Staking rewards are not distributed automatically to the accounts of the validators and nominators. Instead, they must be claimed by triggering a payout.
At the end of every era (24h), all active validator pools receive base rewards in the form of HDX tokens. A validator pool consists of an elected validator (holding their self-staked HDX) and all active nominations which are backing the validator (for more information see staking). A central principle of the Nominated Proof-of-Stake (NPoS) consensus mechanism is that equal work brings equal rewards. In other words, since all validator pools essentially carry out the same work, the available base rewards are divided equally among them. This means that validator pools are not rewarded in proportion to their total stake, which is a major difference from traditional PoS networks.
The mechanism of sharing the base rewards equally among all participating validator pools contributes to the security of the network by preventing the concentration of power in a few validator pools, thereby strengthening decentralization. Over time, it incentivizes nominators to nominate validators with a smaller HDX stake. This process will eventually balance out the power relationships in the network and lead to a situation where all validator pools have roughly an equivalent amount of staked HDX.
The distribution of rewards takes place as follows. After calculating the (equal) amount of rewards for every validator pool, the validator receives its share in the form of commission fees for maintaining the node. As a second step, the remaining tokens are distributed among all stakes proportionally (including the self-stake of the validator). This means that higher stakes will receive a bigger proportion of the rewards which are attributed to the particular validator pool.
In our incentivized testnet called Snakenet, the amount of rewards received for staking your HDX tokens is estimated to be around 50% APY.
Validators can earn additional rewards in proportion to the era points which they have gained in the past era. These rewards are added to the base rewards described above. Validators can earn era points by carrying out certain specific actions such as:
- producing a non-uncle block in the Relay Chain.
- producing a reference to a previously unreferenced uncle block.
- producing a referenced uncle block.
An uncle block is a Relay Chain block valid in every regard, which however has failed to become canonical. This can happen when two or more validators are block producers in a single slot, and the block produced by one validator reaches the next block producer before the others. The lagging blocks are called uncle blocks.
Finally, validators can earn tips which are also added to the base rewards at the end of every era. Tips represent an additional transaction fee that can be optionally paid by users to give their transaction a higher priority.