The upcoming Phase 4 update for staking in the MultiversX ecosystem, expected in March or April 2024, will introduce several key enhancements to the network’s staking mechanism. This phase is part of the Vega Upgrade and is designed to build upon the improvements made in the previous Sirius Upgrade. It aims to augment the network’s security, efficiency, and decentralization.
One of the main highlights of this update is the introduction of changes that will likely impact the staking process and the operational dynamics of validators and staking providers, as well as alter the governance mechanisms.
This article explores the novelties that the upgrade will introduce and their effect on the staking experiences and the ecosystem as a whole.
What’s New in Phase 4 and How Does It Compare to Previous Iterations?
Phase 4 builds upon the developments from the previous Phases 3 and 3.5 and introduces several important features.
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Enhanced decentralization and security. The new phase aims to further decentralize the network by adjusting the number of validators and the staking requirements. This is an improvement on the novelties of Phase 3, which allowed more validators to participate, and those of Phase 3.5, which optimized the staking process.
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Soft auction system. A sophisticated auction mechanism will be implemented to streamline the process of validator selection to create a more fair and competitive environment for their operation.
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Limiting provider dominance. The update seeks to encourage the growth of professional validators while limiting their ability to dominate the entire ecosystem, all with the aim of boosting decentralization.
The MultiversX community is already actively engaged in shaping Phase 4 through discussions in the Agora. The feedback and collective insights will be taken into account and implemented in the final version of Phase 4.
Staking Providers vs. Validators
Phase 4 will make greater use of the distinction between validators and staking providers. Since their roles are slightly different, the changes seek to introduce more fairness and decentralization to the overall staking process.
In MultiversX, validators play a more or less typical role, similar to other Proof-of-Stake blockchains. Their nodes gather transactions and form them into blocks, which are then validated and processed. Validators also play a crucial role in consensus, ensuring that only valid transactions make it to the blockchain. Importantly, validators cannot accept delegations of EGLD from other users. A validator must have at least 2,500 EGLD to run a node.
Staking providers, however, can. They can accumulate an additional stake from the community and thus increase their influence and potential rewards since they also validate the network. This technically poses a centralization risk since several such providers could collectively handle too many tokens and thus lower the Nakamoto coefficient and make network hijacking theoretically feasible.
Phase 4 seeks to make this scenario impossible or less likely by limiting the maximum number of nodes a staking provider can run to 50. Notably, the MultiversX Foundation itself currently runs 555 nodes.
Furthermore, the MultiversX community, composed of members from Valid Blocks and Titan Stake, has introduced an advanced staking simulator tailored specifically for Phase 4. This simulator represents a significant leap forward in understanding and optimizing staking strategies within the platform. Accessing essential information such as validator Stake, TopUp stake, nodes, fees and more is effortless within the platform.
Soft Auction vs. Queue
The Phase 4 upgrade also features the Soft Auction Mechanism, which has several stages according to the official description:
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Auction list compilation, which is formed of currently inactive nodes run by validators who have staked more than they currently need for their active nodes.
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Top-up calculation, which refers to the additional stake that an owner/delegator has put into their nodes above the minimum required stake.
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Calculation of a top-up per node.
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Determining which nodes qualify according to the preset criteria.
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Sorting and selecting the nodes.
This contrasts significantly with the current queue mechanism, which implies that nodes first join a queue, and then, upon the discretion of the MultiversX Foundation that distributes its own nodes, the first 25-35 ones in it become active and start participating in consensus.
The soft auction mechanism is set to ensure that more validators and nodes can participate in the network operation, which would theoretically increase the blockchain’s decentralization and allow for a more secure environment.
The detailed flow of node operation in Phase 4 is shown in the image below, depicting all the statuses (eligible, waiting, and joining the auction list) that they get in the process.
The Importance and Long-Term Effects of Staking Phase 4 in MultiversX
By making the node selection process more inclusive and fair, the network makes the consensus mechanism more evenly distributed and involves a greater number of participants in it. This diversification helps reduce the concentration of power and mitigates the risks associated with centralization, such as single points of failure or targeted attacks on the network. It also has a positive impact on the Nakamoto coefficient.
Phase 4 is an essential milestone in increasing the security and scalability of the network. They can make the ecosystem more attractive for developing decentralized applications (dApps) and investing. The community’s more direct involvement in governance will also ensure that MultiversX will evolve in line with the interests of the network participants.
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