Staking $SCRT on the Secret Network helps to secure the network and allows you to participate in community governance. Currently, annual rewards are 29% if you compound weekly!
This article aims to introduce you to staking on the Secret Network, a Cosmos SDK/Tendemint Core decentralized blockchain implementing privacy preserving technological solutions.
We give a basic introduction on the technological innovations and potential use cases of Secret Network and provide a staking guide from the delegators perspective touching on the most pressing topics like:
- Terms & Risks for staking SCRT
- Secret Staking Design & Rewards
- How to choose a Staking Service Provider (Validator)
- Best SCRT Staking Wallets
Introduction to the Secret Network: Privacy is a fundamental Human Right
Public permissionless distributed ledgers can enable unprecedented freedoms but they can, at the same time, be tools for surveillance and totalitarian control. Secret Network can provide efficient technological solutions (filling in the gaps) to the end of protecting and advancing the public value of privacy that permissionless public blockchains evade by design.
Secret Network is the first blockchain with privacy-preserving smart contracts. This means that applications built on the Secret Network can utilize encrypted data without revealing it to anyone, including the nodes in the network. For the first time, Secret Network allows developers to build powerful, permissionless, privacy-preserving applications — Secret Apps.
Public permissionless Blockchains fail to protect privacy by design, through what we could call an “architectural flaw”.. This means that all the data used in smart contracts is exposed to everyone. For blockchain technology to achieve global adoption, users and organizations need control over how their data is used — they can’t just expose it to everyone. Secret Network solves the problem of privacy, helping to secure and scale the decentralized web. Secret Network’s technology could be implemented on myriads of legitimate use cases.
Innovative Privacy Preserving Technologies
The following technologies are already being implemented on Secret Network:
- Privacy-preserving smart contracts (already on main net)
- Cross-chain privacy tokens (secretSCRT is already on main net: Combining the programmability of ERC-20s with the privacy of Zcash or Monero, “Secret Tokens” unlock important use cases and create new value. The first Secret Token is now live on Secret Network’s mainnet, “SecretSCRT” (sSCRT) is the first implementation of the SNIP-20 standard!)
- Ethereum bridge (a new bridge connecting Ethereum and Secret Network, currently live on testnet, arriving soon to mainnet)
- Interoperable with the Cosmos Network ⚛️ ecosystem
- Interoperability with heterogeneous blockchains through IBC (IBC will be on Cosmos main net by EOY 2020)
- SNIP-20 (like ERC-20) & SNIP-721 (NFTs) privacy standards
- Tendermint Consensus Byzantine Fault Tolerance (BFT) delegated Proof-of-Stake (POS)
Also there teams are deliberating over implementation of the following:
For a more detailed overview of Secret Network’s technologies and the challenges presented by transacting on public permissionless blockchains please see this article.
With natively built-in privacy-preserving technologies (secret smart contracts already live and enabled), there are many possibilities and potential use-cases.
Please take the graphic below with a sense of extravagation and humor. The point is, that privacy is adding value to almost all applications and even opens up further possibilities.
1. Rules & Associated Risks when Staking in the Secret Network and Cosmos SDK/Tendermint Core Chains
This article will not further expand on the possibilities offered by the Secret Network’s architecture. It will focus on staking within the Secret Network.
There are characteristics unique to each Cosmos project such as inflation or the rate of bonded tokens (Total Staked) at any given time (with the former being decided via governance). Both affect the staking rewards rate. Other architectural design elements apply universally on all Cosmos SDK/Tendermint Core projects.
Some of these elements are important in identifying/assessing how we (as delegators) are affected.
Cosmos SDK/Tendermint Core projects have the following main common characteristics:
Delegation of Cosmos Proof-of-Stake (POS) tokens as a means of securing the network and earning staking rewards.
The Tendermint consensus relies on a set of validators to secure the network. The role of validators is to run a full-node and participate in consensus by broadcasting votes which contain cryptographic signatures signed by their private key. Validators commit new blocks in the blockchain and receive revenue in exchange for their work. They must also participate in governance by voting on proposals. Validators are weighted according to their total stake (own + delegated).
Delegators (we) — in turn — delegate our tokens to validators in order to secure the network. In return, we get staking rewards.
Staking is, thus, a more active form of HODLing that puts our tokens to work while also allowing us to secure the network and directly participate in the governance of the network (through voting on proposals).
Therefore we, delegators play an important role within the ecosystem. Being a delegator is not a passive role: We should thus ensure that we:
a. actively monitor the actions of our validators (see an important reason why on the soft/hard slashing section below) and
b. participate on governance.
Our tokens never leave our possession when delegating to a validator as long as we do not stake through an exchange. Remember not your keys, not your tokens! Most of us community members on Cosmos advise against staking through exchanges.
Undelegation / 21 day unbonding rule
Another common characteristic of Cosmos Proof-of-Stake chains is the 21-day unbonding/undelegating rule.
There is usually a misconception that after I have bonded my tokens for 21 days I am free to e.g. send them to an exchange and trade. This is a wrong assumption.
Once we delegate our tokens, they remain perpetually bonded, meaning that we can only use them after we unbond/undelegate manually through our wallet.
Thus, when a delegator (a person who has delegated their tokens) requests undelegation from a validator, the number of tokens requested for undelegation will instantly transition to unbonding state for 21 days.
After the 21 day period passes, the delegator (the person who has delegated his/her tokens) will be able to make transactions with the tokens that were in unbonding state for the past 21 days.
Another common misconception among newcomers to the Cosmos ecosystem chains is that they must undelegate their coins so that they delegate to another validator. Again this is a wrong assumption that may cost in both money (resulting in missing staking rewards) and time (waiting for tokens to undelegate).
Thus, you can redelegate from Validator A to Validator B at any point in time after you first delegate your tokens (e.g. after you sent them to your wallet from an exchange or after they were undelegated and you changed your mind).
Please remember that you are not required to unbond/undelegate if you want to move from one validator to the other.
However this is not an option that is unlimited, namely you cannot engage in validator hopping.
Therefore, redelegating from Validator A to Validator B, then consecutively redelegating from Validator B to Validator C is not allowed.
There is a 21 day cooldown that applies to a subsequent redelegation i.e.delegating from Validator B to Validator C and that cooldown starts counting from the second you redelegated from Validator A to Validator B.
Thus, once you redelegate from Validator A to Validator B, you will not be able to redelegate from Validator B to another validator for the next 21 days.
PLEASE NOTE: During this 21 day redelegating cooldown, you will still be able to undelegate from (subject now to the aforementioned 21 day unbonding/undelegating rule) or make some additional delegations to this validator.
Since we share revenue with our validators (those charge commission to our rewards that is), us, delegators also share and bear risks.
Since we share the revenue with our validators (they charge a commission on our rewards), we do also share and bear risks. Should a validator misbehave, each of their delegators will be partially slashed in proportion to their delegated stake. This is why we, as delegators, should perform due diligence on validators before delegating, as well as spreading our stake over multiple validators in order to mitigate the risks above.
There are two types of slashing namely a. soft slashing and b. hard slashing. The best way to explain what happens on each instance could probably be through the following incident that occurred in 2019:
On June 27 of 2019, CosmosPool a former Cosmos validator, experienced a server outage on their main node; downtime that resulted in its validator being temporarily jailed and its stake being slashed by 0.01%, including that of its delegators. This was what we call a downtime slashing incident (soft slashing) whereby the validator and delegators were punished for downtime proportionally to their stake on the network.
On top of the above, that outage required a restart and an unjail transaction, and while troubleshooting, CosmosPool’s (the validator’s) backup node accidentally participated in consensus, violating Cosmos Hub protocol rules.
As a result of evidence of double signing a block, CosmosPool and its delegators’ stakes were slashed by 5% and this validator was permanently removed from the active validator set (aka ‘tombstoned’). Mintscan shows the post-slashing delegation amounts. Double-signing on a block is one of the instances of what we call a Consensus Fault Slashing or Hard Slashing and is penalized with a harsher penalty.
Although hard slashing instances are extremely rare, we should still be aware of the dangers and conduct due diligence on our validators. There are validators that offer downtime or hard slashing protection. We will see how to choose between validators in the section that follows.
When opting out of staking, holders’ tokens become diluted. This is exacerbated on projects with higher inflation settings such as the Secret Network, Akash etc. It is thus strongly advisable to stake your coins at all times.
2. Staking on the Secret Network
As mentioned above, Secret Network is a Cosmos SDK/Tendermint Consensus blockchain project. Secret Network is secured by a coordinated group of validators (current maximum: 50) using a Byzantine fault tolerant delegated proof-of-stake consensus engine.
This superior delegated POS staking technology combined with the slightly higher inflation than other Cosmos chains makes the Secret Network attractive for — among other things — the staking rewards offered. This means that holders of SCRT can delegate their stake to a block validator of their choice. This validator earns rewards by processing transactions and computations on Secret Network, then shares some of these rewards back to their delegators according to the size of their deposits and after deducting their commission rate.
Validators on the Secret Network are known as “secret nodes” — and they have an extremely important job. All validators on the network must maintain high uptime and utilize compliant hardware (enabled with Trusted Execution Environments) in order to remain active. With Secret Network, the teams have taken great pains to ensure all validators are running the latest patched versions of TEEs in order to keep the network secure.
This is very hard work for validators, so the incentives need to be strong! In return for their effort, validators receive block rewards as each new block is generated on Secret Network. (This means Secret Network is inflationary, with new SCRT being created over time as a percentage of the current total supply). Then validators pass on a percentage of these rewards to delegators while keeping some as a commission. This commission helps to fund their operations, ensuring that they can continue operating and that the Secret Network can remain sustainable.
At Staking Rewards the Validators are mapped to their Staking Provider Profiles and ranked according to their individual estimated reward rates (considering commission and performance). You can learn more about the setup and the team from all verified Providers. See here.
How are rewards calculated for staking?
Calculating exact rewards can be challenging because there are many inputs to the equation. One input is network inflation — how many new SCRT are created each block? Another is the staking rate (total staked) — what percentage of total SCRT is currently being staked or delegated? Depending on the above inflation is adjusted with the minimum rate being 7% and a maximum inflation of 15%. Then there is the validator commission to consider, some network taxes (community tax and foundation tax ), the number of blocks per year. Calculating can thus be a cumbersome task.
As seen on the graph above there has been a steady increase on total unique delegators and numbers will be going up as the project gets more traction in the coming months. At the time of writing there are in excess of 2,000 individual delegators on the network and the number is rising.
Compounding is a great tactic for delegators as it can increase your staking rewards. For example, currently, when staking 1,000 SCRT you will get 262.1 SCRT per year or 26.21% APY. If you compound weekly, i.e. if you delegate your rewards you will be able to receive 293.85 or 29.38% APY!!! That is a hefty increase! You can directly see the difference by toggling the “Compound” Button in the Staking Rewards Calculator.
3. How to choose between different Validators in order to mitigate risks associated with staking?
Unlike with other networks one thing that can be immediately noticed within the Secret Network is the team, family spirit between validator node operators.
Still there may be differences between one over the other. Below follows a validator Selection Criteria Checklist when you conduct your due diligence on whom to choose when delegating your SCRT, so that you find the one most closely fitting your criteria.
Selection Criteria Checklist
- Technical setup of the validator
- Amount of self-bonded coins of the validator
- Current commission rate, commission change rate and maximum commission
- Total amount and number of delegations
- Community Involvement and Longevity
- The level of network decentralization
- Uptime of the validator
- Ability of delegators to vote and participate on governance
- Slash Protection
Technical setup of the validator
This is the most compelling part when choosing a validator as it involves some form of technical expertise. Some validators offer detailed info on their technical set up whereas others don’t. As Mira Storm advises:
We encourage you, reaching out directly to validators to get more details. Some things that you should pay particular attention to:
- Is the software run on a physical server or in a cloud? (Listen carefully for the reasons why the operator choose one over the other)
- How is validator private key secured? Do they use a hardware security module (HSM)? How about the Key Management Service (kms)?
- Do they have a reliable way to restart the node if the software or hardware fails?
- How are they making sure double-signature doesn’t occur?
- What will happen if the node is censored or under the network attack?
It has also been recommended to check if a validator node is shielded behind a layer of private and public sentries. This type of set up is recommended by the community to protect the node against malicious blocks and network attacks.
Some projects within the Cosmos ecosystem have stricter requirements for node operators. One such instance is the Secret Network where — in order to enable Secret Contract functionality — validators are required to run nodes equipped with the latest version of Intel SGX.
Amount of self-bonded coins of the validator
This is another important criterion providing a clear view on how serious a validator is, how much trust they have on their own infrastructure, or even whether they can deliver their warranties (e.g. when offering slash protection/refund)
Current commission rate, commission change rate and maximum commission
Commission rates are important and a determining factor to a majority of people delegating their coins, but it is equally important to review the finer print i.e. what is the commission change rate and how much the maximum commission. For example you may be delegating to a validator charging 5% commission. If they have a max rate of 20% and a Max Change Rate of 10% you may wake up to a 20% commission in no time.
Total amount and number of delegations
People also seem inclined to delegate to node operators that have a large number of coins or delegations although this should be counter-balanced by a spread of delegations among more validators in order to decentralize the network.
Community Involvement and Longevity
Validators that are involved in the community, spend resources on improving the network’s infrastructure or provide educational material, apps, dApps are the ones most likely to stay in the network longer.
The level of network decentralization
It has been argued that a centralized network could be prone to double-spending atacks whereas at the same time the overall value of a staking token that by design is supposed to be part of a decentralized network may be reduced.
Uptime of the validator
The uptime of a validator is also another important metric that delegators take into account. Most validators usually have a 99–100% uptime on the Cosmos ecosystem.
Ability of delegators to vote and participate on governance
If you stake through an exchange, or through wallets that do not support voting on governance proposals (e.g. Trust Wallet) you are left out of one of the most important features of the Cosmos ecosystem: voting. It is quintessential that you opt both for wallets that support this feature while steering away from staking through exchanges (that by default have the voting feature disabled) and finally ensure that your wallet provides access to all validators (some don’t).
There is an increasing trend among the Cosmos ecosystem’s validators to offer soft or even hard slash protection. This is an important new feature that has been attractive to people who delegate their coins and need the peace of mind that a. their coins will not be slashed and b. their rewards will be guaranteed.
4. Best Staking Wallets on the Secret Network
Keplr is an ambitious project and a wallet (currently available in the form of a Chrome browser extension) developed by Chainapsis. It is anticipated that Keplr will be central to the Cosmos ecosystem post-IBC protocol’s implementation. We can safely assume that Keplr will be to Cosmos what Metamask is to the Ethereum ecosystem.
Keplr is also the first decentralized wallet with access recovery available in the Cosmos ecosystem, marking a milestone for the entire Cosmos community!
For a great guide on how to use Keplr please see the article by Daniela Pavin here.
Cosmostation is another great wallet with a second to none interface available also on iOS and Android. It is fully featured too and was the first decentralized mobile wallet for the Cosmos hub. SCRT staking is currently only available via the Cosmostation iOS wallet.
Secret Network was recently integrated to Citadel.one – a non-custodial multi-asset staking platform. Citadel.one users can create platform-native addresses for all supported networks with a single seed phrase. There is also an opportunity for SCRT holders to connect hardware wallets to the Citadel.one interface. Quick sign up with social media accounts and analytical dashboard are also available to SCRT holders.
The wallet will soon be available on iOS and Android too.
For more info check: https://medium.com/citadel-one/citadel-one-overview-secret-network-1289227545d9