Staking tokens is the act of locking up your token in the system and earning some surplus in return. Those tokens can be single asset tokens or Liquidity Provider(LP) tokens. People who stake are either nominators or validators. Nominators are the users who stake their assets and nominate someone else to vote on behalf of them. While validators refer to the users who stake minimum LEMA tokens into the system and agree to vote in the governance on behalf of whoever nominates them.
Validators stay in clusters. In every cluster, there is the same number of validators. Nominators can choose validators from any cluster. The staking reward is split equally among the number of clusters to both the nominators and the validators. Therefore, a cluster with fewer nominators can yield more APR than the one with more nominators. This is only for the nominator since the reward for validators remains the same no matter which cluster they are in.
The following diagram illustrates the architecture with 4 clusters with 3 validators in each of them. Cluster 3 has only 10 nominators compared to 50 nominators in cluster 4. Provided that every nominator stakes the same amount, Nominator 1 enjoys a higher APR by nominating validator from cluster 3 than Nominator 2 who nominates from cluster 4.
Reward Distribution
All users who stake get the reward. The validator naturally earns more than the nominators.
Rewards for Nominator = Staking Reward
Rewards for Validator = Staking Reward + Commission Fee
The minimum commission fee for every validator in any governance is the square root of the APR during the time buffer period. Buffer period refers to the time between two consecutive governances.
Let V be the total number of validators and N be the total number of nominators. Then,
Simulating it with the tokenomics, we get the following earnings for each validator given that the total amount staked by all nominators is 10x than the total amount staked by all validators:
The staking reward can be adjusted by the owner in case the tokenomics become too inflationary which is why the figure doesn’t depict a 100% accuracy with the real-time scenario. Regarding the nominators’ earnings, the pattern will be the same subtracted by the minimum commission fee (i.e. Square root of Rv).
To compare the commission of the validators against the APR, the following plot can be referenced:
