Node Provider Remuneration

Rewards

Node Providers receive rewards (remuneration) for owning node machines that run in the Internet Computer network. Node Provider rewards are set by the NNS DAO, with changes only possible through NNS proposals adopted by the Internet Computer community.

The NNS mints Node Provider Rewards every ~2,629,700 seconds, which is 1/12th of a year. It uses the 30-day moving average price of ICP in Special Drawing Rights (XDR), an international reserve asset created by the International Monetary Fund (IMF). This value is tracked on the Internet Computer Dashboard on the "Conversion Rate" chart. Rewards for the previous month are converted to ICP and transferred to account of the principal registered by the Node Provider in the Node Onboarding process.

These are the current rewards, but reward changes can be proposed to the NNS and adopted by voters at any time.

Remuneration models

The NNS distributes rewards depending on:

• The generation of the node hardware (gen-1/gen-2)
• Geographic location
• The total number of nodes a provider operates
  

Different hardware generations lead to varying capital expenditures (CAPEX) and operating expenditures (OPEX), which can also fluctuate based on geographic location. Furthermore, certain locations are deemed more valuable for enhancing network decentralization, resulting in higher rewards for Node Providers in those areas.

Two node machine hardware generations are currently recognized: gen-1 and gen-2. Each hardware generation is associated with its own remuneration model. Some cost estimates are provided for the current 2nd generation, but keep in mind that actual hardware and operational expenses may differ.

Hardware Type	Remuneration Model
Gen-1	Gen-1 type-0
Gen-1 + storage upgrade	Gen-1 type-1
Gen-2	V2: Gen-2 remuneration V2.2: Gen-2 remuneration update
Gen-3	V3: Gen-3 remuneration

In the future, a remuneration model will be proposed that includes both automated incentives, rewards, and penalties.

Gen-1 Remuneration Model

Nodes purchased prior to Genesis were considered Gen-1 nodes. All nodes started out as type-0 with the following calculations:

TYPE-0	Reward per month (XDR)
USA	873
US - FL/GA/CA	1087
EU	1087
Asia	1212

After the first nodes were up and running, the decision was made to increase the storage capacity of all nodes to support larger subnet states. Thus, a type-1 table was created to reward for the additional costs that the extra storage incurred. Rewards were also broken down further by country. These type-1 values include both the original equipment costs incurred by Gen-1 Node Providers, their operating costs, and the varied costs that Node Providers incurred to purchase the additional storage, ship it to their data centers, and get it installed in each server.

TYPE-1	Total rewards per node (XDR)
US - California	1600
US - other	1499
Canada	1624
Slovenia	1720
Switzerland	1696
EU - other	1584
Singapore	1842
Japan	1773

Gen-2 Remuneration Model

This section presents the remuneration model for 2nd generation Node Providers.

Based on the feedback from Node Providers and the community, discussed in this forum post, the Gen2 remuneration model is based on the following principles:

• Higher rewards for the first nodes of a new Node Provider in order to attract more Node Providers in an effort to improve ownership decentralization.
• More refined rewards for nodes in new geographies, like South America, Africa, Asia and Australia, to stimulate further geographical decentralization.

The node reward model is parametrized by:

• Geography multiplier (mult): This multiplier will be lower, namely 2, for regions with many nodes (e.g. Europe and North America), and higher, namely 3, for regions where there are currently limited nodes present (such as Africa and South America)
• Reduction coefficient (r): The node reward of the n-th node of a Node Provider is multiplied by r ^ (n-1). The reduction coefficient r is dependent on the geography of the Node Provider. As a result, the first nodes of a Node Provider get attractive rewards, but it is increasingly less attractive to add additional nodes.

The rewards are furthermore dependent on estimated capital and operational expenses that vary based on geographies. A table with the concrete numbers follows below.

In summary, for a geography g, let

• mult(g) be the geography multiplier
• cost(g) be the total costs over 4 years for acquiring and maintaining a gen 2 node in g in XDR
• r(np, g) be the reduction coefficient

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

reward(g, n) = cost(g) * mult(g) * r(np, g) ^ (n-1) / (4 * 12)

The total costs over 4 years are multiplied by the geography multiplier, multiplied by the reduction coefficient, and divided by 4 years times 12 months. As a result, rewards for nodes in new geographies and for Node Providers with few nodes are higher. Thereby, a geographical and ownership decentralization is incentivized. The following table shows the geography-dependent values and the monthly reward for the first node onboarded.

Geography	Total cost over 4 years	Multiplier	Monthly reward for 1st node	Reduction coefficient r
USA	31034	2	1294	0.7
US - FL/GA/CA	37031	2	1542	0.7
EU	36996	2	1542	0.95
Asia Singapore/Japan	40508	2	1688	0.7
Asia non Singapore	40508	3	2532	0.98
South Africa	43986	3	2748	0.98

Note that the reduction coefficient r(np, g) is applied per (Node Provider + Country) pair. This means if there is more than one Node Provider in the same country, r(np, g) is calculated separately for them. For instance: Node Provider A has 10 nodes in France (EU); reduction coefficient for the 1st node of Node Provider A is 0.95, and for the 10th node is 0.95 ^ 9 = 0.63. If there is Node Provider B with 10 nodes in France (EU) as well, they will get the same rewards as Node Provider A.

As an example, the below table shows the calculation of the rewards of the 1st to the 10th node for a Node Provider in South Africa.

reward(south africa, n)
= cost(south africa) * mult(south africa) * r(south africa) ^ (n-1) / (4 * 12)
= ( 21’455 + 22’531) * 3 * 0.98 ^ (n-1) / (4 * 12)
= 2748 * 0.98 ^ (n-1)

N-th node	Multiplier (rounded)	Monthly remuneration (rounded)
Node 1	0.98 ^ (1-1) =1	2748
Node 2	0.98 ^ (2-1) =0.98	2693
Node 3	0.98 ^ (3-1) =0.96040	2639
Node 4	0.98 ^ (4-1) =0.941192	2586
Node 5	0.98 ^ (5-1) =0.92236816	2534
Node 6	0.98 ^ (6-1) =0.9039207968	2483
Node 7	0.98 ^ (7-1) =0.885842309	2434
Node 8	0.98 ^ (8-1) = 0.8681255332	2385
Node 9	0.98 ^ (9-1) =0.8507630226	2337
Node 10	0.98 ^ (10-1) =0.8337477621	2291

The above figure shows the additional cash flow (investments minus costs) a Node Provider receives for adding an additional node for three regions (South Africa, Europe and USA) that can be calculated based on the Version 2 remuneration model. Note that the calculation does not take into account the time value of the cash flows (i.e. discounted value), but purely the cash flows or rewards and expenses.

What is visible from this graph is that adding additional nodes only generates additional cash flow for a specific number of nodes, in a specific region. For example, in Europe adding up to approximately 15 nodes will generate additional cash flow, whereas for the US region, this is only 2 nodes.

Potential new Node Providers can make a full calculation themselves of the Internal Rate of Return, Payback period and cash flow based on their actual CAPEX and OPEX costs. Of course, these actual CAPEX and OPEX costs may differ from the costs on which the remuneration is based, depending on the specific contracts the new Node Provider has been able to negotiate with hardware vendors and DC operators.

Version 2.1 Remuneration Model

The Version 2.1 remuneration model replaces the Version 2 remuneration for 2nd generation Node Providers. It includes the following changes compared to Version 2, based on discussion in this forum thread:

• No entry for the region Asia will be used anymore. For the Asia region, specific country entries will be used.
• Specific entries for Hong Kong and India will be added to the remuneration table.
• The multiplier is set to a value of 2 for all countries. In future, this might be updated through a new NNS proposal if the community determines that the risk premium for projects should be different for different countries (for example, if the risk of running in node in one specific country is higher than the risk of running in node in another country, this might validate a different multiplier).
• A limit is set to the number of nodes in new countries for which the remuneration applies. Once this is reached, the reduction coefficient for additional nodes will be adjusted to allow adding only one or two nodes for this country, similar to existing countries like the U.S. and Switzerland. Currently, the limit of number of nodes per country is set to 50 nodes, which allows NP’s to add a node in that specific country to every available subnet and have a small set of additional nodes in case nodes are unhealthy or require maintenance.
• Version 2 was relevant for a limited time period in 2023. Version 2.1 became the current model as of May 2023.

The following table shows the geography-dependent values and the monthly reward for the first node onboarded based on the Remuneration Version 2.1.

Geography	Total costs over 4 years	Multiplier	Monthly reward for 1st node	Reduction coefficient r
US	31034	2	1294	0.7
US California	37031	2	1543	0.7
Canada	37031	2	1543	0.7
Germany	36996	2	1542	0.7
Switzerland	36996	2	1542	0.7
France	36996	2	1542	0.7
Belgium	36996	2	1542	0.7
Slovenia	36996	2	1542	0.7
Europe (other than above)	36996	2	1542	0.95
Japan	40508	2	1688	0.7
Singapore	40508	2	1688	0.7
Asia HK	46141	2	1922	0.95
Asia India	50377	2	2100	0.95
Asia South Korea	51774	2	2158	0.95
Asia Sri Lanka	52800	2	2200	0.95
Asia Georgia	57455	2	2394	0.95
South Africa	55455	2	2310	0.95
Australia	47000	2	1958	0.95