Skip to main content

Tokenomics

βœ… CUDOS Tokenomics

The key aim of CUDOS network tokenomics is :​

To ensure that network participants are incentivised to work towards the greater good of the network. Specifically, ensuring the security, integrity and longevity of the network.

Tokenomics draws from game theory models that assume individual rational network participants are always working to maximise their own utility. The aim of tokenomics is to ensure that individual utility is best maximised by advancing overall network utility.

From this perspective, the CUDOS Network tackles this challenge in multiple ways.

Consensus layer​

First, the CUDOS network uses Tendermint to provide a consensus layer and agree the state of the CUDOS chain. Tendermint is Byzantine Fault Tolerant (BFT) (solves the Byzantine Generals Problem) enabling consensus to be achieved on the state of the blockchain even if up to β…“ (~33%) of network machines are bad actors or fail in arbitrary ways.

δ·† Byzantine Generals Problem

The Byzantine Generals Problem is a scenario illustrating the difficulty in achieving consensus amongst decentralized parties.

The scenario describes several generals surrounding the city of Byzantium and readying for an attack.

In order to succeed, all the generals must attack at the same time. Therefore, they must agree a time to attack collectively. However, communication channels are insecure and messages may be intercepted by traitorous generals. Of n generals there are m traitors. The challenge is to find an algorithm that ensures a successfuly coordinated attack.

Various possibilities are considered and ruled out. In short, Lamport, Shostak, and Pease found that success was only assured when honest generals outnumbered traitors (m) by a number greater than 3m + 1 traitors. In other words, coordination or consensus is impossible to achieve if a third or more of the generals are traitors.

Incentivisation​

Second, incentivisation is built in to the tokenomics model to encourage good behaviour. Validators receive rewards in return for securing the network. Token holders can delegate CUDOS tokens to trusted Validators to also share in rewards.

Understanding rewards​

Block rewards?

Block rewards are equal to the sum of staking rewards and tx fees for a specific block.

Rewards for a block are only distributed back to Validators and Delegators when the next block begins.

Staking rewards?

Staking rewards are additional rewards provided to Validators during the early and mid-stages of the network to support the growth of the Validator ecosystem. They comprise 10% of the total token supply.

Terminology​

Bonding​

The top 100 Validators are referred to as bonded.

Bonding is the process of locking tokens to the network for a specific period of time.

Staking​

Staking is the process of locking up CUDOS tokens to the CUDOS network.

Delegating​

Delegating is the process of locking tokens to one or more Validator nodes.

Self-delegating is the process of locking tokens to your own Validator node.

info

NOTE: In practice, these terms are used interchangeably.

Validators​

Validator operators who secure the network by running Validator nodes are required to Self-delegate a minimum of 2M CUDOS in order to make it operational and receive a share of Block rewards. Validators can then perform a staking transaction to stake their node to the network. Read more

Self-delegating higher amounts of CUDOS tokens has several benefits.

  1. It increases the chances of a Validator node being selected to perform block validation.

  2. It increases rewards received in proportion to the overall amount staked on the network.

  3. It increases the chances of token holders choosing to delegate to a Validator node that has more 'skin in the game'. A higher self-delegation signifies trust and commitment to the network.

Ranking​

Validators are ranked according to the amount of tokens that have been delegated to them, including self-delegations.

At each block, the top 100 validators (who are not jailed) are said to be bonded and have the following rights:

  • To propose or sign blocks.
  • To earn block rewards.
  • To be subject to slashing.
info

Query the list of active Validators

This query shows information about all validators in the validator set.

cudo-noded query tendermint-validator-set

Staking rewards​

In order to cultivate and grow the Validator ecosystem during the early and mid-stages of the network, CUDOS has allocated 15% of funds to ensure that all Validators are rewarded for their contributions to the network.

Staking rewards occur in a single pool and are distributed as follows:

  1. Validators receive a share of rewards based on the total amount of tokens delegated to them in proportion to the total amount staked on the network.

  2. Delegators receive a share of the rewards allocated to their Validator based on the amount of their delegation in proportion to the total amount delegated to that Validator.

  3. The Block proposer receives a bonus between 3.67% and 5% of the Total Block Rewards depending on the number of validators signing that block.

  4. The Community Pool receives 20% of rewards to distribute to projects that further the aims of the ecosystem in the form of grants.

Claiming rewards​

Validators and Delegators are required to actively claim rewards by sending appropriate transactions to the blockchain.

Even as a Validator, commission is deducted from your rewards. You must explicitly add the --commission flag to withdraw your commisions as well.

info

To claim rewards only:

cudos-noded tx distribution withdraw-rewards <validator-address> --from <address>

To claim rewards and commission: 

cudos-noded tx distribution withdraw-rewards <validator-address> --from <address> --commission

By default, reward withdrawals are sent to the source address. This default can be modified with the following command:

cudos-noded tx distribution set-withdraw-addr <address> --from <address>

Jailing/Slashing​

Tokens delegated to a bonded validator can be slashed due to validator downtime, a double signing event or other bad behaviour.

Downtime event​

If a validator fails to sign 90% of blocks within a 19200-block interval (i.e. 17280 blocks), then it is jailed and the following occurs:

  1. It becomes not-bonded and begins unbonding
  2. It stops signing and proposing blocks
  3. It stops earning block rewards
  4. Its stake gets slashed by 0.01%

The validator must unjail itself as quickly as possible after an enforced 10-minute waiting period.

info

Unjailing transaction

NOTE: There is a 10-minute waiting period before a validator can unjail itself.

cudos-noded tx slashing unjail \
 --from=<key_name> \
 --chain-id=<chain_id>

Double signing event​

If a validator signs more than one block at the same height then 5% of their tokens are slashed.

This could be the case if someone duplicates their validator and tries to double their voting power.

What happens to slashed tokens?​

Slashed tokens are sent to the community pool.

Slashing

When a validator’s tokens are slashed by a certain percentage, so are its delegators.

Unbonding period​

If a validator is jailed or leaves the bonded validators set, it enters an unbonding period. A validator that has failed to get itself back into the bonded validators set within 21 days is said to be unbonded.

caution

Slashing can still occur during the unbonding period if there is evidence of bad behaviour during the period when a Validator was bonded.

Delegators​

Anyone holding CUDOS tokens can delegate tokens to one or more validator nodes of their choice. Validators and Delegators then share rewards based on the amounts they have contributed to the pool.

Validator Operators are free to set their own commission rate to charge for delegating. The commission rate can change at most by the max commission change rate once daily. However, a validator's commission rate CANNOT exceed the maximum commission rate set when the validator node was first initiated. Commission fees can be viewed under Validator details in the CUDOS Explorer.

Validator Details

Choosing a validator​

There are a number of considerations to bear in mind when deciding which validator or validators to delegate to. Check out How to choose a Validator.

info

Delegation transaction

cudos-noded tx staking delegate [destination-validator-addr] [amount] [flags]

Redelegation​

  1. A Delegator can redelegate tokens from Validator A to Validator B without incurring any penalties or extra waiting times. A redelegation maturation period now follows for 21 days.

  2. Following on from the above example, if a Delegator wishes to redelegate their tokens from Validator B to a hypothetical Validator C they must wait 21 days.

  3. Redelegation can work through the CUDOS Dashboard as well as using the CLI.

  • Connect a wallet to the CUDOS Dashboard and redelegate funds to a Validator node of choice.

  • Using cudos-noded CLI to redelegate funds.

info

Redelegation transaction

cudos-noded tx staking redelegate [src-validator-addr] [destination-validator-addr] [amount] [flags]

Undelegation​

A Delegator can choose to undelegate their tokens at any time. Tokens can be accessed following the 21 day unbonding period. During the unbonding period, the tokens are in an unbonded state and do not contribute to earning rewards or voting power.