Rewards

To maintain the network, Tezos needs bakers (also knwon as validators or delegates). They stake their tokens and use their CPU, memory space and internet connection to create blocks, manage transactions, vote, and secure the network. In exchange for the completion of these tasks, bakers are rewarded with tokens from the transaction fees or tokens created by the network. Since the Carthage update, the reward system has been updated to make the network more robust against non-cooperative baking strategies.

Inflation

Each new block generates 20 new tez as a reward: 10 tez for the payload and 10 tez shared between the one who attested the block. A new block is created each 10 seconds, which generates 42 Million tez per year ( $\approx$ 80ꜩ $\times$ 60 min $\times$ 24 hours $\times$ 365 days). At the launch of Tezos, the network was composed of 763 Million tez.

Therefore the inflation rate of the tez token for the first year was 5.5%:

\frac{42,000,000}{763,000,000}=\frac{42}{763}\approx5.5\%

For the second year, it was 5.2%:

\frac{42}{763 + 42}=\frac{42}{805}\approx5.2\%

For the third year, it was 5.0%:

\frac{42}{805 + 42 }=\frac{42}{847}\approx5.0\%

and so on ...

Therefore the inflation rate decreases a bit each year.

Note that this calculation of the inflation rate is based only on the generation of new tez. The burned tez are ignored in the formula. It is, therefore, an approximation, and in reality, the inflation rate is a bit lower.

Baking and Attesting reward

Bakers are crucial because they operate the chain by creating blocks and checking the integrity of the data they contain. Each baked block leads to the creation of new tez to incentivize the bakers to perform baking and attesting operations.

There are up to 10 tez paid in baking rewards, and 10 tez paid in attesting rewards per block (for a total of 20 Tez per block). Block rewards are split into two parts: a fixed part (5 tez for the payload producer who selects the transactions to be included in the block and the first authorized to propose a block with that payload, and at most 5 tez as a bonus for the block producer who proposes the block. In case of re- proposal, the payload producer might be different from the block proposer. Otherwise, it should be the same), and a variable part which is a bonus for the block producer, depending on the number of attestations included (beyond the 4,667 attestations threshold).

Baking rewards (fixed and variable) on each block are paid immediately, whereas attestation rewards are paid at the end of each cycle, under the conditions of participating in the consensus (performing attestation operations) more than 2/3 of its expected number of slots; and if they reveal their nonces.

Baking and attestation rewards follow the formulas below:

\bm{baking\ rewards=5 + e\times 0.002143}

where e ∈[0; 2,333] = the number of extra attestations slots beyond the threshold of 4,667.

The baking rewards are 10 tez at most, for a fully attested block (not counting the transaction fees).

\bm{attesting\ rewards=s \times 0.001428}

where s = number of attestation’s slots.

A baker may have several attestation slots among the 7,000 slots available in a given block, depending on its stake. The more stake a baker has, the more slots it gets per block.

Delegating reward

When delegating, you can earn a passive income by participating in the Tezos network via delegation. The current annual yield on Tezos is around 6% minus validators’ fee.

Every time a baker receives some rewards, those rewards are frozen for the next 5 cycles ( $\approx$ 14 days), so the baker cannot spend them. Only after rewards are unfrozen, that the baker can transfer them to someone else. Most bakers wait until rewards are unfrozen to pay it out to delegators, but some do not in order to be more attractive to delegators.

For:

$Confirmation_{time} \approx \text{20 days}$ , delegators have to wait around 20 days after delegating before starting staking.
$Frozen_{time} \approx \text{14 days}$ , bakers' rewards are frozen for 5 cycles.
$Cycle_{time} \approx \text{3 days}$ , this is the approximate time between two successive cycles.
$FirstPayout_{time}$ : The necessary time to wait before the first payout.

If your baker pays after rewards are unfrozen, you will receive your first reward after:

\bm{FirstPayout_{time}}= Confirmation_{time} + Frozen_{time} + Cycle_{time} \approx \text{37 days}

If your baker pays in advance, you will receive your first reward after:

\bm{FirstPayout_{time}}= Confirmation_{time} + Cycle_{time} \approx \text{23 days}

Rewards for cycle n come in the cycle n + 1 (after $\approx$ 3 days) so, you will then receive your delegating reward every 3 days.

There are no direct risks of delegating tez. The only risk you take is not earning the potential rewards. Carefully choose your baker to ensure the quality of service and reward.

When delegating, your tez are completely liquid. You are free to move your tokens anytime as there are no freezing periods when delegating to a baker.

Accusation reward

The accuser monitors the network, detects double-baking or double-attesting.

If two attestations are made for the same slot or two blocks baked at the same height, the evidence can be collected by an accuser and included in a block for a period of 5 cycles, including the current cycle.

This accusation forfeits the entirety of the safety deposit of the accused baker and future rewards up to that point in the cycle. Half is burned, half goes to the accuser in the form of a block reward.