Staking and Delegation

As described in the overview, integrating privacy with proof-of-stake poses significant challenges. Penumbra sidesteps these challenges using a novel mechanism that eliminates staking rewards entirely, treating unbonded and bonded stake as separate assets, with an epoch-varying exchange rate that prices in what would be a staking reward in other systems. This mechanism ensures that all delegations to a particular validator are fungible, and can be represented by a single token representing a share of that validator’s delegation pool, in effect a first-class staking derivative.

This section describes the staking and delegation mechanism in detail: