Polkadot / Kusama Staking Strategies
A quick note before you start. Key ideas of this article has been highlighted in bold. If you need to scan the key ideas for a quick read, you can read the bolded text.
If you’re familiar with staking Polkadot / Kusama, this will cover some of the more advanced topics on staking strategies and the various considerations for each. If you’re new to staking Polkadot, Kusama, you can check out my other guides below.
How to create Polkadot wallet and stake DOT tokens
How to create Kusama wallet and stake KSM tokens
Without further ado, let’s dive into the more nuanced strategies of staking DOT / KSM. I’ve organized this write up into 5 distinct sections, each with a specific goal in isolation. In reality, your overall goal is more likely a combination of these so you’ll need to balance them against each other.
1 — Minimum requirement
Before getting started with the other sections, this will dictate what you can do. Check with https://polkaview.network/dot to see if you have well above the required amount of tokens to stake on your own wallet. I recommend having at least 30–50% more than the minimum required amount. This amount fluctuates daily, but is usually rising. If you don’t have 30–50% more than the minimum required, the best recommendation is to stake with an exchange.
2 — Minimize slashing risk
Slashing occurs when a validator acts badly. This can range from the validator node being down to having duplicate keys to actively attacking the network.
When optimizing for lowest slashing risk, the 3 main things to consider are:
- Number of nodes from the same validator in your set
- Amount of DOT self-staked by the validator
- Whether validator has been slashed before
One factor in slashing severity is dependent on how many nodes of that validator are acting badly and how many of those you have nominated in your validator set. For example, in its simplest form without accounting for slashing type, if you nominated 1 validator ZYX in your validator set of 16 and that validator node is down and slashed, you get penalized 1/16 (6.25%). If you nominated 2 validators ZYX and ZYX/02 in your validator set of 16 and both of ZYX nodes go down, you get penalized 2/16 (12.5%). Although good validators will spread out each of their nodes on different infrastructure, not all validators will do this. Thus, if a validator has all its nodes located in San Francisco and the area gets hit with a major power outage (or a big earthquake) and all the nodes are down, the penalty is more severe.
With this in mind, the optimal strategy to minimize slashing risk is to have 16 validators, all from unrelated parties. In this scenario, you avoid having ZYX and ZYX/02 and ZYX/03 all in your same validator set. Thus, all other things being equal and you’re deciding to nominate either option 1) ABC + ZYX or 2) ZYX + ZYX /02, go with option 1 since it spreads out your risk into 2 different validators.
The 2nd factor to look for is how many DOTs the validator has staked to its own node. All other things being equal, given 2 choices between validator ZYX which has self-staked 1 DOT vs. ABC which has self-staked 10,000 DOT, you should choose validator ABC. Validator ABC has much more significant money on the line and therefore is more incentivized to guard its node against slashing since its own large stake will also be slashed. In practice, you’ll need to consider a balance of this factor against other factors at play.
The 3rd factor is to avoid validators that have been slashed before. This is an important signal, but is likely the hardest to track unless you’ve been looking closely at the slashing announcements on a regular basis. All slashes are announced and kept on the display for several eras. However, there’s currently no simple way to see a slashing history unless you search through subscan.io for that specific validator’s slash history. Even with that, there are steps that validators can take to hide their slashing history, which I won’t go into here.
3 — Maximizing yield return
On the opposite spectrum of minimizing slashing risk is optimizing yield return. The 3 biggest factors in optimizing your yield returns are:
- Ensuring your staked DOT are being staked and rewarded
- Selecting validators with the highest yield
- Selecting nodes with the lowest commission
Ensuring your staked DOT are being staked and rewarded
This sounds obvious but there are 3 things that can affect whether your staked DOT will be staked and rewarded.
- Minimum required DOT — This is covered above in section 1. Simply restated, if your stake is below the minimum required DOT, your DOT is not actively staked and you won’t get rewarded. That brings your return to 0%.
- Oversubscribed validators — You’ll want to avoid nominating oversubscribed validators. When a validator is oversubscribed, only the top 128 nominators with the highest staked amount of DOT on that validator will get prioritized for reward. All other nominators that are not in the top 128 of the staked amount will NOT get rewarded, even if your stake is above the minimum required DOT. In the example below, there are 6 nominators that are not getting rewarded for this oversubscribed validator. All 6 nominators have more than the minimum required DOT for staking. However, for this validator, the top 128 nominators have at least 215 DOT staked. To avoid this situation, you can either stake more DOT to make sure you’re in the top 128 nominators or you can nominate another validator that’s not oversubscribed.
3. Inactive validators — In general, you’ll want to balance having inactive validators with active validators in your validator set. Inactive validators won’t generate rewards for your stake so you don’t want to nominate all 16 validators who are inactive. With that said, I have a few inactive validators in my set because I want to support them.
Lastly, if you’re a whale with more than 1.7M DOT, the current minimum DOT to get a validator in the active set, there is an additional consideration of splitting up your stash into 2+ accounts to maximize yields.
I’ll be covering these strategies in my next update to this page.
4 — Flexibility / liquidity
5 — Other considerations — ownership of keys, exchange hack risk, potential future airdrops, decentralization/centralization balance
Nominate us!
If you find this info useful, you can support us by nominating our validators. We’re real validators who also stake and nominate. Some of these strategies may not earn us the most nomination as a validator (such as our strategy on minimizing slash risk) but if it’s the right advice for nominators, we feel compelled to share the right advice.
Our validator nodes are: EARNSTASH, EARNSTASH /02, EARNSTASH /03, and EARNSTASH /04
DOT validators: 15SPD9eHQPxwKFn6dBLewyDuoo4wcQeByocub1DTWyXjx5k3
1jmx768pECdLBqMiotrrBatybwAoqUjqMqJoPe3UtoX3ton
KSM validators:
JBuHBvnqpyb1Qtm7173z4ET1BnmjTMcdDdo7WzbnSbGa4vZ
EaDzFVuQsiXQ9ADxRFKRa2K5sFZndPzkvJTMLVcEAi1zrMU
E2UjGFKxgZfcFmTAXN4s61Cwum1LUm58WHNVRUmGMGHe6EW
DB7TzV6pkybdCQPTTKYv2HZshTeYkVcjY8pckMXNGYYvnox
