An Overview of Elrond’s Consensus, PoS Economy and Frequent Staking Questions
Tags: Blockhain, Elrond, Staking, Proof Of Stake, Egld

Proof of Stake Economics

If you manage to reach this chapter that means you are passionate about blockchain technology and that you think in the following years and decades it is going to be part of our lives on a daily basis and it is going to bring value to our society. We think you asked yourself at least once why we need these cryptocurrencies and if the technology could work without them. Well, the cryptocurrency have well established roles inside a public blockchain. The network won’t be able to work without it.

Firstly, the cryptocurrency has the role of encouraging and rewarding the participation in the Network’s Security and the transaction validation process. Elrond has a well developed incentives system that stops inflation from harming the holders and at the same time it covers the maintenance cost of the nodes run by validators. Due to these the Network Security is increased and a virtuous circle is born. As more users are attracted to use the network due to its Security, more fees are generated as a result of their activity on the network and the validators get even more rewards, a fact that attracts even more users to become validators and secure the network.

Another important use case of a cryptocurrency inside a blockchain is being used as transaction fees payment or as we usually call it in the crypto space, gas fee. Having this system that requires every user to pay a fee for each transaction, spam is discouraged and the scenario in which the network could be willingly congested becomes improbable.

Now that we explained the relationship between cryptocurrency and blockchain we can move further to staking rewards and the ways they are generated.

EGLD Economics has almost the same principles as Bitcoin’s model and it is probably the first one having a max supply built on a Proof of Stake system that is built using an architecture capable at the moment of speaking of 16200 transactions per second and that comprises 3 execution shards but the network can scale linearly (if more throughput is needed more shards can be added to meet the new requirements).

The economic model implemented with the launch of the network a minimum reward per year guaranteed through new coins issuing. 11 415 927 EGLD will be issued as staking rewards to reach the maximum total supply. The issuing will be made on a 10 years plan after which the total supply will theoretically be 31 415 927 EGLD. The mentioned total supply is theoretical and will actually not be reached because of the mechanism that was implemented to use 90% of the transaction fees to diminish the inflation. The other 10% are sent by the same mechanism to Elrond protocol treasury for the protocol’s further development. All the above considered, the maximum total supply is reduced with every transaction on the network.

We can notice in the above schedule that every year (if we assume no transaction is done on the network) a fixed number of EGLD is issued. This is not very suggestive though so we will explain how APR is calculated.

During the first year 2 169 025 EGLD are issued. These are distributed among the 3200 nodes.

As a result of the distribution each node is to get 677 EGLD minus 10% for protocol sustainability meaning 610 EGLD for each node. After distributing the 610 EGLD to the base stake (2500) we get a 24.4% APR.

The APR is 24.4% in the 3200 nodes scenario when the nodes have no top-up, which means 8 millions EGLD are staked. However, this is not the case now because there was a great staking demand and 11 millions were staked resulting in a lower APR.

Note: APR can vary from one provider to another as a result of the differences between the service fees the providers have and because of the nodes top-up loading.