State-validation protocol-based rewards

Validator-clients have two functional roles in the Solana network

  • Validate (vote) the current global state of that PoH along with any Proofs-of-Replication (see Replication Client Economics) that they are eligible to validate

  • Be elected as ‘leader’ on a stake-weighted round-robin schedule during which time they are responsible for collecting outstanding transactions and Proofs-of-Replication and incorporating them into the PoH, thus updating the global state of the network and providing chain continuity.

Validator-client rewards for these services are to be distributed at the end of each Solana epoch. Compensation for validator-clients is provided via a protocol-based annual interest rate dispersed in proportion to the stake-weight of each validator (see below) along with leader-claimed transaction fees available during each leader rotation. I.e. during the time a given validator-client is elected as leader, it has the opportunity to keep a portion of each non-PoRep transaction fee, less a protocol-specified amount that is returned to the mining pool (see Validation-client State Transaction Fees). PoRep transaction fees are not collected directly by the leader client but pooled and returned to the validator set in proportion to the number of successfully validated PoReps. (see Replication-client Transaction Fees)

The protocol-based annual interest-rate (%) per epoch to be distributed to validation-clients is to be a function of:

  • the current fraction of staked SOLs out of the current total circulating supply,

  • the global time since the genesis block instantiation

  • the up-time/participation [% of available slots/blocks that validator had opportunity to vote on?] of a given validator over the previous epoch.

The first two factors are protocol parameters only (i.e. independent of validator behavior in a given epoch) and describe a global validation reward schedule designed to both incentivize early participation and optimal security in the network. This schedule sets a maximum annual validator-client interest rate per epoch.

At any given point in time, this interest rate is pegged to a defined value given a specific % staked SOL out of the circulating supply (e.g. 10% interest rate when 66% of circulating SOL is staked). The interest rate adjusts as the square-root [TBD] of the % staked, leading to higher validation-client interest rates as the % staked drops below the targeted goal, thus incentivizing more participation leading to more security in the network. An example of such a schedule, for a specified point in time (e.g. network launch) is shown in Table 1.

Percentage circulating supply staked [%] Annual validator-client interest rate [%]
5 13.87
15 13.31
25 12.73
35 12.12
45 11.48
55 10.80
66 10.00
75 9.29
85 8.44

Table 1: Example interest rate schedule based on % SOL staked out of circulating supply. In this case, interest rates are fixed at 10% for 66% of staked circulating supply

Over time, the interest rate, at any network staked percentage, will drop as described by an algorithmic schedule. Validation-client interest rates are designed to be higher in the early days of the network to incentivize participation and jumpstart the network economy. This mining-pool provided interest rate will reduce over time until a network-chosen baseline value is reached. This is a fixed, long-term, interest rate to be provided to validator-clients. This value does not represent the total interest available to validator-clients as transaction fees for both state-validation and ledger storage replication (PoReps) are not accounted for here. A validation-client interest rate schedule as a function of % network staked and time is shown in** Figure 2**.


Figure 2: In this example schedule, the annual interest rate [%] reduces at around 16.7% per year, until it reaches the long-term, fixed, 4% rate.

This epoch-specific protocol-defined interest rate sets an upper limit of protocol-generated annual interest rate (not absolute total interest rate) possible to be delivered to any validator-client per epoch. The distributed interest rate per epoch is then discounted from this value based on the participation of the validator-client during the previous epoch. Each epoch is comprised of XXX slots. The protocol-defined interest rate is then discounted by the log [TBD] of the % of slots a given validator submitted a vote on a PoH branch during that epoch, see Figure XX