protocols

Polkadot Token Economics

An overview of validator rewards and how Polkadot token holders are incentivized to participate in the earliest days of the network

Bison Trails
Polkadot Token Economics

May 10 2020 By Bison Trails

Polkadot—a scalable heterogeneous multi-chain platform that connects blockchains—enables new developers to build blockchains that trustlessly communicate in a secure environment.

In order to solve the scalability and interoperability challenges facing many blockchains, Polkadot creates a sharded ecosystem that includes a main relay chain and individual parachains (shards). The relay chain is responsible for achieving consensus and transaction delivery (message passing) among parachains. Early testing suggests that Polkadot, when multi-threading and parachains are included, could reach as high as 1,000,000 transactions per second.

Token Types DOT
Total Initial Supply 10 million
Total Planned Inflation Unlimited
Maximum Token Supply 10 million minted + inflation
Inflation Rate Dependent upon the staking rate in the network, but maxes out at 10% as the staking ratio approaches 50%
Maximum Stake No maximum
Minimum Stake No minimum
Unbonding / Undelegating period 28 days


What is Polkadot’s consensus method?

Polkadot uses Nominated Proof of Stake (NPoS) as its consensus method. There is a known and limited number of validators in the active set and this active set number is decided by governance. Inclusion in the active set is determined by your total self-bonded and delegated stake. The minimum stake to get in the active set varies daily and depends upon the number of validators attempting to be included and the amount of stake on each. In a NPoS system, each elected validator has equal say in consensus.


How are validators rewarded for their work?


Polkadot validator reward scenarios

Once included in the active set, every validator has equal voting powers and gets equal rewards. For example, if there are two validators, one with 15k DOTs and another with 100k DOTs, assuming both are in the active set, they will receive equal rewards on an annual basis.

Because of this equitable distribution of rewards, it is preferable for a DOT holder to distribute their stake and run multiple validators. Optimizing your participation on Polkadot, or any NPoS network, requires more active management than other PoS networks.


How should stake be distributed?

On Polkadot, there is no minimum self-bond to run a validator. It is possible to meet the minimum stake necessary to be elected to the active set with almost 100% nominated DOTs. The goal is to get in the active set without being significantly higher than the minimum. As such, many validators maintain a low self-bond and delegate to themselves with the majority of their DOTs from a separate account. This set up allows them to remain flexible and distribute their stake as the minimum for election to the active set changes.


How are rewards distributed to validators and their nominators?

Every validator in the active set receives the same amount of DOTs for equal work. They then take a validator fee (a percentage commission) before distributing the remaining rewards to their nominators (delegators to the validator) and the validator’s self-bonded stake on a pro-rata basis. All rewards are distributed automatically on-chain.


Why should I run a node on day one?

Polkadot employs a nonlinear model to set inflation upon mainnet launch. Those staking in the early days will see steadily increasing inflation until 50% of the supply is staked. This model is a significant incentive for token holders to participate in the earliest, most critical days of the network.

The blue line is the rate of inflation in the network and the green line is the rate of reward (the inflation divided by the staking rate):


What risks do validators and nominators face when staking DOT?

Validators can be slashed for misbehavior (e.g. being offline, equivocation). The slashed amount is a fixed percentage. A validator with more stake gets slashed more total DOTs. Since rewards are evenly distributed among validators elected to the consensus group, there is no economic advantage in staking more DOTs than required to be in the active set. In fact, staking excess DOTs increases the loss in the event of slashing.

In general, Polkadot slashing is based on security threat levels:

Threat Level Slashable Behavior Max % Slashed
Level 1 Low security threats such as isolated cases of unresponsiveness 0.1% (or kicking the validator out of the active set)
Level 2 Misconduct that occurs in good faith but is due to bad practices 1%
Level 3 Misconduct unlikely to happen in good faith or by accident, but does not lead to serious security risks or resource use 10%
Level 4 Misconduct that a) poses a serious security risk to the system, b) shows large levels of collusion among validators, and/or c) forces the system to spend a large amount of resources to deal with them 100%

Why Choose to Run Polkadot Nodes on the Bison Trails Platform?

By design, Polkadot requires more active node management than PoS networks. We make it easy for anyone to run reliable, automated, and decentralized Polkadot validating nodes that strengthen and secure the network.

Bison Trails is uniquely positioned to provide unparalleled enterprise-grade node infrastructure for Polkadot validators:

  1. Automatic Scaling: Unlike many other infrastructure providers, the Bison Trails platform allows for automatic scaling of validators per account, distributing a customer’s stake to maximize their presence in the elected validator set. Because our platform optimizes infrastructure to meet our customers’ needs automatically, we greatly reduce the risk that comes with doing this critical work manually.
  2. Enterprise-Grade Infrastructure Security: By ensuring our customers’ stake is distributed across as many nodes as possible, we reduce the risk of unnecessary slashing losses.
  3. Easy-to-Use Platform: We designed an intuitive user experience that is surprisingly simple given the complexity of the underlying technology. Our platform’s automatic node management workflow frees our customers from the worry of constantly checking or managing their active participation. We also keep our customers in full control.
  4. Protocol Experts: We’re node, participatory infrastructure, and protocol experts: we run validators across all major Substrate-based chains, cross-leveraging optimizations and security practices. We test all software, infrastructure, and protocol upgrades on our own infrastructure ensuring any breaking issues are caught well before propagating changes to our customers’ infrastructure.
  5. Access to Protocol Specialists: Our dedicated protocol specialists keep Bison Trails’ customers up-to-date on on-chain governance votes and changes in the validator ecosystem. They provide advice, insights, and guidance that arms our customers with critical information to better manage their participation.
  6. Premium Provider: We are the world’s premier multi-cloud, multi-region infrastructure provider specializing in permissionless participatory networks.
  7. Proprietary Double Signing Protection: By mainnet launch, we’ll be introducing another innovation in blockchain technology: double-signing protective software to ensure we never double-sign a block. (More on this release soon!)
  8. Custodian Agnostic: As a non-custodial infrastructure provider, we can work with you to participate in Polkadot regardless of your custody solution. (Learn more about our integration with Coinbase Custody to enable secure Polkadot staking)

Bison Trails: Pioneering Blockchain Infrastructure™

Bison Trails is an Infrastructure-as-a-Service company, based in New York City, specifically focused on blockchain participation. We’ve built a platform for anyone who wants to participate in new chains effortlessly (e.g. by running Cosmos Validators, Tezos Bakers, and Libra Validators, etc.)—without having to invest time and resources into developing any of the engineering, protocol, dev ops, or security competencies in-house. Our goal is for the entire blockchain ecosystem to flourish by providing robust infrastructure for the pioneers of tomorrow.

Contact us to learn more about our enterprise-grade blockchain infrastructure, running Polkadot nodes on the Bison Trails platform or Polkadot staking.


Learn More:

  1. Bison Trails Announces Support for Polkadot / Feb 26 2020
  2. Bison Trails Announces Collaboration with Coinbase Custody to Enable Secure Polkadot Staking / Apr 14 2020
  3. How we minimize the risk of slashing / Oct 31 2019