Terra Validators Overview

Fynn
7 min readJul 5, 2021

Terra is built on the Tendermint consensus engine, deploying BFT Delegated Proof-of-Stake (PoS) validation by an ecosystem of validators that stake LUNA to propose blocks, submit oracle prices, and absorb the short-term volatility of Terra’s algorithmic stablecoin pegs. Today we will take a deeper dive into what validator to choose, how to become a validator, and everything you need to know about validators on Terra.

Validator selection:

Currently, there are over 100 active validators on Terra. But which one should you choose? There are some key factors that come into play when choosing a validator, such as delegation returns, voting power, commission, uptime, and self delegation.

Delegation return:

Delegation return is the APR you get from staking your Luna to a validator. These rewards are compensated in various different terra stable coins, such as KRT, UST, SDT, MNT, as well as Luna itself, thus incentivizing people to stake. Staking returns are based on transaction fees so you will see the return often fluctuate.

Here are some Staking return statistics from genesis. As you can see, the current APR is 11.45% per year
Staking rewards consist of Terra coins, stable and native

Voting Power:

Voting power is a metric used by the Terra ecosystem to describe the percentage of staked Luna delegated towards a validator. It is important to be aware of voting power because your chosen validator can use your Luna to vote on proposals on your behalf. Looking at the overview of the Terra ecosystem, we see that the majority of the voting power is concentrated among the top 10 validators. With just over 100 validators in the entire ecosystem, over 50% of the total voting power is held among the top 10. It is of utmost importance to make sure that no one validator has too much power, thus keeping the voting process as decentralized as possible.

One example is Orion.Money. Orion released that they would be having an extra airdrop for those who delegated their Luna to them. This brought a lot of people to Orion and it is currently ranked 2nd by voting power, forcing those who are delegated to them to make a decision between the Nebula airdrop and an extra Orion airdrop. More incentivized staking opportunities are being released. Many solutions to the decentralization of validators are currently being discussed.
Here we see the top 13 validators by voting power

When evaluating terra validators, we can often times see that validators with the most voting power have done so through Anchor, self-delegation, airdrop incentives, and low commissions, but solutions are being made…

Here we see Do Kwon stating that Stake decentralization is very important. Anyone staking to the top 5 validators will not receive Nebula airdrops

Commission:

Validator commission is the percentage commission that the validator takes in from the staked Luna. Some projects use validator commission to fund their project, others use the commission for fees and validator costs. It isn't always the best idea to find the validator with 0% or the lowest commission, it is also vital to take all of the other factors into account.

Here we see Marte Cloud. There is currently a 1% commission, but this is nothing to be afraid about. There are server costs when running a validator. Sometimes the commission is used to cover the costs and other expenses.
However, some validators have 0% commission, meaning that you as a delegator get all of the returns.

Uptime:

Uptime is a metric used by Terra to show the time that validators are online. 100% uptime is what you should be looking for. High 90s % is also not too bad. Overall, when looking for a validator, validator uptime should be around 100% to ensure it is always active.

Here we see SolidStake. In the last 10k blocks, SolidStake has had 100% uptime.

Self-Delegation:

Self delegation is the amount of Luna that the validator has staked with itself.

This is hashed. As you can see, hashed contributes to almost 80% of the entire validators stake with 11 million Luna delegated to itself.
Other validators like Orion only have 5 Luna Self-delegated because they prefer to delegate their Luna from other wallets. The Orion founder, Sam, has stated that he has delegated a large sum of Luna to Orion

It is important to analyze Self delegation because if a validator delegates a lot of Luna to their validator, it often shows that they believe in it and will try their best not to get slashed. If a company/person has delegated millions of dollars worth of Luna into their own validator, we can infer that they will hopefully try their best to keep the validator running smoothly. So this is also something to take into account when choosing a validator.

Slashing:

Validators that underperform get slashed. I’m unaware of the threshold, but if a validator isn’t signing x percentage of the block out of the last 10,000, they get slashed for downtime and they can be jailed. When a validator is jailed, everybody staking with them loses about 0.01% of the stake. So be very careful when choosing a validator. Make sure your Luna is safe. Always choose a reliable validator. I recommend researching your validator. (visiting their website, following them on socials, and being able to contact them for any questions or concerns)

If a validator misbehaves, its bonded stake along with its delegators’ stake and will be slashed. The severity of the punishment depends on the type of fault. There are 3 main faults that can result in slashing of funds for a validator and its delegators:

  • Double-signing: If someone reports on chain A that a validator signed two blocks at the same height on chain A and chain B, and if chain A and chain B share a common ancestor, then this validator will get slashed on chain A.
  • Unavailability: If a validator’s signature has not been included in the last X blocks, the validator will get slashed by a marginal amount proportional to X. If X is above a certain limit Y, then the validator will get unbonded.
  • Non-voting: If a validator did not vote on a proposal, its stake will receive a minor slash.

Note that even if a validator does not intentionally misbehave, it can still be slashed if its node crashes, loses connectivity, gets DDoSed, or if its private key is compromised

How to become a validator:

If you want to set up a validator of your own, here is how…

What do you have to do?

  1. Machine Setup
  2. Sync the Node
  3. Register as a Validator
  4. Setup the Oracle

For space and time purposes, I will not be taking a deep dive into creating a validator node but if you are looking to set up your own validator, I recommend you take a look at the medium article above, where Christian Lanz takes a deeper dive into how to set up a Terra Validator node. Link to Chris’ article

Some more info on Terra validators:

Where do the rewards come from?

  • Compute fees: To prevent spamming, validators may set minimum gas fees for transactions to be included in their mempool. At the end of every block, the compute fees are disbursed to the participating validators pro-rata to stake.
  • Stability fees: To stabilize the value of Luna, the protocol charges a small percentage transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. This is paid in any Terra currency, and is disbursed pro-rata to stake at the end of every block in TerraSDR.
  • Seigniorage rewards: Validators that participate in the Exchange Rate Oracle get a portion of seigniorage if they faithfully report and win the ballot (vote within the reward band around the weighted median).
  • Swap fees: A small spread is charged on atomic swap transactions between Luna and any Terra currency, which is burned and creates scarcity in Luna and indirectly rewards validators.

Note that validators can set commission on the fees their delegators receive as an additional incentive.

If validators double sign, are frequently offline, or do not participate in governance, their staked Luna (including Luna of users that delegated to them) can be slashed. The penalty depends on the severity of the violation.

Oracle Feeder:

Every validator is required to participate in the Oracle process, which involves periodically submitting a vote for the current exchange rate of Luna. Because these ballots are held very frequently, you will need to set up a program (called a feeder) to automatically submit votes. Failure to set one up will lead to downtime and missed votes, which past certain threshold results in delegated stake getting slashed and your validator temporarily jailed.

How to stake Luna:

  • Create your terra station wallet- Visit Terra’s website and download the latest version of the Terra Station. https://terra.money/
  • Deposit $LUNA into your wallet- whether it be from an exchange or from another Terra wallet, you have to have Luna in your Terra station wallet to be able to stake.
  • Choose validator- keep everything I have said above in mind
  • Delegate- Select a validator and click the “Delegate” button. Enter how much you want to delegate and you are all set! Some people like to go all-in with a top validator, and some like to diversify. It all depends on personal preference
  • Watch rewards come in- Once you’ve delegated, your Staking tab will update to show your portfolio. You can easily check how much in rewards you’ve stacked up. You can also withdraw your rewards at any time.
  • Undelegating- Select the delegator you want to undelegate from and tap the “Undelegate” button. Once you send this transaction, your Luna will remain locked and unstaked for 21 days. After the lockup period, your Luna will once again be fully available to you
  • Redelegating- Redelegating from one validator to another is just as simple as delegating. Select the new validator you’d like to delegate to, and tap “Delegate”. You can easily re-allocate your stake without having to wait 21 days to unbond by changing the “Source” of Luna.

Conclusion:

Terra is a quickly growing ecosystem.

If you are delegating Luna, be aware of the risks and make sure to consider the abovesaid factors.

This Report/Article is for informational purposes only! Nothing here is financial advice. Always make sure to do your own research and be aware that anything you invest in is your choice and is at your own risk. Be aware.

If you find value in my articles and reports it would be very much appreciated if you left a donation! Here is the address:
terra14zspjxtgtd60pnz82w727804netllqatc662ju

-Fynn

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