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This page explains how staking and delegation works, including how to stake as a node operator, sourcing stake from external token holders, reward calculation and distribution, and slashing.

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Staking Overview

Where Staking Takes Place: All staking for Lit Protocol takes place on the official Lit Protocol staking dashboard. This is where you will register your node, stake your LITKEY tokens, and claim rewards. Rewards and Timelocks: Node operators earn rewards for participating in active Lit networks. Rewards are calculated on a cost-plus basis with a timelock mechanism (covered below) that increases rewards for operators who lock their tokens for longer periods of time. This mechanism incentivizes stable participation and long-term alignment with the protocol.
  • Rewards are distributed programmatically via the Lit staking contract.
  • Rewards are configured per network and may differ between Realms.
  • Only active node operators—those selected to run a node—receive rewards. Standby operators do not earn rewards at this time.
Minimum Self-Stake Requirements: All node operators must stake a minimum of 100,000 of $LITKEY tokens as self-stake to be eligible. This minimum ensures each operator has skin in the game and meets the alignment criteria outlined in the Requirements and Expectations section.

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Calculating Staking Rewards

The Lit Protocol employs a dual reward structure to compensate node operators:
  1. Cost-Based Component A baseline reward of $1,500 in LITKEY tokens is allocated to each node operator to offset the expenses associated with the required hardware and infrastructure. The baseline reward amount may be adjusted periodically via governance to cover the real-world costs associated with node operations (e.g., server hosting) in their entirety, ensuring operators always break even on the costs associated with running a node and never operate at a net loss. The goal is to preserve a stable pool of node operators even during periods of market volatility, essential for maintaining the shared cryptographic secrets maintained by the network in perpetuity.
Several configurable parameters go into setting the cost-based component of the Lit node rewards budget, including the price of the $LITKEY token, the costs associated with running a node (denominated in USD), and a target profit margin factor.
  1. Stake-Weight Component Beyond the cost-based component, a staker’s total earnings will be distributed according to their relative stake-weight. This stake-weight component is calculated as a function of both the quantity of $LITKEY tokens staked as well as the length of time for which they are locked. This timelock can range from two weeks to four years, depending on the preferences of each individual staker. Longer lock durations yield higher multipliers on rewards, signaling greater commitment and aligning incentives toward long-term network sustainability. The relative nature of this weighting means that overall rewards depend not only on an individual’s stake but also on the staking decisions of other participants.
For an in-depth look at the formula used to calculate stake weight and total reward distribution, please reference the token white paper.

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Delegation

After meeting the minimum self-stake requirement, any node operator can increase their total stake weight via delegation from $LITKEY token holders.
  • Any $LITKEY holder can delegate to any node operator given they have registered their node on the staking portal.
  • Delegated stake allows node operators to boost their rank during the staking contest, increasing the chance of being selected for the genesis validator set.
  • Delegators retain ownership of their tokens while sharing in the staking rewards distributed to each node.

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Commission

Each node operator has the ability to set their own commission rate, which determines the percentage of staking rewards that are retained prior to being distributed to delegators. This allows operators to compete on both performance and pricing. Commission rates are managed and displayed on the Lit staking portal.

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Consensus Threshold Rule

All Lit validator and signing operations are guarded by a threshold rule that requires at least ROUNDUP(MAX(3, 2N/3)) participating nodes for a committee of size N.

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Slashing

Slashing has been implemented to ensure that node operators keep their machines online and responsive at all times, preventing any downtime that could disrupt the network. Unlike some other protocols where slashing may also enforce computational ‘correctness,’ Lit Protocol relies on Trusted Execution Environments (TEEs) and threshold consensus mechanisms to guarantee the accuracy and integrity of operations. As a result, slashing in Lit Protocol is specifically designed to enforce availability and liveness rather than correctness.

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Slashing Conditions

Unresponsiveness: If a node operator is detected as unresponsive by its peers, it will be kicked from the active node operator set. To safeguard the network’s security, an immediate epoch transition is triggered, recalculating the threshold to two-thirds of the remaining active nodes. The kicked node will automatically attempt to rejoin the network in the next epoch, which occurs every hour, providing a built-in opportunity to recover from temporary issues. To prevent persistently faulty nodes from repeatedly disrupting the network, each node has a kick counter that increments each time they’re kicked. A node can be kicked up to 5 times before it is banned from the network. Upon exceeding this limit, the node is banned, and its locked stake is slashed by 5%. Additionally, if a node goes offline and doesn’t rejoin within a 24hr period, they are also banned and slashed. Once banned, the node operator must address the underlying issues causing unresponsiveness. The Lit Protocol Council will then manually review the node’s status and unban it only after confirming that it is stable and operational, ensuring that only reliable nodes are readmitted to the active set. To permit occasional and minor unresponsiveness without severely penalizing operators, a ‘decay’ mechanism has been implemented. The decay mechanism resets the kick counter at the end of each week, meaning a node can be kicked up to 5 times per decay period (1 week) before being slashed. This serves to strike a balance between enforcing network liveness and giving node operators fair opportunities to rectify temporary issues while protecting the network from chronic instability. Node operators may be penalized for a variety of reasons, each covered in detail below. Certain behaviors will result in immediate slashing (loss of stake and removal from the node operator set) while others will result in a warning being issued to the node operator. The node operator will have a pre-defined amount of time to address said warning (known as the “grace period”) before they are slashed. If said warning is addressed in a timely manner, the node will automatically be rejoined to the active node operator set.

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Appeals

Slashed funds are sent to a contract that is initially administered by the Lit Protocol Council. Slashed funds may be redistributed to node operators and/or token delegators if the slashing event is contested and deemed unjust according to the offense.

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Governance Oversight

Outside of integrating slashing outcomes with the Lit governance process to ensure consistent enforcement of rules while maintaining flexibility to address edge cases, the Lit Protocol Council will serve an important role in overseeing the parameters associated with the slashing process itself. This includes configuring the slashing penalty itself, as well as managing the kick counter and decay mechanism.