NYM delegated staking: reputation, rewards and community selection
‘Delegated staking’ is how the Nym community self-organises and selects which nodes should make out the mixnet for every mixing period…
‘Delegated staking’ is how the Nym community self-organises and selects which nodes should make out the mixnet for every mixing period (‘epoch’)¹. It is one of the exceptionally democratic aspects of the Nym architecture: people who hold tokens decide on the mixnodes running the network.
The community can delegate stake (an amount of tokens) to the nodes that they consider to provide good service. In return, they will receive a share of that node’s token rewards.
As someone holding tokens, you might want to stake on a particular node simply because you expect it to run well and therefore be the most profitable. But it could also simply be that you like and trust the people or the organisation who are running a mixnode and want to show your support and help them gain a good reputation in the network. In fact, mixnodes can promote themselves and their operating ethos in their node profiles².
Delegated staking thereby serves as a measurement of a mixnode’s reputation in the community. It is an important part of ensuring good Quality of Service (QoS) and maintaining the economic sustainability of mixnodes, while allowing everyone to get a share of rewards.
Here is what happens:
- Holders of tokens delegate their stakes to nodes of their preference.
- Nodes that receive a higher amount of stake are considered to have a good reputation and will therefore be more likely to be selected as a mixnode for the next mixing round (epoch).
- For each ‘epoch’, the overall demand for mixnet services is calculated based on the amount of bandwidth tokens that are bought.
- This gives an estimate of the demand and therefore how much capacity is needed in the network, determining the number of mixnodes that will be selected.
- Nodes are then selected based on their reputation (delegated stake) + a ‘bond’ which signifies their capacity.
- If selected, their QoS during that epoch will be measured and they will be rewarded according to their uptime, and for doing a good job of mixing and routing packets.
- Those that delegate stake will get a share of the rewards, which is set by the mixnode and executed by a smart contract.
Token holders will want to delegate to mixnodes that provide a good quality of service and share profits generously. And conversely, mixnodes will want to provide a good QoS so that they will stay attractive to token holders and maintain a good reputation, and be selected again in the following epochs of the mixnet.
Now, you might ask, how does the protocol ensure that the network doesn’t centralise around some mixnodes who happen to be the best friends of a ‘whale’³?
The Nym protocol sets a ‘soft cap’ on the rewards that are awarded to any given node. This is meant to nudge token holders to delegate amongst several nodes rather than only a few, as it will generate more share of rewards.
The ‘soft cap’ thereby ensures a more equitable organisation behind a target number of mixnodes and prevents centralisation of stake on just a few nodes, or, conversely, fragmentation where too many weak, malfunctioning nodes are proposed.
Delegated staking means that ALL people who hold tokens can participate in the network. And delegated staking aligns the economic interests of token holders with the important work of expressing a node’s reputation in the community.
In short, delegated staking means that the broader Nym community can take part in ensuring governance of quality and get a share of network profits, even if they do not have the capacity or skills to run a mixnode or a validator.
[1] Mixnodes are selected to be part of the network based partially on how much stake they have received from the community, and partially based on the bond they put up
[2] Apart from a description, node profile shows their reputation (delegated stake), public key, address and performance stats of the mixnode. These can help people decide if they want to delegate stake to that node.
[3] ‘Whales’ mean those with very large holdings of a particular crypto token.
