Sui has a native token called SUI, with a fixed supply. Sui is backed by a number of state-of-the-art peer-reviewed works and years of open source development.
SUI tokens serve four purposes on the network:
- They can be staked to a validator in order to secure the network and earn stake rewards.
- They can be used to pay gas fees to execute transactions and other operations.
- They provide on-chain liquidity that underpins the whole Sui economy.
- They give holders the right to participate in future governance.
The voting power of validators within this epoch is a function of the amount of SUI in their staking pool, including both validator and user SUI tokens. In any epoch, the set of validators is Byzantine fault tolerant. At the end of the epoch, fees collected through all transactions processed are distributed to validators according to their contribution to the operation of the network.
Validators can in turn share some of the fees as rewards to users that stake their SUI with them.
A transaction in Sui is a change to the blockchain. This may be a simple transaction affecting only single-owner, single-address objects, such as minting an NFT or transferring an NFT or a different token. These simple transactions may bypass the consensus protocol in Sui.
More complex transactions affecting objects that are shared or owned by multiple addresses, such as asset management and other DeFi use cases, go through the Narwhal and Bullshark DAG-based mempool and efficient Byzantine Fault Tolerant (BFT) consensus.
Sui network uses Delegated Proof-of-Stake consensus mechanism where token holders elect a limited number of validators, who are then responsible for validating transactions and maintaining the network’s security.
Operations are processed by validators who got Sui tokens staked by delegators. In return for contributing to processing the operations, validators and delegators receive Sui staking rewards at the end of every epoch.
A validator's share of total stake is relevant in that it determines each validator’s share of voting power for processing transactions. Staking SUI implies the SUI tokens are locked for the entire epoch. SUI token holders are free to withdraw their SUI or to change their selected validator when the epoch changes.
Sui’s Use of Delegated Proof-of-Stake
Within each epoch, a fixed set of validators are responsible for operating the network. This set is chosen based on the amount of SUI tokens staked to the validator. With Delegated Proof-of-Stake (DPoS), Sui allows for the broadest possible participation of token holders in network operations. Importantly, by using staked SUI token amounts as a proxy for voting power, the right degree of “skin in the game” is established—those who care most about the network’s future get a larger voice in its current operations.
Most SUI token holders will not have the funds, ability, or desire to run a validator but want to participate in securing the network. To do so, they “back” a validator they believe to be a good actor by delegating their tokens to that validator’s stake. These delegated tokens help the validator reach the minimum amount needed to be part of the active set of validators for the epoch. The tokens are locked for the epoch, meaning they can’t be transferred or sold.
In exchange for operating and securing the network, the validator receives stake rewards in the form of SUI tokens. Stake rewards are equivalent to gas fees plus staking subsidies. In the early phases of the network’s life, a majority of the stake rewards will come from subsidies. As the network matures and activity grows, subsidies will be phased out and stake rewards will come solely from gas fees.
A validator receives rewards largely in proportion to their percentage of the total stake in the network, although it can be boosted or diminished based on the storage fund and tallying rule. The rewards are then distributed to all token holders who delegated to that validator’s stake, minus a small commission fee paid to the manager of the validator. This design aligns the incentives of SUI token holders and validators as non-performant validators receive slashed stake rewards, causing SUI token holders to move their stake to more performant validators. Since validators would like to keep their stake, they are incentivized to perform well.
On Sui, all validators receive their share of rewards every epoch, removing any concerns related to preference for larger stakes that can be seen on other networks.
Delegators can unstake Sui and start spending the assets anytime with the exception of ‘pending period’ (the period before the end of current epoch).
Here are a few things to remember about Sui staking:
- Auto-compounded staking rewards
- Instant unstaking
- Rewards distribution at the end of an epoch (24hr)
- ‘Pending period’ before the end of first epoch