Have Jailed Validators Learned Their Lesson?
CdC’s recent upgrade on Jun 1, 2021, sent shockwaves through the validator ecosystem, and resulted in 29 additional validators being jailed. Some also became inactive – perhaps permanently (see also our blog entry, My Validator Got Jailed – Should I Panic?). This is an alarming development for delegators, because they do not earn staking rewards while their validators are jailed. As a result, many jailed validators lose significant amounts of delegations, and may even drop off the Top 100 List. Jailing results in a minimum of 24 hours with no staking rewards for delegators. But that is only if the team behind the validator can fix the problem rapidly, such as completing an upgrade and broadcasting an “unjail transaction” to allow the validator to resume normal operations. Dropping off the Top 100 List means delegators cannot earn staking rewards until the validator rejoins that list, an increasingly competitive proposition. In any event, delegators can only resume earning staking rewards if they redelegate their CROs with another Top 100 validator.
On June 8, 2021, we verified how material the risk of jailing and dropping out of the Top 100 List (becoming inactive) is for delegators. We found that 9 of 60 jailed validators continued to have substantial delegations of at least 10,000 CROs, and in total about 2.5m in CROs in delegations. This would be a substantial amount unable to earn rewards. Furthermore, some of the validators have been jailed more than once.
All the other 51 jailed validators have insignificant delegations of less than 1,000 CROs left, of which the vast majority are self-delegations. They thus have no negative effect for the delegators. The inactive validators will need to attract about 650,000 CROs (as of June 7, 2021) in delegations or self-delegations to re-join the Top 100 List.
There are also 7 inactive validators with substantial delegations of above 10,000 CROs. Their status is inactive because the total amount of delegated CROs is less than that of the ranked 100, based on total delegated CROs. Inactive delegators do not earn staking rewards for their delegators.
Until recently, these inactive validators were included in the Top 100 List, but lost delegations due to, e.g., jailing, or failure to attract enough further delegations to maintain their spot. Total CROs under delegation for these validators is approximately 2m in CROs. It is likely to be challenging for them to re-join the Top 100 List, however. Because staking rewards are not earned for their delegators, the delegators often end up redelegating in order to receive rewards.
In sum, the jailing of a validator is a risky event for delegators. They not only lose their staking rewards for at least 24h, but they may face a scenario of significant redelegations, resulting in a change in status from “bonded” (meaning included in the Top 100 List) to “inactive.” In this case, a jailed validator may never re-join the Top 100 List to generate staking rewards for its delegators. Therefore, delegators would do well to do their own research before choosing a validator. For insights and a checklist on how to choose a validator, please see our blog entry, How to Choose a Reliable Validator?.
As of June 8 , 2021 2,077,158 CRO remains on jailed validators. It might be time to check on your validator!