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What is Collateral?

In the Mitosis network, collateral and staking are two distinct concepts that serve different purposes: Collateral
  • Definition: MITO tokens that validators lock directly as security deposit
  • Purpose: Acts as a financial guarantee against malicious behavior
  • Risk: Subject to slashing if validator misbehaves
  • Location: Stored on consensus layer
Staking
  • Definition: Users stake specific tokens (MITO, gMITO) to specific validators
  • Purpose: Increases validator’s consensus voting power
  • Risk: Not subject to slashing - completely protected from validator penalties
  • Location: Stored in EVM staking contracts
This separation ensures that users who stake their tokens to validators face no slashing risk, while validators must put their own capital at stake to guarantee honest behavior.

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Consensus Voting Power

A validator’s Consensus Voting Power determines their influence in the Proof-of-Stake consensus process:
  • Block Production: Higher voting power = higher probability of being selected to produce blocks
  • Network Decisions: More voting power = greater influence in consensus decisions
  • Reward Distribution: Rewards are distributed proportionally to voting power

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Voting Power Calculation

A validator’s Consensus Voting Power equals the sum of the validator’s Collateral (own stake) and all Staked tokens from users, but capped by a maximum leverage limit. VotingPower=min⁡(Collateral+Staked,Collateral×MaxLeverageRatio)VotingPower = \min(Collateral + Staked, Collateral \times MaxLeverageRatio)

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Example Scenario

With a max leverage of 10×:
  • Validator has 100 MITO collateral
  • Maximum total voting power = 100 × 10 = 1,000 MITO
  • If staking pushes total above 900, voting power is still capped at 1,000

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Slashing Impact

When slashing occurs:
  1. Slashing amount is determined based on consensus voting power
  2. Slashing is deducted from the collateral only
  3. Example: If voting power is 1,000 and slashing rate is 1%, then 1,000 × 1% = 10 MITO will be deducted from collateral

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Reward Distribution Impact

Rewards are allocated to each validator proportionally to their consensus voting power. When staking exceeds the voting power cap, stakers receive reduced rewards. This means that if there isn’t sufficient collateral, stakers will receive diminished rewards. Therefore, users benefit from staking to validators with lower staking-to-collateral ratios. Strategic Staking: Users should look for validators with substantial collateral relative to their current staking volume to maximize reward potential.
For detailed information about reward calculation and distribution mechanisms, see the Reward Distribution section.

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Design Rationale

Network Security

Validators lock their own collateral as security, promoting honest behavior and network integrity

Economic Alignment

Validators must lock sufficient collateral of their own, not just operate nodes, aligning them economically with the project

New Validator Onboarding

New validators can quickly establish themselves by providing substantial collateral, attracting stakers seeking better rewards

Promotes Decentralization

Prevents excessive staking concentration on specific validators, encouraging distributed network participation

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Collateral Ownership

Mitosis implements an innovative collateral ownership model that allows multiple entities to own shares of a validator’s collateral, separating technical operations from financial backing.

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Key Roles

  • Validator: The address tied to the consensus node that signs blocks
  • Operator: The entity that manages validator operations and configuration
  • Collateral Owners: Multiple entities that can provide financial backing for a validator

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How Ownership Works

The collateral ownership system operates through four main functions, each with specific permission requirements: Managing Permitted Owners
  • Only the operator can call setPermittedCollateralOwner() to add or remove addresses from the permitted list
  • This controlled access ensures only trusted entities can provide collateral backing
  • Enables validators to maintain control over their financial partnerships and comply with business requirements
Depositing Collateral
  • Only addresses in the operator-managed “permitted collateral owners” list can call depositCollateral()
  • Users receive shares proportional to their MITO deposit amount
  • Enables controlled participation in validator financing
Withdrawing Collateral
  • Anyone can call withdrawCollateral() to withdraw collateral proportional to their shares
  • No permission restrictions - any share holder can initiate withdrawal
  • Withdrawal requests require a 21-day waiting period (mainnet) before funds are released
Transferring Ownership
  • Any share holder can transfer their entire share balance to another address via transferCollateralOwnership()
  • The recipient address must be included in the “permitted collateral owners” list

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Possible Ownership Structures

This flexible model supports various validator ownership arrangements:
  1. Single Owner: Traditional model where validator owns all collateral
  2. Shared Ownership: Multiple entities collectively own validator collateral
  3. Operator-Investor Split: Technical operators paired with financial backers
  4. Institutional Models: Large entities owning collateral across multiple validators