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How to stake XTZ?
There are several ways to earn a return on your XTZ, including lending them out to custodial providers or through decentralized lending protocols, running your own validator, or delegating your tokens to validators of your choosing.
For the best security and control over your funds, we recommend using a Ledger Hardware Wallet (check if Ledger supports the token). To delegate your tokens, you should ensure they are stored on your Ledger or software wallets like Atomex, Exodus, and Temple, and then follow these steps below:
Step 1: Open your wallet, such as Atomex.
Step 2: Navigate to the “Delegation” feature and select a baker from the Validator List available on Baking Bad, Tezos Nodes, or TzStats. Check our FAQ on how to choose a validator if you are unsure who to delegate to.
Step 3: Once you have selected a baker, specify the amount of tokens you wish to delegate, and initiate the staking process.
Do I need to maintain my staking in any way?
After delegating your XTZ tokens, there are a few things to keep in mind:
- It may take up to 37 days to receive your first rewards from your chosen validator. After that, you can expect to receive rewards approximately every 3 days.
- Your rewards will be automatically accumulated at the end of the staking period.
- You can track your staked tokens and rewards via your wallet or a block explorer. Additionally, you have the flexibility to adjust your delegation or withdraw your tokens at any time, subject to the terms of the baker you have chosen.
- As a XTZ token holder, you also have the ability to vote on network changes directly through the on-chain governance system without having to pass the vote to the baker. However, it’s important to note that participating in governance does not affect the amount of your rewards.
How do I choose Tezos validators/bakers?
It is essential for users to stake their PoS tokens with dependable and highly performant validators, which is why we have rolled out our Staking Rewards Verified Staking Provider (VSP) Program in June 2022. Through this program, we thoroughly scrutinize potential validators, evaluating factors such as security measures, their on-chain reliability, their provider setup, and value-added services for the whole ecosystem.
When choosing a validator to delegate to, there are numerous factors to take into account:
Commission Rates: When staking your tokens with a validator, the commission rate represents the percentage of your rewards that the validator will retain for themselves. A high commission rate can result in lower returns for you, while a low commission rate may lead to financial difficulties for the validator in the future. It’s important to note that validators may change their commission rates at any time.
Capacity: Each baker has a capacity of how many coins it can accept, which is based on how many coins it currently holds itself. A baker is “over-delegated” when it has exceeded the amount of delegation it can take.
Number of Users: A large number of delegators may signal a positive reputation for a validator.
Current Status: You can see whether the validator is currently active or not by checking the validator list shown on this page. Validators that are active have a green dot under them.
Network Share: When selecting a validator to delegate to, it’s generally advisable to avoid choosing one with the highest or lowest network share. Delegating to the most popular validators can increase the risk of centralization within the network as they will have more influence in governance and a greater share of blocks. On the other hand, choosing a validator with a low network share may be less profitable and increases the risk of them ceasing their operations. Finding the balance and choosing a validator with a moderate network share could be the best approach to keep the balance in decentralization and profitability.
Performance: To ensure the best results, it’s important to select a validator with high performance. Further, please check individual validators’ Reliability and Efficiency, and our recommendation is only to pick those with a >=99% Reliability and Efficiency and a long history of not getting slashed.
Value Add to the Ecosystem: Another way to assess the long-term vision of validators is to check if they offer additional services to their delegators, such as tax reporting tools, explorers, etc. This can be a useful filter when comparing different providers.
How are the rewards generated?
Native staking rewards on XTZ are composed of:
Block Rewards: These are incentives earned by validators (bakers) for their role in validating transactions and adding them to the blockchain. These rewards are given in the form of XTZ tokens. With each new block that is generated approximately every 30 seconds, up to 40 new XTZ tokens are created to incentivize bakers to participate in the baking and endorsing process. This equates to a maximum of 42 million XTZ tokens distributed to bakers per year.
The distribution of rewards per block is as follows:
A fixed reward of 10 XTZ is given to the baker who selects the transactions for the block and is the first to propose it. This reward is paid out immediately.
A variable bonus of up to 10 XTZ is provided to the baker, which depends on the number of included endorsements, beyond the threshold of 4,667 endorsements. This reward is also paid out immediately.
Lastly, Up to 20 XTZ is distributed as endorsing rewards that increases as the number of endorsing slots increases. This means, the more stake a baker has, the more slots it gets per block. These rewards are only paid out at the end of each cycle, which lasts approximately 14 days.
Transaction Fees: The Tezos network imposes fees on transactions as a means to compensate the validators (bakers) for their role in validating and adding transactions to the blockchain. These fees are paid by the users who initiate the transactions and are collected by the bakers who validate them. The fees are paid in XTZ tokens and are distributed among the bakers in proportion to the amount of XTZ tokens they have staked.
It’s important to keep in mind that the total annual rewards are divided among all active stakers. As the number of staked tokens increases, the reward rate decreases.
Furthermore, there are governance proposals that could adjust some of the on-chain parameters, which could also change the APR if they are approved.
You’re welcome to use our Staking Calculator to get a better understanding of how these factors can impact your rewards.
What are the risks to staking XTZ?
We strive to make staking as safe and transparent as possible, however, it’s important to consider factors that may influence whether a particular staking option is appropriate for you.
- Slashing Risk: Bakers who violate the rules and protocols of the proof-of-stake (PoS) mechanism may be at risk of losing some or all of their staked XTZ tokens, along with any earned rewards. However, this is an infrequent occurrence as bakers must adhere to strict guidelines and the Tezos team has implemented measures to deter malicious behavior.
- Unbonding Risk: There is no unbonding or liquidity risk. XTZ tokens are subject to no lockup period based on the Tezos protocol specifications. This means that if you decide to stop baking with a Tezos baker, your XTZ tokens will be available to you for trading after being processed (usually within one business day).
- Dropping out of the active set: The risk of a validator getting slashed or dropping out of the active sets could result in a loss of rewards. It is important to check frequently on the status of the validator to ensure it is active, not jailed and hasn’t raised the commission fees.
- Protocol security risks: There is an inherent risk that the protocol could contain unknown bugs, this risk applies not only to staking but also the investment in XTZ.
This list is not exhaustive and other risks may apply.
What is XTZ (Tez)?
XTZ (Tez) is the native token of the Tezos blockchain and it is used to perform various important functions within the network:
- Staking: Token holders of XTZ can earn rewards by holding their tokens and participating in the proof-of-stake (PoS) mechanism.
- Gas token: XTZ tokens can function as a currency on the Tezos network. They can be used to pay for transaction fees, to participate in the PoS mechanism, and to pay for other services on the network.
- Governance: XTZ holders can have a say in the future direction of the blockchain by participating in the on-chain governance process. Additionally, token holders who delegate their XTZ to a baker can also cast their votes through their baker, who usually provide necessary guidance on how to vote and take part in the governance process.
What consensus algorithm does Tezos use?
Tezos uses a Nakamoto-style PoS algorithm for consensus, which since Babylon, is called Emmy+, a variant of the protocol proposed in the Tezos white paper. In a PoS system, participants (known as “bakers”) validate transactions and add them to the blockchain in return for rewards. The amount of rewards earned by a baker is determined by the amount of XTZ tokens they have staked and the overall health of the network.
There is no fixed limit to the number of validators (also known as “bakers”) that can participate in the Tezos blockchain. Instead, the number of bakers on the network is determined by market forces, such as the availability of XTZ tokens to stake and the overall demand for validation services.
What are the tokenomics of XTZ (Tez)?
XTZ tokens have an inflationary supply, with a combination of token emission and burning mechanisms. At the launch of Tezos, the network had 763 Million XTZ.
Each new block generates up to 40 new XTZ as a reward. A block is created every 30 seconds, resulting in 42 Million XTZ per year. As a result, the inflation rate decreases over time.
Burning occurs when data is recorded on the chain and storage fees are paid, when bakers engage in malicious activities by validating incorrect transactions (also known as slashing) and when trades occur on the liquidity baking contract.
Initial Distribution Breakdown
Any tokens that have been minted are free to be used and staked. The Tezos Initial Coin Offering (ICO) took place from June 28, 2017 to July 13, 2017, and raised a total of 65,681 BTC and 361,122 ETH. At the launch of the network, 763,306,929.68 XTZ tokens were issued and distributed as follows:
79.59% allocated to ICO contributors
0.41% allocated to early supporters and contractors
10% allocated to the Tezos Foundation
10% allocated to Dynamic Ledger Solutions (DLS)
Who is the team behind Tezos?
Tezos is an open source project and allows anyone to contribute.
The Tezos Whitepaper was written in 2014 by Arthur Breitman. Since then the Codebase has been developed by his company Dynamic Ledger Solutions.
Now the Tezos Foundation is assigning funds to many other companies and individuals who help to develop the protocol and the infrastructure around.
From the Staking Rewards Journal