Zama Reveals Staking System with Square Root Distribution in DPoS

On February 2nd, Zama announced the details of its new on-chain staking mechanism based on the Delegated Proof of Stake (DPoS) protocol. The system allows users and participants to delegate their ZAMA tokens to operators who manage the network infrastructure. According to BlockBeats, this approach represents a significant innovation in how rewards are distributed among participants.

Currently, the ecosystem has 18 active operators: 13 responsible for Key Management Service (KMS) nodes and 5 operating as Fully Homomorphic Encryption (FHE) co-processors. Zama has a circulating supply of 2.2 billion tokens out of a total supply of 11 billion.

Square Root-Based Distribution Mechanism

The most innovative feature of the system is the distribution algorithm that uses the square root of the total staked value by each operator. This approach results in a special incentive: the smaller the operator, the higher the returns offered to its delegates. Thanks to this square root mechanism, smaller operators receive proportionally larger rewards, naturally promoting network decentralization and preventing power concentration among large validators.

Reward Structure and Controlled Inflation

Staking rewards are directly derived from the protocol’s inflation mechanism, with a fixed annual rate of 5% of the total ZAMA supply. This inflation is strategically divided: 60% of the rewards go to KMS operators and their delegates, while the remaining 40% benefit co-processor operators and their delegates. After receiving the rewards, each operator deducts a commission before distributing the rest to delegates. The maximum allowed commission is 20%, ensuring the operator is compensated while delegating a significant portion of earnings to participants.

Flexibility and Security in Unstaking

The protocol requires a 7-day unbonding period to withdraw locked tokens. However, Zama has implemented a creative solution for greater flexibility: users can transfer or sell liquid staking certificates before completing the waiting period, enabling access to liquidity without waiting for the unbonding process to finish.

This design demonstrates how Zama aims to balance network security with user convenience, using the square root as the basis for fair reward distribution across the DPoS ecosystem.