Intro to Staking Yield

The Terra blockchain runs a proof-of-work consensus mechanism that is kept secure by validator nodes. These validators propose and vote on new blocks to keep the chain in progress. However, voting power varies based on the amount of native token (LUNA) staked on each validator, either by themselves or delegated by regular users.

To motivate delegators and validators to keep the network secure, the network rewards LUNA stakers with incentives. These incentives are what is known as staking yield.

Staking yield is calculated as the sum of all incentives (tax rewards, oracle rewards, gas, and airdrops) as a percentage of the total LUNA staked.

Staking Yield vs. LUNA Price

We have learned that staking yield is influenced by a lot of variables, hence, it is not expected that the yield remain constant over a period of time. Therefore, in this section, we shall take a look at the change in the annualized staking since genesis. The graph below is taken from the Terra Station desktop wallet on 14 January 2022 at 21:46 GMT. The current annualized staking yield is 7.72%

Comparing side-by-side, we have the LUNA price action chart since genesis.

By looking at the patterns staking return and LUNA price action, it is easy to tell that there is no correlation between the two charts. Since staking yield is a percentage of total LUNA staked, the price of LUNA itself does not affect this ratio, however, tax rewards, oracle rewards, transaction rewards are rather likely to have an impact on the staking yield.

Takeaways

After learning how Terra staking yields are calculated and comparing the genesis graph side-by-side with LUNA price action, here are the worthy takeaways:

• Staking yield is calculated as the sum of all staking incentives as a percentage of total LUNA staked.
• The annualized staking yield ATH stands at 206.50%
• There does not seem to be any direct correlation between the staking yield and LUNA price action.