As the Cosmos network gets closer to launch, a key question is how the Atom delegation system for Validators will work. What percentage of Atoms will be delegated? Will there be the maximum of 100 active Validators? How will the commission rates be set? Where will Validators be geographically located?
These questions will largely be driven by the Atom delegators, who will stake their tokens with one or more Validators. In exchange for picking Validators, delegators have the ability to earn a percentage of network transaction fees and also receive additional Atoms from continuous inflation called block provisions. However, staking with a Validator carries the risk of losing Atoms via slashing from things like a Validator going offline, double signing transactions, or failing to vote on governance proposals.
If an Atom token holder chooses not delegate to a Validator, they will not receive a percentage of network transaction fees nor block provisions, and their percentage of total Atoms will decrease over time from inflation.
When evaluating Validators to stake with, you can think about three distinct buckets of questions: missed earnings, slashings, and commission rate.
With missed earnings, you don’t lose any money but you don’t make as much as you could.
With slashings, you lose money.
With commission rate, you receive more or less from the Validator.
To help answer these questions and figure out hypothetical delegator returns, we created a spreadsheet model of how we think the Cosmos system operates and the costs of running a Validator. This is not an official spreadsheet and it could be wrong. The Input numbers are uneducated wild guesses and not indicative of anything.
Things may change over time and assumptions will need to be updated, but we think this is a good starting point for the discussion about what commission rates are required for Validators to create a sustainable long-term operating business that avoids missed earnings and avoids slashings.
If you’d like to study more about Cosmos Validator operations and analytics, we created a tool called Hubble to help. You can track historical performance and also sign up to receive alerts for multiple Validators.
If you’d like to learn more about the Figment Validator and our unique approach, please email at firstname.lastname@example.org