What is a Nominee?
In a blockchain network operating with a nominated proof-of-stake ( NPoS ) algorithm, the nominee represents one of the two main actors after the validator. Nominators play an important role in the network by selecting validators they trust to participate in block production and validation.
By nominating validators, nominators contribute to the decentralization and security of the blockchain network. Validators, on the other hand, are responsible for validating and adding new blocks to the blockchain. In other words, nominators and validators collaborate to maintain the integrity and functionality of the blockchain network and ensure its smoothness and reliability.
In traditional proof-of-stake (PoS) networks, the influence held by entities involved in mining or validating network transactions is directly correlated to the quantity of network tokens they hold. Simply put, the greater the number of tokens owned by a miner or validator, the greater the mining power.
Apart from transaction validation and mining, this authority also covers various decision-making processes in the network. In particular, this is often leveraged in governance functions, where validators actively participate in voting on proposals that shape the network's future development trajectory. This governance mechanism ensures that stakeholders with large token holdings play an important role in determining the evolution of the network and guiding its governance decisions.
However, as observed in various implementations of decentralized autonomous organizations ( DAO ), not all validators or miners consistently use their voting rights in every decision making. This may be due to factors such as their unwillingness to actively participate in any voting event or their reluctance due to the commitment of time and resources required to understand the often complex technical aspects of a particular decision. One approach to addressing this challenge is through a variation of PoS known as NPoS, where validators who are permitted to engage in a consensus protocol are elected or nominated. NPoS is mainly used in Substrate-based blockchains such as Polkadot and Kusama.
Relationship Between Nominators and Validators
Validators play an important role in securing and maintaining network services by generating new blocks and validating parachain blocks. They operate continuously, leveraging the network's native token to support themselves as validators and to enforce their compliance with protocol regulations. Non-compliance with regulations incurs penalties, commonly known as “garnishments”, while compliance entitles them to a portion of the fees generated by network services.
However, in NPoS, validators must be elected to participate in each active set, which is a specific time period that usually extends as the block height increases. This is where nominations become relevant. Nominators, also token holders, are not actively involved in consensus for various reasons, but leverage their economic support, represented by the tokens they own, to nominate validators of their choice for active slots. They are incentivized to do so by receiving a portion of the rewards earned by validators they nominate in active slots. Similar to validators, nominees must comply with protocol rules or face penalties.
Validators receive active slots according to their nominations. As a result, validators with more nominations and a higher token value supporting them have a greater chance of being selected to become the next active validator member.
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