Annual Percentage Rate (APR)
This section goes into our methodology in calculating the returns of validators and delegators on their stake.
Sources of Rewards
There are three sources of rewards in Polygon: proposing transaction blocks, proposing checkpoints, and signing checkpoints.
Proposing end-user transaction blocks
Validators are assigned to propose blocks on the Bor chain. If they successfully propose blocks, they receive the priority/transaction fees from end-users and any MEV (maximum extractable value) they might extract.
Proposing checkpoints
As Polygon’s finality is dependent on its state being posted on Ethereum, validators are also assigned to propose checkpoint transactions. In exchange, validators receive 10% of the protocol’s emissions per checkpoint.
The full protocol emissions per checkpoint is 71,795 MATIC given that a checkpoint contains 5,120 Bor blocks. If the number of Bor blocks is below 5,120, the checkpoint rewards are modulated downwards based on the number of Bor blocks contained in the checkpoint.
Signing Checkpoints
Validators are also expected to sign (i.e. attest) to the aforementioned proposed checkpoints to ensure the latter’s validity. Given this, every validator is expected to sign every checkpoint.
The rewards for checkpoint signing is 90% of the protocol’s emissions per checkpoint. This is split amongst checkpoint signers based on their stake weight in the network (i.e. network penetration).
A signing validator then takes its reward share based on the stake it has staked itself versus its total stake (i.e. their own stake plus the stake delegated to them). After this, the same validator also takes their commission. Lastly, the rest of the reward is split amongst their delegators (i.e. entities who have delegated their stake to this validator), wherein the distribution is based on their stake weight in that particular validator.
To illustrate, consider the following scenario:
Checkpoint rewards = 1,000
Validator A has 11.11% of the stake amongst all non-proposing validators, who all signed the checkpoint
Validator A self-staked 10% of the stake attributed to them
Validator A charges a 5% commission rate to their delegators.
Delegator X has 10% of the total delegated stake to Validator A
The checkpoint proposer gets 10% of the checkpoint rewards, which is 100. The checkpoint signers split the remaining 900 amongst themselves based on their stake weight.
Validator A signed this checkpoint and by virtue of its stake weight amongst the checkpoint signers, it gets 100 out of the 900.
Focusing now on the 100 Validator A received, they are entitled to 10 of this because of the proportion they self-staked. 90 goes to delegators before commissions are taken. So in addition to this, Validator A also gets 4.5 because of the 5% commission they charge.
Of the 85.5, Delegator X receives 8.55 because of their 10% stake weight amongst all the delegators who have delegated to Validator A. The same split is done amongst the rest of the delegators based on their respective stake weights.
In the next sections, we will go through the methodologies for computing the delegator APR and validator APR.
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