One of the most common questions we see online is how to choose a validator. Today, we’ll answer that question specifically. Every ecosystem is slightly different, but there are some general things to look for. We’ll also list out specific instructions for Cosmos, Polygon and Polkadot/Kusama.
Delegators often stake their tokens on centralized exchanges, like Coinbase, Kraken or Binance when they get started. This is a great way to get your feet wet with staking because it’s so convenient, but BEWARE. There are major drawbacks when staking with an exchange.
Why staking with a centralized provider is bad
- Because it’s so convenient, centralized exchange nodes get HUGE and huge nodes are terrible for network security.
- Centralized exchange nodes are EXCLUDED from receiving airdrops. This is a big deal if you stake ATOM tokens, because there are so many airdrops.
- Exchange nodes usually charge ridiculously high commission. For example, if you stake KAVA directly with our validator node the current APY is over 30%. If you stake your KAVA at Kraken the yield is only 20%. That’s a 33% commission and makes an enormous difference to your portfolio over time.
- Ever heard of Celsius, BlockFi or FTX? Centralized exchanges often suspend withdrawals without warning, go offline and even bankrupt. Your funds are then trapped or stolen. This is why it’s often said, “Not your keys, not your coins.” If you don’t control the keys to your crypto, you don’t control your crypto.
Check out our post about the FTX collapse. Binance.com suddenly suspending service to U.S. residents is another great example. If you have funds at Binance.com and you live in what turns out to be a restricted country, they’re suddenly stuck.
Use exchanges to buy and sell and then self-custody your crypto with a hardware wallet, like a Ledger Nano X.
Why huge validator nodes are bad for network security
Huge nodes with tons of staked tokens can potentially deceive to profit by double signing blocks. That means they say funds went one place, but they actually went another.
Additionally, huge nodes are the obvious targets for ddos attacks. Attackers flood the node with hundreds of thousands of spam transactions in an effort to knock them offline and disable the network.
Airdrops often exclude those who stake with the top 10 largest nodes for those reasons. Even staking with the top 25 can adversely affect your airdrops.
Should I stake with Crypto.com or Nexo?
This is one of the most common misconceptions we see online. If you deposit your tokens with Crypto.com, Nexo, Coinloan or Ledn, you are NOT staking your tokens. You are actually lending your tokens to a crypto lender and they’re paying you interest.
They lend your tokens out to traders and charge traders who borrow more than they pay you as a depositor. That difference is called, the spread. Depositing your tokens with any of these companies is convenient, but you’re supporting them, not the blockchain.
By enlarge, we are against allowing centralized parties to custody crypto.
Now that’s all out of the way, so let’s get down to staking tokens and selecting validators.
How do I know which validators to choose?
Every blockchain network is a little bit different, but in general:
- Choose a validator that has 100% uptime. You want to stake with a node that runs 24/7/365.
- Make sure they have a website and a way to contact them. Don’t stake with validators who simply have a Twitter handle. That’s a hobbyist, not a pro.
- Stake with validators that have a verified on-chain identity. Avoid nodes that only have an address and no other info. Dishonest node operators are usually just an address. They can steal your rewards.
- Select a validator that charges at least 1% commission. 0% commission nodes are often excluded from receiving airdrops and 0% commission is the bait that dishonest node operators use to lure people in.
Plus, you want to support your validator. If they’re not profitable, then they can’t afford to run the best equipment and reliably earn block rewards. Don’t pay more than 12% commission. FYI, the average validator commission across all blockchains is 10%-12%.
- Look for validators that have self-staked tokens. If they have skin in the game, then they have a reason to keep the node running.
- Stake with validators that have a record of voting on network proposals.
- Stake with validators in the bottom 1/3 of the active set. It helps the network decentralize. Don’t stake with the top 25 largest nodes. Remember, no validator ever takes custody of your tokens. Every network is different, but in general their voting power is moved from your wallet into a ledger on the blockchain. So, even if your validator is offline you can unbond or redelegate to a different node.
- Stake with 2 or 3 validators to hedge your risk of slashing or losing all your tokens to a hacker. This is easiest on inexpensive blockchains, like Kava and Cosmos.
Slashing is one of the risks of staking. If a validator goes offline for too long and misses too many blocks, their node is often slashed. That means everyone staked with that validator loses some tokens. Downtime slashing fees are usually minor and more like a slap on the wrist. The fee tells the validator to get their act together.
If the node is dishonest and double signs blocks, the node is heavily slashed and removed from being a validator.
- Finally, stake with validators who are active in the community’s social channels, like Reddit, Telegram, Discord, Medium and Twitter. That generally means they’ll be online to answer your questions and are probably trustworthy.
Now we’ll share how to select validators on the chains we validate for. Each ecosystem has subtle differences, with Polkadot/Kusama being the most different.
How to choose a Polygon validator
MATIC staking is on Ethereum, NOT Polygon mainnet. So, your MATIC tokens must be ERC20. One of the most common mistakes we see is people bridging their MATIC tokens over to Polygon to stake. Then, they have to bridge their tokens back over to Ethereum.
MATIC staking can be done directly within Frontier and Klevr wallets, or by connecting Metamask, Coinbase wallet, Trust wallet, Torus and Bitski to the Polygon dashboard.
When choosing a validator to stake your tokens with, there are several factors to consider:
- 100% uptime. You want to stake with a node that runs 24/7/364
- Contact Information: Make sure the validator has a website and a way to contact them.
- Self Stake: How many tokens does the validator have staked from his or her own stash. You want to choose a validator who’s got skin in the game. If the validator doesn’t have many tokens self-staked then keep looking.
- Total Stake: This is the number of tokens on the node. It’s tempting to stake with a validator with a huge total stake, because it feels safer. As we mentioned at the top of this post, validator nodes with huge stockpiles of tokens are terrible for network security. So, it’s important to stake with smaller validators to help decentralize the network.
- # of Checkpoints Signed: This statistic represents the last 200 checkpoints. The Polygon software is fickle and sometimes we miss checkpoints for no apparent reason. Unfortunately, no rewards are earned on those missed checkpoints. Our monitoring software alerts us when this happens, so we can address the issue quickly.
In short, look for a validator that has at least 95% of the checkpoints signed. 100% is ideal, but every now and then missing a checkpoint happens.
- Commission: Choose a validator that charges at least 1%, but no more than 12% commission. You want your validator to be profitable so they can afford equipment that reliably signs blocks. It’s enticing to stake your tokens with a validator node that doesn’t charge commission, but BEWARE.
0% commission is the bait that dishonest node operators use. They can’t steal your staked tokens, but they can steal your rewards. We’ve seen validators on other chains raise their commission to 100% just before signing a block and then immediately lower it back to 0%, to continue to deceive their delegators.
0% commission is also a bait and switch tactic used by node operators to accumulate tokens quickly. Then, they suddenly begin charging. We’re not saying all 0% commission nodes are dishonest, just that dishonest nodes are usually 0%.
Plus, good luck getting support or your questions answered from a validator that doesn’t charge. They have virtually no incentive to care about you. No one is going to run a validator node that loses money in the long run. It can be expensive and time consuming. We charge a reasonable rate to cover our costs.
- Community Involvement: Check around in Polygon’s social channels, Reddit, Discord, Telegram, Twitter, etc and try to support a validator who actively participates.
You’re certainly welcome to stake with our node at Blocks United. Here’s our node’s page at the Polygon dashboard.
How to choose a Cosmos ecosystem validator
ATOM staking is simple and staking with our node qualifies you to receive all airdrops. There are constant airdrops in the Cosmos ecosystem. You can find our Blocks United node in Guarda, Rainbow, Trust wallet, Ledger Live, Keplr and Cosmostation.
Want to be notified when there are Cosmos ecosystem airdrops to claim? Click here to subscribe.
Keplr is the preferred wallet, because it gives you the greatest access to the Cosmos ecosystem and the ability to claim airdrops. Plus, you can connect your Ledger Nano for extra security. You use Keplr as your Cosmos user interface, but Ledger still holds the keys. You have to press the buttons on the physical device in your hand in order to move funds.
If you currently stake ATOM using Exodus, Atomic or Trust wallets, you may qualify to receive airdrops, but won’t be able to claim the tokens. You’ll need to use Keplr for that. No problem, just drop your seed phrase or private key into Keplr. Here’s our tutorial.
- Choose a validator that has 100% uptime. Scrolling down the validator’s page on Mintscan will show you the most recent blocks signed. Click here to view our node’s page on Mintscan.
- Select a validator that has self-staked tokens. This means they have skin in the game and a reason to keep the node running smoothly. This is the label called, “Bonded Height” on their mintscan page.
- Only stake with validators that have a verified identity and a website, so you can contact them.
- Look for validators who are active in the community and vote on important network proposals. We post regularly on Reddit, Discord, Telegram and sometimes Medium and Twitter. You can see whether or not they’ve voted on mintscan here.
- Make sure your validator charges at least 1% commission, because 0% commission nodes are usually excluded from receiving airdrops. Fortunately, ATOM stakers take pride in supporting their validators. They know that in order to reliably sign blocks, validators need to be profitable so they can afford the best equipment. Don’t pay more than 12% commission though.
- Stake with validators #60-#160 to help the network decentralize. Avoid the bottom few because they are in danger of falling from the active set and their delegators would then be unbonded, and have to wait 21 days to restake. Rewards are NOT earned during the unbonding period, FYI.
How to choose Polkadot or Kusama validators
The information below is borrowed from our How To Stake HydraDX HDX Tokens blog post. The Polkadot ecosystem and its Phragmen algorithm is pretty darn confusing. It rewards active nominators and penalizes those who ignore their stake. It’s quite a bit more complicated than other blockchains. So, here’s our Cliff notes:
- DO NOT bond all your tokens. Leave a few to pay for transactions, like claiming your rewards!
- Only nominate nodes with a verified on-chain identity, a website, and a way to contact them.
- Nodes top out and have a maximum of 165 nominations. This prevents nodes from becoming too large and dominating the network. Remember, huge nodes are terrible for network security, so DotSama is designed to prevent this.
- Staking APY is HIGHER with smaller active nodes and LOWER with larger active nodes. Large nodes have high total stake and small nodes have low total stake. This keeps the network decentralized.
- Every 24 hours (1 era) the phragmen algorithm decides which validator nodes will be in the ACTIVE SET and earn block rewards. INACTIVE nodes do not earn block rewards.
- Your entire stake is split between the ACTIVE nodes you’ve nominated, so nominating an INACTIVE node does not hurt you. You’ll earn block rewards as long as you have at least 1 active node. Example: If you nominated 4 nodes and 3 are inactive, ALL of your tokens are allocated to the 1 active node and you’ll earn block rewards.
- Avoid nominating more than a couple oversubscribed nodes, especially if your stack is small. Nodes are oversubscribed when they have 65 or more nominations. A maroon icon with a scale in a circle denotes oversubscribed nodes. Stakers on oversubscribed nodes COMPETE WITH EACH OTHER to earn block rewards. Click here to view the active set.
The smallest stakes on the oversubscribed node will be dropped from the active set and won’t earn rewards. Nominating fewer validator nodes is a solution. You’ll then have a larger stake with each one.
ALL NODES can easily become oversubscribed. It’s normal because each node is only allowed to have 165 nominations. Don’t stress if your nominated nodes become oversubscribed. Simply nominate fewer nodes.
- If a node you’ve nominated becomes oversubscribed, figure out what the average stake is on that node. Make sure that when your stake is divided up between your active nodes, you’ll have no less than the average stake on that oversubscribed node. Nominating too many nodes screws you, because your stake gets spread too thin. Or, simply renominate to active nodes that aren’t oversubscribed.
https://hydradx.documento.cz/#/validators is a good resource.
- Nominate several validators. The larger your bag of HDX, the more validators you should nominate. You are able to nominate up to 16 validators. Large stakes can nominate up to 16 validators. Small stakes should nominate fewer validators, maybe 3 to 5.
- Stake with the smallest nodes in the active set of validators, based total tokens staked on the node. This will get you the highest yield. Go back and read #4. You’ll earn block rewards as long as 1 of your nominated nodes is in the active set. ALL your tokens are allocated to your ACTIVE nominations.
- Avoid 0% commission nodes, because they’re likely to become oversubscribed quickly and then you might not earn block rewards. Plus, 0% commission is the bait that dishonest node operators use.
Don’t be afraid to pay commission. It will generally buy you reliability, honesty and support. You want your validators to run the best equipment. Paying commission allows them to buy it. (Please nominate us at Blocks United)
- Nominate one inactive node to help the network decentralize. The system is designed so this won’t negatively affect you, because your entire stack is distributed between your active nodes. But, by nominating an inactive node you give that validator a chance to make it into the active set at some point. AND, once we make it back into the active set we will be your HIGHEST YIELDING node.
Remember, staking yield is highest with small nodes and lowest with large nodes. Nominating an inactive node is smart. If the inactive node makes it into the active set, it will have THE HIGHEST YIELD of all active nodes.
- Look validators who contribute to the community. Check out the project’s social channels.
Please know that it takes 28 days to unbond your tokens in the Polkadot/Kusama ecosystem.
Frequently Asked Questions
- Choose a validator that has a verified on-chain identity. Do not stake with a validator that only displays an address.
- Nominate and stake with validators that have a website and way to reach them.
- Choose a validator that has at least 95% uptime.
- Stake with a validator that charges at least 1% commission. 0% commission is often the bait that dishonest validators use.
- Avoid oversubscribed validators on Polkadot and Kusama.
- Most validators keep their node wallet small and stake from personal wallets for security reasons. But, choose a validator that has self-staked tokens and skin in the game.
- Stake with more than one validator to hedge your risk of slashing.
Yes, it’s a good idea to stake with several validators. Non-custodial validators, like Blocks United never take custody of your tokens.
However, if a validator double signs blocks or goes offline for too long then their delegators are slashed. Staking tokens with more than one validator hedges your risk of slashing.
Validators must put up collateral to secure a network. Staked tokens act as collateral. The staked tokens provide the validator with voting power. The higher the number of tokens staked with a validator, the higher their voting power.
But, don’t be fooled into thinking that the top 25 largest validators are safer to stake with than smaller validators.
It is important to stake with validators in the lower half of the set to help decentralize the network.
- The token can lose value.
- You can lose tokens if your validator is slashed for downtime or for double signing blocks.
- Custodial validators, like Binance or Coinbase can lock you out and deny access to your tokens.
- Dishonest validators can steal your rewards, but not your principle.
- On certain networks validators can fall from the active set and stop earning staking rewards. This is why it is important to check in on your stake from time to time.
- Validators make money by originating blocks and by signing blocks. Originating blocks pays more.
- Validators make money by charging commission and taking a cut of staking rewards.
- Validators make money by leveraging MEV (Maximal Extractable Value). This means they reorder blocks to favor higher paying transactions.
Only around 40% of validators leveraged MEV in 2022. Some split the MEV with their delegators and others do not. Blocks United does not currently leverage MEV.
Anyone with a spare computer and the technical knowhow can run a validator.
Assume the answer is YES. In the United States crypto staking rewards are taxed like stock dividends as unearned income. But, always consult a tax advisor.
We hope this post has been helpful and you now know how to choose validators to stake with. If you have any questions or comments, please leave them below or fill out our contact form.
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