NEAR Token Economics

An overview of NEAR’s consensus method, validator rewards, stake distribution, and participation incentives.

NEAR Token Economics

Jun 12 2020 By Bison Trails

NEAR—a sharded Proof-of-Stake blockchain—aims to be accessible to a wide audience by emphasizing intuitive user experiences and focusing on scalability. As a decentralized community-run cloud computing and storage platform, NEAR is designed to foster the growth of the open web of the future.

Read our guide to NEAR to learn more about NEAR’s innovations and why we’re excited to support NEAR on the Bison Trails platform.

Token Types NEAR token = Ⓝ
Total Initial Supply 1 billion
Total Planned Inflation Infinite
Maximum Token Supply Infinite
Token Price at Sale $0.32
Inflation 5% of total supply
4.5% for validators
Expected Staking Rate 40%
Expected Rate of Reward 12.50% overall
11.25% for validators
Target staking rate There is no target staking rate. Inflation does not change based on the staking rate.
Maximum Stake No maximum
Minimum Stake Active set changes on an ongoing basis
Unbonding Period 3 epochs (1.5 days)
Reward re-invested method Rewards continuously compound every epoch. No action needed.
Reward payment frequency Every epoch (12 hours)

What is NEAR’s consensus method?

NEAR created their own PoS block production and consensus mechanism called Doomslug. This mechanism allows the network to function in highly adversarial conditions by separating block production from finality. A block that contains endorsements from more than half of the validators in the active set (“block producers”) will eventually be created, meaning the algorithm never stalls.

Each epoch on NEAR has its own active set requirement. The active set is made up of a number of available seats, currently 100. The seats do not have a one-to-one correlation with the number of validators in the set. Validators with large stakes can occupy more than one seat in the active set.

A seat price is determined to elect validators to the active set. This price is calculated by dividing the total stake by the number of available seats. A validator cannot join the active set if its stake is less than the seat price, even if there are “open” seats available (e.g. there are 100 seats, but only 50 validators take all 100). Those validators then become “fishermen,” an observation node that detects and reports bad behavior.

Validators in the active set are responsible for validating blocks and are assigned to produce blocks on a fixed schedule. The validator responsible for producing a block at height h is called the "block proposer" at h. If the validator fails to produce a block when it is their turn, the protocol stalls briefly until the next block producer’s turn. A single missed block does not result in a penalty.

How are validators rewarded for their work?

As a group, validators receive 90% of the approximately 5% of total annualized inflation. (The other 10% goes to the Protocol Treasury.) Therefore, in the first year, validators will receive around 45,000,000 Ⓝ as rewards.

Validators receive rewards based on their participation in the network. At the end of every epoch (12 hours), a validator is evaluated based upon the number of blocks and chunks they actually produced versus the number they were expected to produce. If the real number of blocks produced is less than 90% of what’s expected (~ 1h12m of downtime per epoch), the validator is considered to be offline/unstable, won’t get any rewards, and will be removed from the coming epoch’s active set. Validators that are at least 90% online will receive rewards; these rewards increase linearly, with validators with a 99% or greater online presence receiving 100% of the expected rewards (<7.2 minutes of downtime per epoch).

With 100 seats, a validator occupying one seat will receive ~615 Ⓝ per epoch if they are up 99% of the epoch. If their uptime is closer to 95%, they will receive 55% of their reward, ~342 Ⓝ.

All transaction fees (except the portion allocated to the smart contracts) collected within each epoch are burned by the system. Participatory rewards are paid out to validators at the same rate regardless of the amount of fees collected or burned. Therefore, system-wide inflation is reduced by an amount proportional to the amount of fees paid to the system and, should network usage fees exceed the system-wide inflation rate, the system will become deflationary.

A table of the expected inflation per day given different numbers of transactions. Source

Because 1 billion transactions per day is orders of magnitude greater than what is experienced on any blockchain today, we don’t expect an inflation rate significantly below 5% for many years.

How should stake be distributed?

On NEAR, there is no maximum number of tokens per validator, no bond requirement, and no maximum portion of tokens that can be staked; the minimum stake is determined by the active set. As long as the tokens on a validator are above this minimum threshold, it will be elected to at least one seat in the active set. All validators—no matter how many seats they occupy—will earn inflation of 4.5% a year on their total up and active tokens.

The NEAR team expects a seat price of 1 to 4m NEAR tokens at mainnet launch. When they add a second shard and the number of available seats increases to 200, we would expect the seat price to lower by half.

How does NEAR delegation work?

Validators must deploy a smart contract in front of their validator in order to pool delegations from token holders. At the time of deployment, a validator can set a fee that serves as a commission on the rewards earned by the delegators. This fee can be changed at any time; changes take effect in the next epoch.

How are rewards distributed to validators?

Rewards are distributed every epoch; approximately 61,640 Ⓝ will be allocated between validators.

All rewards (from staked and delegated tokens) are automatically re-staked at the end of each epoch unless they are withdrawn by the owner. Allowing them to remain staked to the validator compounds the rewards earned and increases the validator's participation in the network.

Why should I run a node on day one?

NEAR’s Mainnet is currently running as a Proof-of-Authority network but is planning to transition to a Restricted Mainnet sometime in July or August, 2020. If you are a NEAR token holder, you can begin running a validator at that time. Although there is no inflation during the Restricted stage, the NEAR team will be awarding stipends of 10,000 Ⓝ tokens per month for those who participate.

During the Restricted stage, validators will vote to progress to the next, community-governed stage. Only validators will be able to vote at that time; the validator will vote on behalf of their own stake as well as those who delegate to them. The voting power of the validator continues to be magnified in the community stage by having the additional delegated tokens on the validator.

As NEAR develops and introduces new shards, the network will become more reliant on high-quality validators, as they are distributed among the different shards. Having too few validators in the network will create performance vulnerabilities.

What risks do validators face when staking NEAR tokens?

At launch, there is no slashing; the network will operate with an honest supermajority assumption (i.e. 67%+ of the sake is assumed to be honest). Slash conditions will be added at a later time through normal governance procedures.

Two key types of malicious behavior that will trigger slashing: double signing and invalid chunks. Double signing is not inherently malicious on a Proof of Stake network. Non-malicious actors might double sign due to a misconfiguration or issue with their software. Malicious actors might double sign because they are attempting to execute a reorganization of the chain in order to revert transactions and allow them to “double spend.” Signing invalid chunks is only possible when a node acts maliciously.

NEAR will use “progressive slashing” to prevent accidental slashing. This process creates the condition that a single validator double signing results in a smaller percentage of their stake being slashed than if several validators double signed during the same epoch. The portion of stake slashed is a multiple of the percentage of total stake that exhibited double signing behavior on all validators.

Assume a validator has 1% of total tokens (500,000 NEAR) staked in an epoch (50,000,000 NEAR).

  • If that validator is the only one to double sign in that epoch, the validator loses 3% of their stake. 485,000 NEAR will be returned to them. 15,0000 NEAR will be burned.
  • If 33% of the validators exhibit double signing behavior, the entire stake of all the validators will be slashed.

Validators that sign invalid chunks will have their full stake slashed.

Downtime is not punished with slashing. However, validators that do not produce a minimum amount to chunks and blocks in an epoch will be removed from the active set and lose rewards for that epoch.

Why choose to run NEAR nodes on the Bison Trails platform?

  • Bison Trails has been working with the NEAR team since March 2019. As active participants in their first incentivized testnet (Stake Wars), we provided feedback and recommendations for improvements to the network.
  • In preparation for a reboot of their incentivized testnet, we worked with the NEAR team to improve their internal processes and system designs. In particular, we connected them with other experienced protocol teams to learn and adapt their methodologies.
  • Our engineering team also consulted with NEAR about network upgrade processes and our experience with other protocols: what has worked well, what methods we’ve seen, how we test upgrades, how we roll them out, and so on.
  • In addition, we are one of the six founding members of the NEAR Validator Advisory Board (NVAB). This group of professional validators is engaged in group discussions, product advice and feedback, testing beta releases, and suggesting features on NEAR Protocol.

Learn more

  • Read our guide to NEAR to learn more about NEAR’s innovations and why we’re excited to support NEAR on the Bison Trails platform.

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