Stake Your IOTA Tokens To Earn Token Rewards
EDIT: IOTA staking is now live! Find out more here.
Today, we are happy to announce the introduction of IOTA staking. The expansion of the token utility of IOTA will offer new opportunities for token holders to be rewarded for their participation in the growing ecosystem.
The Shimmer network, IOTA’s staging network, will be the first project to use the IOTA network to fairly distribute its entire token supply – transforming the IOTA Tangle into a fair launchpad of unseen possibilities of new token economies.
This blog post explains the reasons behind the decision to transform the IOTA ledger into a fully-fledged multi-asset ledger and how IOTA will become a fair launchpad for new token economies and networks.
Becoming the first multi-asset ledger without transaction fees
IOTA is currently transforming into a fully decentralized, programmable multi-asset ledger. In combination with Smart Contracts, IOTA will be a powerful network that allows builders to push the current boundaries of innovation and reach mainstream adoption.
Builders today are creating ever more sophisticated dApp ecosystems with unique token models and economics. In order to do so, they require a secure, fast and cheap DLT infrastructure to focus on building their products and growing their community, while being able to rely on predictable low fees. IOTA’s unique architecture of layer 1 tokenization with feeless transactions, and layer 2 smart contracts with full EVM compatibility and atomic composability, empowers builders to create dApps with the flexibility to customize everything – including execution fees, rewards, and token incentives.
The introduction of these technical innovations to the IOTA protocol makes it possible to easily tokenize any asset, create and trade NFTs or mint your favorite dog coins – all without any transaction fees. Beyond specific token use cases, however, we envision that IOTA will become the base layer for entire token economies. Exactly because of the flexibility to define fee structures and token incentives, IOTA will be able to host technical and financial innovations that are not possible anywhere else in the crypto realm.
The underlying foundation of these token ecosystems will be the IOTA Token ($IOTA), turning the native token of the IOTA network into a launchpad for new token economies. As one of the oldest DLT networks with no premine and fair token distribution since its inception in 2015, IOTA offers innovators the opportunity to launch their own token economies and invite one of the largest crypto communities through open token distributions. What has been missing until now was a mechanism for new token networks to easily and fairly distribute their tokens to IOTA token holders.
What is staking on IOTA?
In comparison to a Proof of Work system, Proof of Stake (POS) blockchains are secured by token holders who actively participate in the consensus by staking their tokens. POS helps to pick a winner from a set of validators to assign important tasks, such as block production, for which rewards are distributed. Usually, the process of staking involves requirements such as minimum staking amount, duration, slashing penalties, or cool-down periods.
In IOTA, staking will work differently than in traditional Proof of Stake. The staking process is not inherent to the security of the network in its current form (this might change with future protocol upgrades). Instead, IOTA staking is a process whereby IOTA token holders can participate in the open distribution of any kind of new token. It is a mechanism to fairly distribute new tokens to a set of already existing, active users. One could also define IOTA staking as “rolling airdrops”.
With the introduction of staking to IOTA, we want to make fair token launches accessible to the entire community and give innovators the opportunity to incentivize a large and passionate community. By becoming a multi-asset ledger, IOTA will offer many more possibilities for token holders to utilize their tokens and participate in new opportunities.
How does staking work in IOTA?
Staking IOTA tokens is done through a simple transaction within the Firefly wallet to indicate to the network the beginning of the participation in staking tokens. All nodes in the IOTA network using the new staking plugin can recognize and process staking information, record them individually and calculate rewards associated with any IOTA addresses on which staking has been activated.
All participating staking nodes therefore continuously calculate all rewards and update their local view of “who should get how much” roughly every 10 seconds. Nodes running the staking plugin are accordingly also able to serve users with the current staking status and continuously updated, calculated rewards.
All users need to do is connect to a node that runs the staking plugin. Firefly guides users to a different node in case they connect to a node that is not able to serve staking information.
Staking information is attached to IOTA addresses and shared by all participating staking nodes. The nodes, therefore, get the same information and are individually able to calculate rewards. In this way, we can guarantee that staking rewards can be individually validated by nodes and users connecting their Firefly wallets to nodes.
Please note: Connecting wallets to nodes that are unable to serve updates on staking information (due to them not running the staking plugin) does not interrupt the staking process. It simply means that Firefly can not update the status and reward information.
Staking rewards are assigned to IOTA mainnet addresses - the ones holding the IOTA tokens that are being staked. To acquire rewards (e.g. Shimmer tokens on the Shimmer network), users will need to sign a special transaction with Firefly, using the private key for the address the original, staked IOTA tokens were held on. Firefly does all this automatically through a click of a button.
After staking ends or after users decided to no longer stake IOTA tokens, users can safely transfer their IOTA tokens to other addresses, but should ensure they look after their private keys in order to be able to have Firefly sign the transaction that makes rewarded tokens accessible e.g. the Shimmer network.
What are the IOTA staking rewards?
The IOTA supply is capped and IOTA is one of the few networks without inflation. When someone stakes IOTA tokens, the staking rewards are therefore not paid out in newly minted IOTA tokens, but in the tokens which are launched on the IOTA network and on other networks. This means that users will not earn more IOTA tokens, but will earn tokens from new crypto networks or applications. The best example of this process is the Shimmer network. In this case, IOTA token holders can stake their IOTA tokens to receive Shimmer tokens as rewards.
IOTA staking offers token holders the opportunity to be early in the token distribution of new projects and networks. Instead of missing out or being pushed out of public sales or airdrops, anyone is able to participate and earn token rewards. Staking IOTA tokens means not missing out on new token opportunities and being rewarded for showing an early interest in participating in emerging token economies as they are built.
The first project – the Shimmer network – has already been announced to distribute the entire token supply to IOTA token stakers. The official start of staking will be announced 24 hours before the staking begins on the official Shimmer Twitter account and through the Shimmer subreddit.
Get ready: it’s time to stake rewards on IOTA.
Is staking secure? Will staked tokens stay in my control?
Yes, absolutely. The staked tokens will always stay in your control. They neither need to be sent to a third party nor do private keys have to be shared with anyone. To stake IOTA tokens, Firefly attaches a special message to IOTA tokens by sending them to the same address they currently reside on.
How soon do I receive staking rewards?
Staking rewards are generated immediately with the start of a new staking period. Staking for a specific reward is announced by projects that want to distribute staking rewards. Once the staking period starts, stakers will be earning staking rewards usually every 10 seconds. Reward tokens are automatically issued to the Firefly wallet of the staker and can only be accessed by that wallet holder. Depending on the project doing the token distribution, the tokens might only be accessible with the launch of the actual project. Please refer to the individual project for more information when your tokens become fully available.
How and when can I unstake my tokens?
Whenever you want. Staking on IOTA is completely fluid and there are no freezing or activation periods.
Is this like airdrops?
Somewhat. You could see IOTA staking as rolling airdrops or lock-drops, coming in every 10 seconds.
Why don’t you just airdrop tokens to random accounts?
The idea is to incentivize active community members in order to allow new ecosystems to grow. To flourish, new economies need users that are willing to participate. Having users actively staking their IOTA tokens to gain rewards allows builders to separate the wheat from the chaff and only reward active users that care about upcoming economies and the opportunities presented through them. Simply speaking: builders are not interested in inactive, dormant users.
When does the first staking for Shimmer begin?
Read everything about the new Shimmer Network here.