Here's what happens when you stake your Sui
This post will provide a high-level, non-technical introduction to staking SUI tokens.
For a more detailed explanation, please reference the Sui Staking FAQ and Sui Tokenomics white paper provided by the Mysten Labs team. While every effort has been made to make the information presented in this post consistent with the FAQ and white paper, the FAQ and white paper should be considered the authoritative sources of information.
Also, if you're new to staking, you may wish to consider staking a small test amount of SUI tokens to become comfortable with the process.
You have your Sui tokens, congratulations! So what's next?
One option is to put your tokens to work securing the network by staking them. The Sui protocol rewards token holders who do so.
How do you do this?
You do this by staking tokens to one or more validators of your choice.
What's a validator?
Validators operate the server infrastructure that enables the network to function. They're also rewarded by the network protocol for keeping the network running.
Because without validators, there would be no network and without a network, there would be no transactions. And without transactions, Dapps wouldn't work.
What happens when I stake to a validator?
You can retain full custody of your tokens when staking to a validator, IF you stake directly to a validator, i.e. not through a centralized exchange. Staking directly to a validator in this way is called non-custodial staking.
What's the difference between non-custodial and custodial staking?
To retain full custody of your tokens when staking to a validator, you must stake your tokens directly to a validator, i.e. not through a centralized exchange or CEX.
If you stake through a CEX, this is called custodial staking, because the CEX takes custody of your tokens.
You've heard the saying "Not your keys, not your coins..."? Well, when you stake through a CEX, you transfer your tokens from your keys to the CEX's keys. So, "Not your keys, not your coins..."!
However, when you stake directly to a validator, you keep control of your tokens with your keys.
Great, you've decided to stake your tokens directly to a Sui validator! What happens next?
When you stake your Sui tokens directly to a Sui validator, they get deposited into that validator's staking pool. (But remember, if you stake directly, in a non-custodial way, you always retain custody of your tokens, even when they're in the validator's staking pool.)
Each staking pool has it's own exchange rate. Again, quoting the Sui Staking FAQ, "these rates determine the amount of SUI tokens the staker (you) can withdraw in the future."
Note you can also stake to multiple validators. Some people like to do that to hedge risk and support a more decentralized network, for example. The Sui protocol allows you to do this by creating multiple "stake objects" and staking those "stake objects" to validators of your choice.
Remember when we said that the Sui protocol rewards token holders who stake their tokens? Here's how it happens.
The exchange rate increases as more stake is deposited into the pool, i.e. as more SUI token holders delegate to that validator, as long as the validator's staking pool contains less than 10% of the total staked amount of SUI tokens across all validator staking pools. The exchange rate also increases as time progresses.
When you decide to unstake your SUI tokens, you will receive the amount of SUI tokens you deposited, multiplied by the staking pool's exchange rate. Because the Sui protocol sets the staking pool's exchange rate greater than 1, unless the validator is slashed (see below), you should receive more tokens than you deposited.
But what about downtime and slashing?
It's also important to understand that a validator and its delegators only earn rewards if the validator is operational and functioning properly. If the validator is "down", i.e. not operational, for any reason, it will not earn rewards for itself or its delegators.
Also, in the Sui protocol, validators' and its delegators' rewards can get reduced, a/k/a "slashed". This happens if > 2/3 of validators vote to slash a given validator. The intention is for this to keep validators behaving efficiently, responsively and honestly.
If a validator is slashed in this way, via the "tallying rule", the rewards will continue to be slashed until greater than 2/3 of the other validators revoke the slashing.
Alright, so which validators should you stake to?
This is a good question and there's no single right answer. There are some considerations to think about that can help guide your decision though.
As mentioned above, you don't earn rewards if the validator you stake to is not operational. Your rewards could be slashed if the validator behaves in a way that greater than 2/3 of the other validators determine is unhealthy for the Sui network.
Because of this, it's important to choose a validator you feel will operate their validator well, while operating efficiently, responsively and honestly.
Research the validator or validators that you might delegate to. Reach out and talk to them. Understand what motivates them.
Based on your research and conversations, consider delegating to the validators that you think will operate well, efficiently, responsively and honestly, as well as sync with your own motivations and values.
And don't forget about decentralization!
It's also important to consider the impact on decentralization that your validator choice may have. Remember, we're here to build a decentralized future after all, aren't we?
A decentralized future needs decentralized networks. Decentralized networks need decentralized validator sets. Decentralized validator sets need to be decentralized at the capital and infrastructure layers.
This post we wrote describes what that means in greater detail. The next two paragraphs provide a tl;dr of it.
At the capital layer, too much stake shouldn't be concentrated with too few validators. So all things being equal, choosing validators with lower stake helps decentralize the network.
At the infrastructure layer, too much stake shouldn't be concentrated with the same server provider, data center, or geography. This one can be trickier to figure out. Over time, hopefully tools will emerge that display this type of data and help inform your choice. We'll update this post when they do.
Conclusion
What we've tried to do with this post is provide a high level overview of the Sui staking process. By reading it, hopefully you now understand a little bit more about how Sui staking works. Remember though, this is crypto and things change fast.
It's always important to do you own research and verify any and all information before making decisions, e.g. whether to stake and which validators to stake to.
Thanks for reading, we'll see you on Sui!
P.S. - If you found this post helpful and would like to support our work, please consider staking your SUI to Chainflow.
Please Note: Some third-party sites allow you to stake with Chainflow on different networks. Those sites may have their own Terms of Service, which we're not responsible for; by choosing to stake with Chainflow on any of our networks, whether through third-party sites or directly using our staking address, you represent that you have read and agreed to our application Terms of Service.