Let’s delve into how staking works in Cosmos. Staking is a key element of the network, intertwining with both security and governance.
Basics of Staking
- What is Staking?: In Cosmos, staking involves locking up a certain amount of the native token (ATOM, in the case of the Cosmos Hub) to support the network’s operation. It’s like making a deposit that backs the network’s integrity.
- Role in Consensus: Staked ATOMs give validators the right to participate in the network’s consensus process. The more ATOMs staked, the higher the chances of being chosen to propose and vote on blocks.
Validator and Delegator Dynamics
- Validators: Validators are the nodes that actively participate in the consensus and governance of the network. They stake their own ATOMs and can also accept delegations from others.
- Delegators: Delegators are ATOM holders who don’t run a validator node but want to participate in staking. They delegate their tokens to validators and earn a portion of the rewards, sharing in the risks (like slashing).
- Validators and delegators earn rewards for their role in securing the network. These rewards come from transaction fees and block rewards.
- The reward distribution depends on the validator’s policies and the amount of staked ATOM.
- Validators are at risk of having a portion of their staked ATOM (and that of their delegators) slashed in case of misconduct or failure to maintain network standards (like being offline for too long).
- Staking ATOMs also grants the right to participate in governance decisions. This includes voting on proposals for upgrades, changes in network parameters, and other important governance matters.
Lock-Up and Unbonding
- When ATOMs are staked, they are locked up and cannot be traded or transferred. There’s also an “unbonding” period when withdrawing from staking, during which the tokens remain inactive and do not earn rewards.
- Staking enhances the security of the Cosmos network. The more tokens staked, the more secure the network is, as it becomes harder for a malicious actor to gain enough stake to disrupt the consensus.
In essence, staking in Cosmos is a form of participation where you back validators with your tokens, contributing to the network’s security and governance, and in return, earn rewards. It’s a bit like investing in a company and then receiving dividends, while also having a say in major company decisions.