A fixed amount of XRD tokens are automatically emitted by the Radix Protocol at each epoch’s end (such that emissions occur at a rate where roughly 300m XRD per year are minted). These emissions are generated as an incentive for those staking and running validator nodes that power the Radix Public Network.
The emitted XRD for an epoch are first allocated across the validator node-runners in proportion to the relative amount of stake delegated to them. If a validator node has, for example, 1% of the stake, then 1% of the epoch’s emissions tokens are initially allocated to that node.
From this initial allocation, penalties are deducted (making them effectively burned). The penalty is calculated based on the % of the epoch that the node successfully participated in consensus. (More technically, this is the % of the time that the node made a transaction “proposal” when its turn as leader was up). If the node participated 100% of the time, no penalty is applied. The penalty begins increasing as the node fails to participate in consensus and reaches 100% (no rewards received) when its participation in consensus for the epoch drops to 98% or below. This penalty is severe on purpose; a high participation rate is necessary for the best possible network performance. But remember that the penalties only apply to the rewards for a single epoch (roughly between 30 - 90 minutes).
Note: Because only validators in the “top 100” with the most stake actually participate in consensus for the epoch, only those top 100 nodes can create rewards for their delegators.
After any penalties are deducted, the node-runner’s validator fee is then deducted. If the node-runner has specified a fee of 2%, then 2% of the emissions allocated to that validator (after penalties) is minted to the node-runner’s owner address. The remaining emissions (98% in our example) are then minted to the individual stakers in proportion to their relative stake at that validator. XRD staked from the owner’s address also earns normal emissions here, just like any other staker.