Configuring stake on the NuCypher network: decision-based scenarios
January 26, 2022
Our guide to configuring a node’s NU token stake outlines the key decisions, implications and four staking scenarios to help you understand the benefits of each approach.
Launched in October 2020, the NuCypher network is a privacy layer for blockchain and Ethereum applications that uses proxy re-encryption to provide decentralized access controls and key management.
How its participants configure their stake on a node has an effect on how quickly ETH is unlocked, the liquidity of rewards in its native token NU, the reward rate received by the node, and more.
This guide outlines some options available to node operators and details a few scenarios to help participants understand how they might set up a stake in accordance with the network’s rules. The guide and scenarios outlined are based on how the network is intended to function; there are always risks inherent to staking activity, including the risk of loss.
Key considerations when setting up your locked NU stake
The lockup period for NU
The minimum lockup period for non-WorkLock NU tokens is 30 days, or 180 days for WorkLock NU tokens. Locked NU tokens become available at the end of this fixed period if Wind Down is ON. If Wind Down is initially OFF, it must be turned ON to unlock the NU tokens. Unlocking occurs n days from the time it is turned on, where n is the original lockup period selected.
Wind down: on or off?
ON: Locked NU tokens are staked for a fixed lockup period. The reward rate decreases slightly every day as the lockup period diminishes. Locked tokens become liquid at the end of the lockup period and can be transferred or used to initiate a new stake and continue earning rewards.
OFF: Locked NU tokens are staked at a constant reward rate for a fixed lockup period. Wind Down must be turned ON to begin gradually moving toward unlocking the tokens.
Restaking: on or off?
OFF: Rewards earned by the node are immediately available for use (liquid) and do not compound.
ON: Rewards earned by the node are automatically staked to the node to generate additional work and rewards. Rewards earned are unlocked at the same time as the original locked tokens.
The longer the lockup period, the higher the reward rate set by the network. The relationship between lockup period and reward multiple is linear:
180 days = multiple of 0.5
270 days = multiple of 0.75
365 days = multiple of 1.0
A participant’s total stake can be divided into a maximum of 30 sub-stakes, each with a specific lockup period. Sub-stakes offer NuCypher participants much flexibility: setting a shorter lockup period for a sub-stake, for example, provides faster liquidity on those tokens; setting a longer lockup optimizes a sub-stake to receive a higher reward rate. All sub-stakes are subject to the same Wind Down and re-staking choices.
Although all these decisions apply directly to your stake rather than your node configuration, Coinbase Cloud is happy to discuss any of the above strategies with our customers. Contact us to learn more.