Validator Reward Questions

Hi all -

I’m planning on setting up a potential validator node for Cosmos, and am also participating in GOS.

While things seem very clear on most fronts, I’m still uncertain on a few variables that will determine whether this would make economic sense. Specifically, I’m trying to model the potential returns for being a validator.

Some of the variables are obvious: the total amount being staked, as well as the price of ATOM once the platform is live. For the stake of simplicity, I’m not adding in delegator rewards to this initial analysis.

My main confusion has to do with how often rewards accrue. I understand that the reward rate would be anywhere from about 7-20%, based on how many total ATOMs are being staked. That variable is easy enough to factor into the projections. However, it’s unclear to me over what time period this applies.

To use an example, let’s assume the following (disregarding variables like slashing and delegating rewards):

  • My validator node has 1,000,000 ATOMS
  • The prevailing reward rate is 10%

Upon successfully validating a block, how much would my validator earn? Clearly a 100,000 ATOM reward for one block is orders of magnitude too high. Does the percentage figure refer instead to a reward over a certain timeframe?

Has anyone modeled validator ROI? This is crucial, as the infrastructure investment is not trivial and reward projections are a key component of getting this thing off the ground.

Thanks in advance for your thoughts!

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10% is in 1 year base so you should adjust it to your base period.
cosmos sdk use this formular below.
hourly inflation rate = yearly inflation rate / 8766
8766 is coming from 365.25×24h
so hourly inflation rate = 0.1/8766
current sdk(0.26,9001) is hourly provisioning.
it means inflation rewards come down to validator every 1 hour.
1 hour is calculated from block 1 time.
so from 1,000,000atom, you get approximately 12 atom per hour. if you want to recalculate this based on one block, it is 12/(60*60/5)atom, when average block time is 5 second.
and fyi, team is fixing hourly provisioning to blockly provisioning, meaning reward will drop every block(of course each amount is much less than former ones)

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Made this model

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Thanks to you both. This is super-helpful.

Hi @ajc I love your model. It seems that economics only work if the prices go up. Is this assumption correct? Furthermore, does it also reflect the cash flow on a monthly basis? I am surprised because you divide the Atom/Photon price of months twelve’s months. Many thanks for responding even though almost two years old :wink: