Rewards

Node Rewards and Distribution to Delegators

There are two categories of validator rewards:

1. Base rewards, i.e. newly minted CORE tokens;

2. Fees collected from transactions in each block;

Base rewards are calculated and distributed when the last block of a round is mined. Currently, 90% of the rewards go to the validators and 10% of the rewards go to the System Reward Contract (more on this contract in the next section). Of the 90% paid to validators, some percentage is taken as a commission by the validator before they pay out their delegates. Each validator has an equal probability of producing blocks, so in the long run, all stable validators should get a similar portion of the reward.

Validators share rewards with the entities that delegated to them – including CORE stakers, bitcoin stakers, and PoW delegators – but they decide how much to give back by deciding how much they (the validators) choose to keep for themselves. Validators can take as much or as little of the reward as they want, though they’re incentivized to be generous in order to attract more stake and hash power.

After the validators take their fees, the protocol uses this function to determine how the remaining rewards are split between CORE stakers, BTC stakers, and hash power delegators. Reward distribution is calculated like so:

$$\begin{align*} \mathrm{rH} &= \frac{\mathrm{rHp}}{\mathrm{tHp}} * \frac{\mathrm{m}}{\mathrm{S}} * \mathrm{R} \end{align*}$$

$$\begin{align*} \mathrm{rS} &= \frac{\mathrm{rSp}}{\mathrm{(tSp+tBp*n)}} * \frac{\mathrm{(1 - m)}}{\mathrm{S}} * \mathrm{R} \end{align*}$$

$$\begin{align*} \mathrm{rB} &= \frac{\mathrm{(rBp*n)}}{\mathrm{(tSp+tBp*n)}}*\frac{\mathrm{(1-m)}}{\mathrm{S*R}} \end{align*}$$

Where:

• rH is the rewards received by the validator because of the hash power delegated to it (DPoW);

• rS is the rewards received by the validator because of the CORE delegated to it (DPoS);

• rB is validator rewards attributed to BTC staking;

• R is the overall rewards attributed to all delegators;

For completeness, here are three other ratios of interest:

$$\begin{align*} \mathrm{rHu} = \frac{\mathrm{rH}}{\mathrm{rHp}} \\ \mathrm{rSu} = \frac{\mathrm{rS}}{\mathrm{rSp}} \\ \mathrm{rBu} = \frac{\mathrm{rB}}{\mathrm{rBp}} \end{align*}​​$$

Where:

• rHu is the validator hash power rewards per unit;

• rSu is the CORE token staking rewards per unit;

• rBu is the BTC staking rewards per unit;

These reward-splitting functions are designed to create an active market for rewards while encouraging competition amongst the validator set for both delegated hash power and delegated stake. For their part, delegators will try to optimize their own rewards by choosing validators with lower amounts of delegated hash power and stake [10].

In Appendix B, you’ll find two worked-out examples of Core Chain’s rewards mechanics under different assumptions.

Relayer and Verifier Rewards

Now that validator rewards have been covered, let’s talk about how relayers and verifiers are remunerated.

Above, we mentioned that base rewards are calculated and distributed when the last block of a round is mined, with 90% going to the validators and 10% to the System Rewards Contract. The System Reward Contract accumulates rewards to remunerate relayers and verifiers. As things stand, there is a cap of 10 million total CORE tokens in the System Reward Contract. Any rewards in excess of this amount are burned.

Recall that relayers are responsible for communicating the Bitcoin block headers to the Core network. They earn a portion of the base system rewards and transaction fees for this cross-chain communications work. Relayer rewards are distributed in batches, every 100 Bitcoin blocks. Relayers claim their rewards periodically.

Recall that verifiers monitor the behavior of validators and report them if they engage in double signing or other malicious activity. When successful, rewards are paid out immediately from the System Rewards Contract, in the same transaction.

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[10] To maximize their rewards, delegators will look both for validators that are generous in their payouts, but also don’t already have a substantial amount of delegated CORE tokens or delegated PoW. The less a given validator has staked, the greater a contribution from a delegator will be. If a delegator adds one CORE token to a validator that only has one token, they’re 50% of that validator’s total delegation. If they delegate to a validator with 99 CORE tokens, they’re only 1% of that validator’s total delegation. Since payouts are determined in part based on the percentage of total stake each delegator accounts for, they’ll be incentivized to try and find validators with small delegations.