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Auctions, Bonds & Rewards

Let's dive into how Validators win auctions and earn rewards.

Auctions

What is the Validator Auction?

The Validator slots are granted based on a rolling Auction, whereby the highest bidders that complete Keygen at the end of each Auction are selected as the Authority Set for the next Epoch. On Perseverance, this is 3 hours long, but may be longer in production.
Auctions begin halfway between the start and the expected end of an Epoch. During Auctions:
  • Bidding Validators may not withdraw any funds and may not change their state to Non-Bidding.
  • Non-Bidding Validators (without a current bond) can withdraw funds and can change their state to bidding.
  • All Validators can stake extra funds at any time
In order for a node to retire, it must therefore enter a Non-Bidding state before the next Auction begins. See Validator Statesfor more information.
Validators place their bids on the Ethereum network with the ERC20 token FLIP. These bids are recorded by the current Validators via the witnessing process. Bidding is a passive process, with Validators encouraged to lock the maximum they’re willing to pay for the slot with a single transaction.

Resolving an Auction

To resolve an Auction, first, the Minimum Active Bid is determined by finding the 150th best bidder from the Auction (Or, if the Authority Set Size Cap is changes, whatever that number is, for example the 300th). Where the previous set size is smaller than the Authority Set Size Cap, the growth of the set size is limited to an additional 50% of open slots. If a Validator’s bid is higher than or equal to the Minimum Active Bid at the conclusion of an Auction, that Validator is a part of the Primary selection group for KeyGen. Validators that fail this KeyGen are then replaced by the next best bidders in the Secondary group (Backup Validators) until a successful KeyGen is reached. If no successful KeyGen occurs with the Authority Set Size Cap, the set size will continue decreasing until a successful KeyGen is achieved.
Explaining Auction Resolution

Bonds

During the ensuing Epoch, all successful nodes are Bonded to the value of the Minimum Active Bid for that auction. Any amount staked in excess of the Bond at the conclusion of an Auction can be withdrawn by the bidder between Auctions.
Validators selected from the secondary set or who have been slashed may have a balance lower than the Bonded amount. This means they will not be able to make any withdrawals until they have a balance in excess of their bond, or the bond expires.
The balance of bidders with our without a bond will be considered as an implicit bid in the next Auction, including any rewards the Validator has earned from their node. This still means that current Validators might have to top up their bid between auctions to keep their slot, but if it’s high enough, do not need to do anything extra in each auction cycle.

Authority Rewards

The most lucrative form of rewards are paid to the current Authority Set. These rewards are distributed to each Validator in the set each time they author a block on the State Chain.
Every Authority member earns equal rewards during an Epoch, regardless of their stake.

Backup Rewards

A fixed reward (much less than the Active Set reward) is split between the Backup Validators each Epoch. So long as a Backup Validators is Qualified (see Validator States), rewards will be paid to it each heartbeat interval based on their stake, proportional to their share of staked FLIP in the total number of FLIP staked in Backup Validators. However, Individual Backup Validators can't earn more than Authority Validators.
The limit of Backup Validator slots is 1/3rd of the current Authority Set size.
Sidenote: In an Emergency Rotation, only the top third of Backup Validators will be included in the Emergency Set. This is to prevent mass deregistration events allowing large numbers of low-collateral nodes to form a superminority in the vast majority of cases.