Annual Percentage Yield (APY)

This section goes into our methodology in calculating the returns of validators and delegators on their stake.

Sources of Rewards

There are two main sources of rewards in Solana: producing transaction blocks and voting for blocks (i.e. consensus participation)

Proposing end-user transaction blocks

Validators are assigned to propose blocks (i.e. slot leaders). If they successfully produce blocks, they receive the base fees and priority fees from end-users and any MEV (maximum extractable value) they might extract. In terms of delegator rewards, validators do not share fees from block production to delegators. Meanwhile, MEV extracted through running the Jito Labs client is shared with delegators based on the commission rate set by validators.

Voting for blocks

As mentioned in Voting Effectiveness, validators are called to vote for every observed block that is on the correct fork. For every successful vote a validator casts, they receive one vote credit. These credits are multiplied by stake-weight to obtain points. After which, these points form the main basis for distributing the per-epoch inflation rate of the supply of the Solana token (SOL) that is given to validators.

Here is an example to illustrate:

  • Total SOL supply: 560,382,222

  • Annual inflation rate: 5.76%

  • Epochs per year: 182.5 epochs

    • Based on an ideal slot duration of 400 milliseconds or 48 hours per epoch and 365 days in a year

  1. For a given epoch the total supply of SOL tokens is multiplied by the epoch inflation rate (we can call this absolute inflation):

0.000316 (inflation rate) * 560,382,222 (total supply) = ~177,080

  1. For each validator account epoch credits are multiplied by stake delegated to them to obtain each validator’s points

  2. Each validator is awarded a share of absolute inflation based on their points

  3. The share of inflation is paid to the stake accounts delegated to the validator pro-rata

  4. The validator receives their commission into the vote account

Example for absolute inflation of 177,080 with three validators:

TOTAL REWARDS

Delegator StakeValidatorCreditsPointsPoints %Total Rewards

150 SOL

A 350 SOL

413,000

144,550,000

31.6%

55,943

200 SOL

150 SOL

B 350 SOL

420,000

147,000,000

32.1%

56,891

200 SOL

400 SOL

C 400 SOL

415,000

166,000,000

36.3%

64,244

TOTAL

457,550,000

100%

177,080

VALIDATOR AND DELEGATOR REWARDS

Delegator StakeValidatorTotal RewardsCommission RateCommission RewardsDelegator Rewards

150 SOL

A 350 SOL

55,943

10%

5,594

21,578

200 SOL

28,770

150 SOL

B 350 SOL

56,891

5%

2,845

23,162

200 SOL

30,884

400 SOL

C 400 SOL

64,244

5%

3,212

61,032

TOTAL

177,080

From the above, we can see that validators A and B have the same stake-weight, however they have a different number of credits. As a result the delegators to validator B have earned higher pre-commission rewards.

In the next sections, we will go through the methodologies for computing the delegator APR and validator APR.

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