Proposed Gen-1 Remuneration Model

Interim remuneration proposal: rewards for Gen-1 node machines after 48 months

With the approval of the IC target topology, a target of 750 node machines in the IC network was defined in late 2023 for the next half year/year. This target is defined keeping in mind that several of the Gen-1 node provider agreements will expire in the next two years.

Although the IC target topology requires less node machines than the current number of node machines (750 node machines vs approximately 1300 node machines), the IC network still requires an extensive number of Gen-1 node machines for operating purposes.

The long term objective is to have remuneration “based on useful work” for all node machines, which means node rewards are paid out based on the actual contribution to the IC, e.g. the number of blocks created, the size of the blocks created, how many times the node machine has been a block master, in which subnet the node machine is running, etc; regardless of the type of node machine and when the node machine was bought. Since implementing this new approach to remuneration requires extensive discussion within the community as well as time to design and develop, an interim approach is required for the remuneration of Gen-1 node machines for which the node provider agreements will expire.

Despite the introduction of Gen-2 node machines, the Gen-1 node machines are still very relevant for the IC network for several reasons:

• They provide for the necessary decentralization of the IC network.
• Not all subnets require SEV-SNP functionality (the additional security functionality introduced with Gen-2 node machines).
• Since the initial capital investments for the Gen-1 node machines have been amortized, Gen-1 node machines are economically very attractive to operate.
• They provide for a “buffer” to scale up the IC network should use of the network start to increase sharply.

On the other hand, Gen-1 node machines in the IC network have several constraints:

• They cannot be deployed in every IC subnet since some subnets require node machines with SEV-SNP support.
• As described in the forum posts on node diversification (see node diversification part 1 2, node diversification part 2) Gen-1 node machines are less decentralized and more concentrated at fewer node providers than Gen 2 node machines.
• There are too many Gen-1 node machines to fit the IC target topology.

Taking into account both the benefits and constraints of Gen-2 node machines, the following interim remuneration scheme for Gen-1 node machines after 48 months is proposed:

• Rewards are optimized for 28 node machines - if all Gen-1 node provider agreements have reached 48 months, it can be calculated that with a maximum of 28 nodes per Gen-1 Node provider, sufficient node machines remain in the IC network to meet the target topology of 750 node machines. However, it will still be possible for a Node Provider to continue to operate up to 42 node machines (similar as for Gen-2 Node Providers, and described in node diversification part 2), for example in anticipation of growth of the IC network and increase in ICP token price.
• Rewards for Gen-1 node machines are lower than at launch - rewards for Gen-1 node machines are lower than the rewards set at launch because of several reasons: not all Gen-1 node machines add to decentralization, Gen-1 node machines cannot be deployed in every subnet, and the initial investment costs for buying the node machines have been amortized by the node provider.
• Rewards apply for a period of 12 months - the interim remuneration proposal applies for a period of 12 months, after which the scheme will be reevaluated based on feedback and input from the community.
• Rewards for Gen-1 node machines follow a similar formula as the rewards scheme for Gen-2 node machines - node rewards will follow the same formula as remuneration for Gen-2 node machines, which is "Initial reward for first node machine x Multiplier x Reduction Coefficient."

The Gen-1 node machine rewards are set at the values specified in the below table.  To summarize the remuneration scheme, for a geography g, let

mult(g) be the geography multiplier

value(g) be the base value for a Gen-1 node in XDR

r(np, g) be the reduction coefficient

Then the monthly reward for the n-th node of a Node Provider (np) in geography g are defined as follows:

reward(g, n) = value(g) * mult(g) * r(np, g) ^ (n-1)

With a multiplier of 2.5 on the base value of the node, and a reduction coefficient of 0.97, this optimum of 28 node machines as described above can be achieved. The following table shows the geography-dependent values and the monthly reward for the first node onboarded. A few previously-separated geographic areas have been combined:

Geography	Gen-2 value per node before multiplier for comparison	Reduced value for non- SEV-SMP nodes	Multiplier	Monthly reward for 1st node	Reduction coefficient r
US - California	771	496	2.5	1240	0.97
US - other	647	465	2.5	1162.5	0.97
Canada	771	496	2.5	1240	0.97
Europe	771	496	2.5	1240	0.97
Japan and Singapore	844	568	2.5	1420	0.97

The above formula and table can be used to calculate the accumulated profit for each additional node. When calculating the accumulated profit for Gen-1 node machines in the United States, the below graph results, which shows the total profit for all machines up to the n-th node machine. It shows that when 28 nodes (2 racks of node machines) are kept on the IC network, almost maximum profit is achieved (30 to 31 node machines being the optimal). For the detailed calculation of the total profit for each additional node machine, please refer to the appendix.

Similar graphs will apply for the other regions as well. Appendix - calculation of Accumulated profit (example, US node)

n-th node	Base value per node	Reward for n-th node	Profit	Profit %-age	Accumulated base value	Accumulated Rewards	Accumulated profit	Accumulated profit %-age
1	465	1163	698	60%	465	1163	698	60%
2	465	1128	663	59%	930	2290	1360	59%
3	465	1094	629	57%	1,395	3384	1989	59%
4	465	1061	596	56%	1,860	4445	2585	58%
5	465	1029	564	55%	2,325	5474	3149	58%
6	465	998	533	53%	2,790	6472	3682	57%
7	465	968	503	52%	3,255	7441	4186	56%
8	465	939	474	50%	3,720	8380	4660	56%
9	465	911	446	49%	4,185	9291	5106	55%
10	465	884	419	47%	4,650	10175	5525	54%
11	465	857	392	46%	5,115	11032	5917	54%
12	465	832	367	44%	5,580	11864	6284	53%
13	465	807	342	42%	6,045	12670	6625	52%
14	465	782	317	41%	6,510	13453	6943	52%
15	465	759	294	39%	6,975	14212	7237	51%
16	465	736	271	37%	7,440	14948	7508	50%
17	465	714	249	35%	7,905	15662	7757	50%
18	465	693	228	33%	8,370	16354	7984	49%
19	465	672	207	31%	8,835	17026	8191	48%
20	465	652	187	29%	9,300	17678	8378	47%
21	465	632	167	26%	9,765	18310	8545	47%
22	465	613	148	24%	10,230	18923	8693	46%
23	465	595	130	22%	10,695	19518	8823	45%
24	465	577	112	19%	11,160	20095	8935	44%
25	465	560	95	17%	11,625	20655	9030	44%
26	465	543	78	14%	12,090	21198	9108	43%
27	465	527	62	12%	12,555	21724	9169	42%
28	465	511	46	9%	13,020	22235	9215	41%
29	465	495	30	6%	13,485	22730	9245	41%
30	465	481	16	3%	13,950	23211	9261	40%
31	465	466	1	0%	14,415	23677	9262	39%
32	465	452	-13	-3%	14,880	24129	9249	38%
33	465	439	-26	-6%	15,345	24568	9223	38%
34	465	425	-40	-9%	15,810	24993	9183	37%
35	465	413	-52	-13%	16,275	25406	9131	36%