Terra, a Tendermint-based protocol, operates through a delegated proof of stake consensus, where validators hold significant importance in the network. These validators are rewarded for verifying transactions and upholding security. Concurrently, Luna holders who opt against setting up a validator node can delegate their tokens to one or multiple validators via the Terra Station and receive staking rewards.
This article offers an overview of the Terra validators’ ecosystem, outlines various criteria for selecting validators, and compares the advantages of running a validator versus delegating Luna.
The Role of Validators in the Terra Network
While any network participant can create a validator, it necessitates specialized equipment and in-depth technical knowledge related to node deployment and maintenance. Validators operate full nodes, proposing blocks of transactions and voting on them in turn. In the Terra network, validators also contribute oracle prices and mitigate the short-term volatility of Terra’s algorithmic stablecoin pegs. They possess governance rights over the Terra treasury and can vote on governance proposals.
A validator’s total Luna delegation plus its self-delegation determine its voting power, influencing its probability of producing blocks. Presently, the Terra protocol elects block producers from the top 130 validators with the highest amount of staked Luna, though this number will eventually increase to 300 validators over time.
Validators receive block rewards, transaction fees, and seigniorage rewards, which are then distributed among delegators based on their stake. Additionally, validators receive stablecoin swap fees for transactions between Luna and any Terra currency.
Initially, it may appear that delegators hold a passive role in the Terra ecosystem. However, by delegating Luna tokens, users effectively decide which validator gains more voting power. Therefore, a responsible approach to staking, conducting research before delegating, and choosing validators meticulously is crucial.
Criteria for Evaluating Validators
The complete list of Terra validators is accessible on the Terra Station under the Staking tab.
Upon accessing this list, newly added validators are prominently marked as “NEW” to encourage user assessment. By default, validators are sorted by delegation return, showcasing those with the highest return first.
Each column in the table represents different criteria, such as voting power, self-delegation, validator commission, delegation return, and uptime. Clicking on these indicators allows for sorting the validators accordingly to commence the assessment process.
Voting Power
The voting power indicates the cumulative amount of Luna staked with a given validator. However, this metric neither reflects the quality of a validator’s services for users nor impacts the returns. There are several reasons for variations in voting power among validators. For instance, some might have received genesis delegation rewards from Terraform Labs for supporting the network from its inception, contributing to ecosystem tools, or sharing knowledge. Moreover, Terra investors among validators may also delegate to themselves, while whitelisted validators for Anchor protocol see their voting power grow with the bonded Luna’s increase.
Voting power primarily signals decentralization but does not rate validators. To support decentralization, delegators are encouraged to diversify their stake among several validators and delegate to those with less voting power. Notably, users delegating solely to the top 5 validators by voting power will not receive Nedula protocol airdrops. More details on this can be found in an article about decentralization in Terra.
Self-Delegation
Self-delegation represents the percentage of staked Luna belonging to a selected validator. This metric assists in assessing a validator’s investment and depth of involvement in the chain. However, this percentage might be misleading as validators may also self-delegate from another address. To gain better insight into the token distribution among different addresses delegated to the validator, visit its page and review the Delegators tab.
Validator Commission
Validator commission is another metric displayed on the Terra Station. A few validators have a 100% commission, signifying that their delegators receive rewards solely from airdrops. Conversely, most validators on the Terra Station maintain a commission rate of 20% or lower.
It’s important to note that the validator commission is a percentage of block rewards, not based on the amount of delegated Luna. For instance, when staking 100 Luna with a 12% annual delegation return and a 10% validator commission, the final reward would be 12–12 * 0.1 = 10.8 LUNA. In this scenario, the validator earns 1.2 Luna.
Additionally, some validators maintain a 0% commission. While it might seem enticing to delegate to them, low commissions might be temporary for promotional reasons. New validators often start with a zero-commission rate to attract delegators but might eventually increase commissions to cover expenses and generate profits. Ultimately, sustaining low commissions discourages high-quality validators and encourages suboptimal infrastructure.
Validator commission significantly impacts user rewards, warranting careful consideration before delegating. On the validator’s page, users can review two relevant indicators: max commission rate and max daily commission change, illustrating the maximum commission the validator can set and how swiftly it can reach this rate.
Delegation Return
This metric reveals the delegation return over the last 30 days for each validator, determined by transaction fees, Luna token prices, and validator performance. It is an essential criterion when choosing a validator.
Uptime
Uptime indicates the validator’s operational stability. Higher uptime ensures that the validator remains online, reducing the risk of missed rewards.
This is a crucial indicator to consider when making a selection.
Delegate to Reliable Validators
While the above criteria help narrow down the validator selection, the choices remain extensive. The subsequent step involves evaluating validators’ reliability.
This criterion is among the most crucial, determining whether one’s tokens remain safe and their stake remains unharmed. Misbehavior by validators results in penalties, impacting both the validator and their stakers. For instance, significant downtime or non-participation in the oracle process incurs a 0.01% slash. Double signing, however, faces a more severe 5% slash.
Upon visiting the Terra Station, users might notice some validators have checkmarks next to their names while others do not.
This distinction doesn’t imply that validators with checkmarks are more reliable or verified than those without. Instead, it indicates their presence in Terra’s validator directory.
Within a validator’s profile, delegators can find additional information and links to websites or social media accounts. To access this profile, visit the validator’s page and click the “View profile on Terra Validators” badge.
An alternative way to access the full list of validators is through Terra’s explorer.
Through thorough research, delegators can grasp validators’ backgrounds and gain a comprehensive understanding of Terra’s ecosystem. Some validators in Terra are renowned professional staking service providers operating across multiple chains. Examples include Chorus One, Everstake, Figment, P2P Validator, and Staked. Users can review the number of delegators and total assets staked with them on the Staking rewards website, gaining insight into the trustworthiness of these service providers within the market.
Other validators in Terra comprise community members or investors. When selecting a validator to delegate Luna, users may consider their contributions to the community. While this doesn’t directly impact stakes or rewards, knowing that a validator actively engages in ecosystem development can be reassuring. For instance, DSRV — CHAISCAN.com has developed a popular analytical dashboard for CHAI, an e-wallet for Terra stablecoin payments in South Korea, and a dashboard displaying LUNA whales delegations. Smart Stake is renowned for its Luna delegators’ dashboard, providing information on upcoming airdrops and Terra ecosystem projects. Terra Bites hosts an insightful Terra podcast and shares news on their Youtube channel, while Orbital Command offers daily updates about Terra on a dedicated Telegram channel and conducts tutorial sessions for new users.
Several validators create informative guides for Terra delegators and educational content. Therefore, it’s vital to check their websites and social media channels. Equally important is whether a validator offers support channels where users can seek assistance for any queries or issues.
Becoming a Validator
Suppose you aspire to become a validator in the Terra ecosystem. In that case, the first step is to weigh the advantages and disadvantages.
While running a full node on Terra yields higher rewards, it demands additional investments in hardware, infrastructure, and substantial technical expertise. To estimate approximate costs, explore the Staking topic on the Terra research forum, where existing validators share insights into their expenses.
Thoroughly read the information in the Validator Guide and Validator FAQ to understand the requirements. If you decide to become a validator, a step-by-step guide on setting up a Terra (LUNA) validator node might be beneficial. Additionally, some validators on Terra Station offer assistance to new validators. For instance, Bison Trails provides ready infrastructure solutions for Terra validator operations, while PFC Validator offers useful scripts for node setup and operation.
Conclusion
While validators play a pivotal role in ensuring security within the Terra ecosystem, the delegation mechanism enables everyone to support the network and earn rewards by staking Luna tokens on Terra Station. Since Luna is a fundamental asset in the Terra blockchain, staking Luna constitutes a long-term investment in the ecosystem’s growth.
If you found this article helpful, sharing it on your social media channels can help others discover this information.
