Proof Of Stake Mechanism
What is proof-of-stake (PoS)?
Proof-of-stake is a way to prove that validators have put something of value into the network that can be destroyed if they act dishonestly. In DaVinci proof-of-stake, validators explicitly stake capital in the form of DCOIN into a smart contract on DaVinci. The validator is then responsible for checking that new blocks propagated over the network are valid and occasionally creating and propagating new blocks themselves. If they try to defraud the network (for example by proposing multiple blocks when they ought to send one or sending conflicting attestations), some or all of their staked DCOIN can be destroyed.
Economic security
Running a validator is a commitment. The validator is expected to maintain sufficient hardware and connectivity to participate in block validation and proposal. In return, the validator is paid in DCOIN (their staked balance increases). On the other hand, participating as a validator also opens new avenues for users to attack the network for personal gain or sabotage. To prevent this, validators miss out on ETH rewards if they fail to participate when called upon, and their existing stake can be destroyed if they behave dishonestly. Two primary behaviors can be considered dishonest: proposing multiple blocks in a single slot (equivocating) and submitting contradictory attestations.
The amount of DCOIN slashed depends on how many validators are also being slashed at around the same time. This is known as the "correlation penalty", and it can be minor (~1% stake for a single validator slashed on their own) or can result in 100% of the validator's stake getting destroyed (mass slashing event). It is imposed halfway through a forced exit period that begins with an immediate penalty (up to 1 DCOIN ) on Day 1, the correlation penalty on Day 18, and finally, ejection from the network on Day 36. They receive minor attestation penalties every day because they are present on the network but not submitting votes. This all means a coordinated attack would be very costly for the attacker.
Rewards
Validators receive rewards when they make votes that are consistent with the majority of other validators, when they propose blocks, and when they participate in sync committees. The value of the rewards in each epoch are calculated from a base_reward. This is the base unit that other rewards are calculated from. The base_reward represents the average reward received by a validator under optimal conditions per epoch. This is calculated from the validator's effective balance and the total number of active validators as follows:
where base_reward_factor is 64, base_rewards_per_epoch is 4 and sum(active balance) is the total staked ether across all active validators.
This means the base reward is proportional to the validator's effective balance and inversely proportional to the number of validators on the network. The more validators, the greater the overall issuance (as sqrt(N) but the smaller the base_reward per validator (as 1/sqrt(N)). These factors influence the APR for a staking node.
The total reward is then calculated as the sum of five components that each have a weighting that determines how much each component adds to the total reward. The components are:
The weightings for each component are as follows:
These weights sum to 64. The reward is calculated as the sum of the applicable weights divided by 64. A validator that has made timely source, target and head votes, proposed a block and participated in a sync committee could receive 64/64 * base_reward == base_reward. However, a validator is not usually a block proposer, so their maximum reward is 64-8 /64 * base_reward == 7/8 * base_reward. Validators that are neither block proposers nor in a sync committee can receive 64-8-2 / 64 * base_reward == 6.75/8 * base_reward.
An additional reward is added to incentivize rapid attestations. This is the inclusion_delay_reward. This has a value equal to the base_reward multiplied by 1/delay where delay is the number of slots separating the block proposal and attestation. For example, if the attestation is submitted within one slot of the block proposal the attestor receives base_reward * 1/1 == base_reward. If the attestation arrives in the next slot, the attestor receives base_reward * 1/2 and so on.
Block proposers receive 8 / 64 * base_reward for each valid attestation included in the block, so the actual value of the reward scales with the number of attesting validators. Block proposers can also increase their reward by including evidence of misbehavior by other validators in their proposed block. These rewards are the "carrots" that encourage validator honesty. A block proposer which includes slashing will be rewarded with the slashed_validators_effective_balance / 512.
Penalties
So far we have considered perfectly well-behaved validators, but what about validators that do not make timely head, source and target votes or do so slowly?
The penalties for missing the target and source votes are equal to the rewards the attestor would have received had they submitted them. This means that instead of having the reward added to their balance, they have an equal value removed from their balance. There is no penalty for missing the head vote (i.e. head votes are only rewarded, never penalized). There is no penalty associated with the inclusion_delay - the reward will simply not be added to the validator's balance. There is also no penalty for failing to propose a block.
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