If you own any of Terra’s $LUNA tokens you might have come across the term “staking” or “delegating”, which refers to the process of lending out your LUNA tokens to validators on the Terra platform. If not don’t worry, this article will go through step by step how anyone can get to staking their LUNA (using LOTS of screenshots).
But first let’s ask
Why stake?
To earn interest
The interest received from staking (otherwise known as delegating) is primarily in the form of more LUNA tokens, although some of the interest might be paid in the form of other coins such as stable coins UST and KRT. As long as someone is staking their tokens, not only do they get to earn interest rewards on their staked LUNA through the Terra platform, but they can also collect airdrops exclusive to individuals who partake in staking.
To vote
While most individuals lend out their assets to collect interest, staking your LUNA provides a little bit more utility than just earning you a percentage. Staking on Terra can be thought of as two-pronged as it allows delegators (individuals that stake their LUNA with validators) to not only earn interest on their assets, but to also participate in governance on the Terra platform.
The Terra platform can be viewed as a republic where validators are the public officials, and delegators are the voters. When individuals stake their LUNA with validators, they are also delegating their LUNA which subsequently provides validators with voting power. The more LUNA staked/delegated, the more voting power a validator has, and the more influence that validator has over issues that arise in Terra’s governance.
To do good
Staking on Terra also gives individuals a unique opportunity to do some charitable good, and some good for the Terra ecosystem as well. While most validators exist to pass on interest rewards to the individuals staking with them, some of them exist to pass on the interest rewards to other organizations by keeping a 100% commission. Delegators of course still get to collect airdrop rewards as only LUNA rewards are ‘donated.’
Angel Protocol is a blockchain enabled endowment organization, set up to help facilitate the continuous funding of several charities throughout the world. When one delegates their assets to Angel Protocol, 100% of the validator commission is going towards charitable funding.
Flipside is another fantastic validator which utilizes its commissions to give back to its open community of data analysts. 100% of the yield generated from delegated LUNA go towards rewarding individuals who complete data analytic bounties using the Flipside platform, and are subsequently used to support the Terra ecosystem with on-chain analytics.
How to Stake your LUNA Tokens on Terra Station
Now here’s the good part everyone’s looking for. First things first, be sure to download the Terra Station application from https://www.terra.money/ — you won’t be able to stake your LUNA using just the Terra browser extension alone.
After installing and opening the Terra Station application you’ll find an interface that looks like the one below.
Click connect where you will be given the option to import the private key of an existing wallet, or to create a new wallet if you still need to.
After selecting a wallet to use, and assuming you already have LUNA in your wallet, you can then select the “Staking” option on the left hand side of the interface to begin staking your LUNA.
Once on the staking tab, you will see a number of options or ‘validators’ where you can delegate your LUNA.
For the sake of simplicity I’ll go ahead and delegate my LUNA token to Stake5 Labs, the first validator on the screenshot above. Simply click on a validator’s Moniker and you’ll find yourself at a page similar to the one below.
Click on delegate and input the amount of LUNA you wish to delegate. Remember to always leave a little bit of LUNA undelegated so you can pay any fees associated with the delegation process.
As you can see below there is a fee associated with delegating your LUNA, but it usually isn’t very big. Once you’re ready to approve your LUNA for delegation simply enter your password and you’re good to go.
Congratulations! You are now staking your LUNA token.
Now you might have a few questions here like what is a validator? and what are the yields? Let’s dive a little deeper into what it really means to delegate or ‘stake’ your LUNA tokens.
What exactly is a validator?
Validators in a very simple sense can be thought of as bouncers at a nightclub, ensuring only certain people get in. The club goers are transactions and the validators are the bouncers. Their job is to screen transactions and ensure that they are legitimate so that they may be added to the blockchain. When someone initiates a transaction, it’s up to validators to evaluate it and qualify it. It’s important to note that validation isn’t necessarily unique to Terra, and that Terra adopts a proof of stake or PoS model for validators. I personally like the explanation provided by Deltec Bank for a more in depth review of PoS validation (no affiliation).
Validators collect fees for their services which are detailed by the documentation on terra.money
Validators and their delegators earn the following fees:
- Compute fees: To prevent spamming, validators set minimum gas fees for transactions included in their mempool. Fees are then dispersed proportional to a validator’s stake at the end of every block.
- Stability fees: To stabilize the value of Luna, the protocol charges a small transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. Fees are then dispersed proportional to a validator’s stake at the end of every block.
- Swap fees: A small spread is charged on atomic swap transactions between Luna and any Terra currency, which is then used to reward validators that faithfully report oracle exchange rates.
But they don’t just serve to review transactions, as they also participate in governance which determines things on Terra such as fees, rewards to validators, and so forth. The more LUNA you delegate or ‘stake’ with a certain validator, the more voting power that validator has and the more influence it has over governance proposals.
The voting power of each validator can be seen on the staking tab underneath the “Voting power” column.
You can see proposals, past and current, rejected and passed, on the “Governance” tab. Though many governance proposals may never affect you in a significant manner, you should keep in mind your delegations are kind of like your vote. You delegate your LUNA to validators who then use the LUNA delegated to them to weigh in on proposals.
What are the yields?
Yields for staking on Terra Station can be seen on the dashboard tab in the app and will look like the chart on the left.
The staking return may appear quite low (only 4.77% a year at the time of writing, 10/13/2021), but there are times when individuals staking their LUNA can earn more as seen when rewards spike.
These spikes are caused by token airdrops which are rewarded to individuals staking their LUNA tokens. You can see which airdrops are live here https://lunaairdrops.com/ and claim any airdrops you might have if you’re currently staking. Besides airdrops however, your reward for staking on Terra Station is the percentage you see on the dashboard tab.
Airdrops have to be collected manually and are separate rewards than what can be collected in the Terra Station app. For example if you wanted to collect the mirror token MIR, you would have to visit https://terra.mirror.finance/ and collect the air drop in the mirror app. Once you stop staking in Terra Station, your mirror token rewards will stop accruing as well.
LUNA staking rewards aren’t entirely determined by the return detailed on your dashboard tab, as the validator you choose to stake with has some influence over your returns.
The validator commission column details how much reward is kept by the validator. Though many keep 0% commission, some do not.
Commissions are calculated as a percentage of a percentage. For example, if the current staking reward is 5% and a validator commission is 5%, then the validator will collect 5% of all staking rewards and the actual staking reward passed on to a delegator will be 4.75%. Commissions are only based on the LUNA reward and not on airdrops; validators do not collect your airdrop rewards.
You may have seen a “Delegation return” column such as the one in the screenshot below if you’ve read other LUNA staking guides. This column is no longer present on Terra Station due to reasons detailed here. For the most part, the returns between validators are rather similar (as of 10/13/2021) and can be compared here.
The key things to look for when choosing a validator are the commission and the uptime (can’t collect fees if you’re not active!), and of course what they stand for. Besides fees, governance and what a validator may vote on should dictate where you delegate your LUNA.
And that’s that! Hopefully this article was at least a little bit informative and if you’d like to show your support you can visit the links and socials below. Thank you and I love you.
