A thorough explanation on how Staking works within the ICON Ecosystem: rewards, unstaking, risks and how-to.
In this article, we will explain how delegation and staking work on the ICON Network. The ICON protocol has adopted a Delegated Proof-of-Contribution model, a variant of Delegated Proof-of-Stake, where you can earn rewards based on the size of your stake.
Throughout the article, we will cover the following subjects: what is staking on ICON, what rewards can you expect, when can you start earning rewards, how to stake your ICX and what are the risks.
What is staking on ICON?
Staking is a mechanism through which ICON token holders can support the decentralization of the network and earn rewards on their tokens. You can stake your ICX voting rights to a Public Representative (P-Rep) for some time, and make more ICX based on the size of your stake. Staking on ICX is non-custodial, which means you do not need to transfer your tokens. There is no lock-up period required for staking ICX.
Unstaking, also called unbonding in other protocols, is a lock-up period referring to the minimum number of days during which you should stake your tokens. Unstaking protects the network against malicious attacks; for example, it protects against a representative attacking the network and immediately withdrawing its stake.
The unstaking period for delegators is a function of the percentage of tokens in circulation delegation. The higher the percentage of network staked, the smaller the unstaking period, which will vary between 5 days at the lower range — from 70% to 100% of the total network staked — and 20 days at the higher range — 0% of the entire network staked. Based on a 30% delegation rate assumption in one ecosystem, the average ICONist can expect a 10-day unstaking period.
Why should you stake your ICX?
There are many reasons to stake your ICX. First, you can earn interests and rewards based on the size of your stake. Secondly, by staking, you support the governance and decentralization of the network as well as the nodes maintaining the security and efficiency. Moreover, by staking, you encourage the ecosystem’s participants, such as P-Reps, who is in charge of running nodes but also invest resources in product development and marketing.
The reward rate is between 6% and 36% depending on your staking strategy, and the % of the network staked.
In exchange for staking your ICX to P-Reps, the ICON network will reward you with I-Score, which is convertible into ICX at a rate of 1,000 I-Score = 1 ICX.
The annual yield for delegators, measured in ICX, is a function of the percentage of tokens delegated over the total number of tokens in circulation. The higher the percentage of tokens staked, the lower the reward rate, which will vary between 6% at the lower range — from 70% to 100% of the total network staked — and 36% at the higher range — 0% of the entire network staked. The staking yield, also known as an annual reward, is currently around 16.40%.
How to Stake Your ICX?
You can stake your ICX to different P-Reps. We recommend diversifying your tokens among various P-Reps so that you can support the growth of the overall ecosystem, its governance, and decentralization. But also to ensure that you do not have all your eggs in the same basket in case something wrong happens.
Various criteria can be used when conducting your due diligence, such as community involvement, size of the self-bond, node architecture setup, uptime stats, involvement in ICON projects, etc.
There are a hundred elected P-Reps; of them, 22 are Main P-Reps. Main P-Reps are in charge of block production if you would like to get a more practical explanation on how to stake and vote in the ICON Network, check out our article here.
What Are The Risk?
Delegating your ICX voting power does not require you to transfer your tokens, meaning that you remain responsible for the own security of your tokens and wallets. However, staking is not without any risk, and we have highlighted some below that you may want to take into consideration. For more information on the risks related to staking in general, you can check our article ‘Risks in Crypto Staking’.
- Security: You remain responsible for the security of your funds; we recommend using cold storage solutions such as Ledger for added security. Make sure to backup your keys properly as well, or you may not recover your account.
- Volatility: Although delegation enables you to earn rewards based on your ICX, you are still subject to price fluctuations in ICX/Fiat currencies, and may end up losing money when measured in some fiat currencies.
- Centralization: It is essential to support the P-Reps that you trust. You should also diversify to ensure that the network remains decentralized, and voting power doesn’t get concentrated amid a few players.
- In August 2019, ICONists were able to take part in a pre-voting period to familiarize themselves with the staking process. During the pre-voting period, the ICX Foundation released a pool of 3,000,000 ICX for staking rewards, and ICONists taking part in the pre-voting period earned their first rewards!
- The following month, September 2019, marked the start of the on-chain voting process. After the election, staking rewards have been generated on-chain by the elected P-Reps, and you can delegate more of your ICX or redelegate your voting rights to other P-Reps.
- As of November 4th, 2019, the ICON Network is now decentralized, with the 22 Main P-Reps in charge of block production. Some consolidation among the top five representatives has taken place.
- There is a possibility for ICON employees to now become P-Reps through the Icon Employee Participation Program. At launch, employees were restricted from applying for grants and running for P-Reps. However, to retain top employees, promote the entrepreneurial spirit, and to improve on the open-source vision of the network, the change was made.
- The ICON Foundation submitted a proposal for a revision eight feature on January 7th, 2020. The main aim of this activation, which passed through on-chain governance, was to increase the stability of the network. The release note can be found here.
- Since the launch of the ICON Network, many new Dapps have been introduced on top of ICON staking. More are coming, such as the Staking Lottery by Stakin and Liquid Staking with LICX.
Get to know more about ICON
- Stakin P-Rep Proposal
- How to vote for a P-Rep
- ICON Website, where you can also find the whitepaper, yellow paper, and other valuable materials
- The Iconist: dedicated media about ICON and its ecosystem
- ICON Official Telegram Channel
- ICON Non-Official European Community Telegram
- Stakin Medium on ICON
- Receive daily news about ICON (ICX)
DISCLAIMER: This is not financial advice. Staking and cryptocurrencies investment involves a high degree of risk, and there is always the possibility of loss, including the loss of all staked digital assets. Additionally, delegators are at risk of slashing in case of security or liveness faults on some PoS protocols. We advise you to DYOR before choosing a validator.