PoS Foundation of the TON Blockchain
The TON blockchain is fundamentally a PoS system, where validators play a crucial role. There are currently over 100 validators globally, most of them private. TON holders can stake their tokens with validators, earning about 13% annually through PoS staking rewards.
For example, on platforms like TonStake.com, users can stake their TON tokens to validators and potentially earn 13% extra TON in a year as a reward. The TON blockchain’s PoS infrastructure includes various roles such as Validators, Fisherman, Nominator, and Collator, all working together to maintain the network’s integrity.
Validators
Validators are tasked with verifying unconfirmed transactions and adding them to the blockchain, completing the process of transaction validation. When validators perform their roles correctly, they earn a reward. This reward comes from the TON blockchain’s annual growth rate, currently set at 0.6%. For instance, if the total supply is 5,000,000,000 TON, validators would receive 30,000,000 TON over the year as a reward for their contributions, distributed in line with this growth rate.
To become a validator on the TON blockchain, you go through four key stages:
- Elections: This lasts seven hours. You must send TON to a special elections smart contract to participate. Note that regular transactions won’t work and could lead to loss of TON.
- Threshold Confirmation: This takes two hours to check if your stake meets the minimum requirement to become a validator. If it doesn’t, your TON is returned.
- Validation Session: This stage lasts up to 18 hours, during which your system validates transactions. Strict hardware requirements are recommended, as any issues could lead to fines.
- Stakeholding: After the validation session, your TON is locked for up to nine hours, after which you can withdraw your funds.
The figure below represents a PoS operation state diagram of the TON blockchain, where it’s evident that two working states overlap. Currently, there are over 180 validator services worldwide, which enhances the decentralization of the TON blockchain.
However, several issues arise for users who wish to become validators and earn rewards. First, they need to have a high-performance computer with at least 16 cores, 64GB of RAM, a 512GB SSD, and a 1 Gbit/s internet connection, which entails substantial equipment costs for regular users.
Second, beyond purchasing the necessary hardware, users must also ensure the stability of power, network, hardware, and operating systems. Any failure in the host can lead to asset loss and harm the TON blockchain network.
Third, since a validator is a public service connected to the global network, it will be exposed to potential global hacker attacks. In the near future, your validator could become a target for hackers, potentially resulting in its paralysis or the theft of all your TON.
Fourth, in addition to acquiring hardware, maintaining stability, and ensuring security, there is also a significant financial threshold required to become a validator. While the official requirement is 10,000 TON to participate in the election, this amount is not sufficient to be elected as a validator. Investing only 10,000 TON will not yield any PoS rewards. As described in the operational principles above, the PoS operation is divided into two rounds, and to have a chance of being elected in either round, you need to invest 300,000 TON. To fully participate as a validator, more than 600,000 TON is required, which is almost unattainable for regular users.
Tonstake.com and Ton Whales are the two most prominent staking service providers. The main difference between them is how they manage TON’s cash flow.
Tonstake.com operates as a custodial staking service, functioning similarly to major cryptocurrency exchanges. Users deposit their funds to a specified address, and the system automatically allocates these funds across various validator nodes. When it comes time to withdraw, the funds are first routed through a withdrawal address before reaching the user. The benefit of using a custodial staking provider lies in the additional services offered, such as enterprise-level API support, detailed reporting, private node options, and lower barriers to entry. However, the security challenges are akin to those faced in conventional information security. Tonstake.com imposes a 10% fee on the interest earned by users as a service charge.
Ton Whales offers a non-custodial staking service where deposits and withdrawals are fully automated through smart contracts. This system makes sure that funds are automatically directed to validators. However, there is a risk that there might be some bugs in these smart contracts, especially in the newer versions. By using smart contracts, Ton Whales can cut the costs of running and maintaining the system a lot. The platform is currently stable and takes a 25% fee from the interest users earn. Ton Whales is still the biggest staking service provider on the market.
The two structures mentioned above are designed to give TON holders the opportunity to participate in staking services. A more comprehensive Nominator role is detailed in the original TON blockchain white paper.
Key features of the Nominator include:
- It functions as a smart contract.
- It serves as an investment smart contract, allowing TON holders to escrow their funds with the Nominator.
- It evaluates validators based on their performance and health.
- It allocates funds to validators according to their health scores.
- It participates in voting on the TON blockchain.
- The Nominator earns a portion of the commission.
I believe that the Nominator will evolve into the primary mechanism for staking services in the future. The current platforms like Tonstake.com and Ton Whales are merely transitional products during this period of change.