Blockchain
Understanding how to stake Tezos (XTZ) with the Paris Protocol update
Tezos (XTZ) introduced a revamped staking experience with the Paris Protocol update, offering new opportunities for participants to secure the network and earn rewards. This comprehensive guide explains how to bet on Tezos, the different betting scenarios and their implications Spotlight on Tezos.
Staking and firing: an overview
Betting on Tezos involves choosing a baker and letting your funds contribute to that baker’s stake. These funds remain in your account but are frozen and subject to financial penalties, known as cuts, if the baker misbehaves. Baking, on the other hand, involves running a machine that participates in protecting the network, producing blocks, maintaining consensus, and voting on governance issues. Bakers receive rewards proportional to the participation for their work and the associated risks.
Direct delegation and staking
Delegation allows users to contribute to a baker’s share without freezing their funds. However, delegated funds have only half the weight to receive planning rights and premiums compared to directly invested funds. Additionally, rewards from delegated funds are paid to the baker, who may or may not redistribute them to the delegating parties.
Become a Staker
To begin staking, users must delegate their account to a chosen baker using the “set delegate” command in Octez or via their wallet interface. After delegating, users can add stake with the ‘stake’ command. Removing the stake involves the “unstake” command and changing the bakers automatically removes all funds, which remain frozen for approximately 11 days before they can be finalized and re-established.
Understand rewards
Staking rewards are paid into the staker’s account and automatically become part of their stake. The reward rate, which can fluctuate between 0.25% and 10% per year, is determined by the Adaptive Issuance mechanism. This mechanism adjusts the reward rate based on the share of tez staked, aiming for a target of around 50% of the total offering.
Manage overstaking
Overstaking occurs when the total stake exceeds the baker’s limit, resulting in reduced rewards for all stakeholders. Bakers can accept up to five times their stake from external stakers, but any amount above this limit is considered delegated and only generates half the rewards. It is vital that stakers monitor their baker’s capacity and ensure they are not contributing to quota overruns.
Practical scenarios
Consider a baker named Brian who bets 4,000 tez and sets a limit of 20,000 tez for the outside bet. If two stakeholders, Susan and Simon, bet 10,000 tez each, Brian reaches his limit. However, if a third staker, Sarah, adds another 10,000 tez, Brian will lose 50%. This scenario illustrates the importance of monitoring betting limits to avoid reduced rewards.
Ensure optimal staking
To optimize rewards and maintain network integrity, stakeholders should regularly review their baker’s capacity, limits and policies. Any change in the baker’s bet can affect the overall scenario of the bet, so continuous monitoring is essential.
For more information and community support, users can visit the Tezos Agora forum. Happy betting!
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