Staking terminology

This generic introduction should be relevant for most protocols and should provide a high level understanding of how staking works under the hood. However, staking mechanism is unique for each protocol and therefore, the components introduced here may not apply uniformly to all protocols.

Protocol time

Protocols have uniquely defined time periods with different names. These time periods form the basis of determining and updating the following.

1. stake amounts

2. validator set

3. reward distribution

If you stake while this time period is ongoing, you will have to wait until the protocol enters the next time period for your stake to become active. Consequently, the validator set will also update only once per time period. Stake balances and validator set are fixed for these time periods in order to limit the amount of complexity and variability introduced to the consensus forming process.

Validators

Protocols have a special set of nodes whose main responsibilities are to add new blocks and to finalize canonical chain history. These node operators were called miners in Proof of Work and are called validators in Proof of Stake. As a mechanism to prevent sybil attacks, validators will need tokens staked to perform their work.

Propose blocks (other known terminology: create, add)

There will be different terminology for block proposals, but in layman’s terms, this is simply adding new blocks to the existing blockchain.

Vote on blocks (other known terminology: attest)

Validators will vote on prior blocks. Newly proposed blocks will need a certain threshold of validator votes before becoming finalized and considered part of the canonical chain history. This threshold on Proof of Stake protocols will typically be 2/3 of all participating.

Monitor for bad behaviors

Validators will monitor each other for any malicious attempts. The biggest offense in forming consensus on blockchains is to propose two different blocks at the same time or to vote on two different chain history at the same time (this is how double-spending happens). Therefore, validators will alert the protocol if they see such behaviors from their peers.

Delegators

Protocols have a special transaction type called delegating. Delegating allows users to retain ownership of tokens, while simultaneously signaling to the protocol that those tokens can be used as stake for validators selected by users.

Penalties and slashing

Since validators play an instrumental role in maintaining blockchains, their actions are placed under heavy scrutiny. If a validator is offline, the protocol will penalize it by withholding rewards and deducting a small amount of its stake, in some cases including its delegators’ stake. If a validator equivocates (proposing two blocks or voting on two blocks at the same height), the protocol will slash it by withholding rewards and deducting a large amount of its stake, including its delegators’ stake. Slashing is considered a serious offense since the offending validator is undermining the protocol’s consensus rules.

Unbonding period

If validators act maliciously, the protocol will slash or penalize staked tokens. However, since malicious actors could exit the protocol before being slashed or penalized, most protocols enforce an unbonding period on staked tokens, preventing them from being transferred away until the protocol can be certain no offense has occurred.

Governance

Some protocols will closely intertwine staking with governance voting as well. While there will not be any added incentivized or penalties, stakers will be expected to actively vote on governance proposed on chain.