 On Hedera Network. First phase allows ecosystem to build tooling, and for users to test functionality without earning rewards.

Hedera a proof-of-stake network, meaning it does not require mining to solve computational problems & deliver proof of work for reward. Instead, Hedera’s design uses the value of a scarce, “pre-minted” resource ($HBAR), staked to network nodes. To achieve consensus and protect the network against certain forms of cyberattack, including Sybil attacks. Enabling native staking, therefore, is essential for the Hedera network to continue along its path to decentralization and to incentivize staking behavior to protect the network from attack.

Hedera network nodes

Currently, Hedera network nodes are operated by members of the Hedera Governing Council, and each node has an equal stake. As the network is further decentralized and non-council member nodes are allowed to participate. It becomes critical to permit users to choose to which node(s) they want to stake their hbars. For permissionless networks, anyone can operate a node and participate in network consensus. As such, public, permissionless proof-of-stake networks need a scarce resource to secure the network against such attacks. Rather than each node having a vote weight proportional to hashing power, like in proof-of-work, a node’s ability to influence consensus is proportional to the number of coins staked to a node. Hedera achieves consensus on a transaction when the voting involves more than two-thirds of the network’s voting power. An entity, then, would need to attain one-third of the total voting power to disrupt the network.

The Hedera mainnet codebase has now been updated to enable the first phase of native staking and allows users to select nodes to which to stake their account. In phase II, the amount of hbars staked per node will affect its consensus weight (voting power), updated monthly. In phase IV, node stake will be updated on a 24-hour basis, as stated in HIP-406.

Staking on Hedera in four phases:

Phase I: Technical Availability

The staking functionality is now available and live on both the Hedera testnet and mainnet, as of July 21, 2022. In phase I, users will technically be able to stake their account to mainnet nodes but this will not contribute to a node’s consensus weight (voting power). This initial technical availability release does not reward participants for staking, but enables a level playing field whereby all market participants have the possibility to join the staking program, and avoids giving an unfair advantage to the first few who stake.

Phase II: Ecosystem Development

During this phase, supported exchanges and wallets will be able to integrate the staking functionality to provide account holders an easy way to stake their hbars. In addition, web applications for delegating stake will likely be built for utilization by the retail ecosystem. During this phase, there will be visibility of stake per node, and staking to a node will affect its consensus weight with monthly updates.

Phase III: Staking Rewards Program Launch

The Hedera Governing Council will determine when the Hedera ecosystem reach minimum viable set of integrations to enable staking rewards. Once determine, the council (through CoinCom) will vote to update the reward rate, and subsequently, the mainnet will be update with the agreed-upon reward rate.

Once update, the staking reward account (0.0.800) will be eligible to distribute rewards earned by stakers, once the rewards threshold of 250M total hbars. Rewards will continue to be distribute even if, after this time, the balance of account 0.0.800 goes below 250M.

Earned rewards are transferred to eligible accounts stake to a node through one of many transactions.

The Council (through CoinCom) has voted to implement a maximum cap of 6.5% annual reward rate. The actual reward rate will vary depending on how many hbars are stake for rewards, but the rate will not exceed the cap.

Phase IV: Complete Staking Implementation

In this phase, 24-hour updates for visibility into stake per node and the node uptime feature will be release. This means that instead of updating node stake visibility on a monthly basis, node stake visibility will be update on a 24-hour epoch interval. When the uptime feature takes effect, staked accounts will not earn rewards when nodes are unable to participate in consensus (unavailable or offline).

Non-Rewarded Staking Accounts

Accounts that will contribute to staking but have pledged to not receive rewards into the foreseeable future (even when rewards are enabled) include those owned by Hedera (Treasury), Swirlds, and Swirlds Labs. In aggregate, these accounts control more than half of the total minted supply of hbars. Ensuring that enough hbars are stake for network security.

Staking Rewards Insight

The staking architecture is based on the original design defined in the Hedera Hashgraph whitepaper. In the future, the reward mechanism will be enable. Those who choose to stake their hbars can earn rewards. If they choose, for their contribution to the operation and security of the Hedera network.

No minimum amount of hbars will be need for hbar holders to participate in staking and earn rewards. There is no “bonding”, slashing, or lock-up periods, but there is a minimum staking period of 24 hours. Accounts staked during a fraction of one of those periods have no effect on consensus, & so will earn no rewards.

This staking system offers additional unique functionality: indirect staking. If account A stakes to node N, then the stake increases the consensus weight of N, and account A rewarded for every 24-hour period that it stakes. If account A stakes to account B, & account B stakes to node N, then the stake from both A & B will increase the consensus weight of N, but the rewards for both A & B will be received by B.

The Hedera Governing Council Treasury Management and Coin Economics Committee (CoinCom) has defined and approved the following:

Max stake (the maximum amount of hbars a single node can have staked to it for contributing to consensus)
Min stake (the minimum amount of hbars a single node must have staked to it for participating in consensus)
The current min and max stake values for Mainnet nodes will adjust to changes in the network; the current values reflect the network of Governing Council member nodes. The Governing Council may modify these values in the future to accommodate for community nodes and permissionless nodes.
Staking rewards account (0.0.800) threshold value (needs to be met before it begins distributing rewards to stakers)
Network & service fees will continue to route to account 0.0.98 (Hedera Treasury) & node fees will continue to route to individual node operators. More information about the types of fees per transaction can be found here.
In the future, the Hedera Governing Council may vote to route network and service fees. Originally intended for the Hedera treasury (0.0.98), to the staking rewards account (0.0.800) for distribution to stakers.