Sui lets users stake, or commit their tokens, to specific Validators on the network. The mechanism behind staking earns users rewards but also uses an economic model to incentivize Validators to deliver the highest performance.
Validators form the backbone of the network, allowing the distributed ledger that is a blockchain to remain secure despite its decentralized nature. They process transactions, store data, and perform consensus to verify all actions on the network.
As a permissionless system, anyone can set up a Validator. However, they not only need robust hardware, they also need a stake of at least 30 million SUI tokens to get started. Individual Validators can put up a majority of this stake, but they may also accept user stakes.
Incentivizing Performance
Sui uses Delegated-Proof-of-Stake to secure and operate the network. This model lets token holders stake their SUI to a Validator, preventing them from being transferred or sold until the time they are unstaked. The size of a Validator's stake is equal to their network voting power. The greater the stake, the more of a voice a Validator has in network operations.
In exchange for processing transactions and performing consensus, Validators earn rewards based on the amount of gas fees collected. The most efficient Validators process more transactions, promoting a more efficient network overall and earning greater rewards for their stake.
Lesser performing Validators, who may have more downtime or experience other technical difficulties, process fewer transactions and earn smaller staking rewards for themselves and stakers. Validators that perform particularly poorly will likely lose stake and may eventually go below the minimum allowed to participate in network operations. This tokenomics model ensures only the best Validators come online to support the network.
User Stakes
Staking lets Sui users play an active role in supporting the network. When a user adds their SUI to the stake of a particular Validator, they help that Validator operate and earn a percentage of rewards based on their stake. The actual formula for the amount earned can be found in the Sui documentation under Delegated-Proof-of-Stake.
Along with earning rewards, users reinforce the Validator incentive model. If a user stakes SUI to a poorly performing Validator and earns minimal rewards, they can unstake from that Validator at the next epoch, an approximately 24 hour period of network operation. Validators seeing their user stake dwindle will be motivated to fix their performance issues or lose their status entirely.
Validators performing well earn more for their staked users, incentivizing users to increase their stake and other users to come onboard. Beyond gaining more SUI, some Validators may attract stakes in other ways. For example, Red Bull Racing will launch its own Validator, and encourage fans of its Formula 1 leading team to support it through staking. Branded Validators such as this let stakers more easily find opportunities that align with their interests.
Ultimately, running Validators that support the Sui network's growth involves a resource cost. The Sui tokenomics model relies on many inputs, based on incentive modeling, to maintain network health and deliver an exciting and performant experience for all. Staking, and its component rewards, is one aspect of the system that lets users directly participate.
