Difference between revisions of "Node Provider Remuneration"

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= Node Provider Remuneration =
 
  
 
Node providers receive rewards (remuneration) for operating node machines that run the IC network. The single source of truth for node provider rewards is the NNS, where changes can only be made through NNS proposals adopted by the IC community.
 
Node providers receive rewards (remuneration) for operating node machines that run the IC network. The single source of truth for node provider rewards is the NNS, where changes can only be made through NNS proposals adopted by the IC community.

Revision as of 17:51, 7 November 2022

Node providers receive rewards (remuneration) for operating node machines that run the IC network. The single source of truth for node provider rewards is the NNS, where changes can only be made through NNS proposals adopted by the IC community.

This page summarizes the current node provider rewards and serves to discuss proposals for future reward models. The NNS distributes rewards depending on

  • the node hardware version

  • geography

taking into account the fact that different hardware versions have different capex and opex that vary with the geography. The prices listed for hardware are based on quotes received from different vendors. See Node Provider Hardware for more details on validated hardware configurations. The calculations assume an amortization of capex over 4 years. Operational expenses are based on numbers shared by current node providers. The actual hardware and operational expenses may differ depending on negotiation of individual NPs with their vendors. All prices are in XDR unless explicitly stated otherwise.

Genesis Remuneration Model

The initial remuneration model included a profit margin of 150%, accounting for the fact that early NPs took on a significant risk when they decided to invest into hardware and operations prior to Genesis. In other words, the rewards distributed were 2.5 times the expected expenses. The following table provides an overview of expenses and rewards paid, broken down by geography. Hardware expenses include shipping and installation charges.

HW OpEx over 4 years Total over 4 years Incl. profit margin Reward per month
USA 8676 8090 16766 41915 873
US - FL/GA/CA 8676 12200 20876 52190 1087
EU 8089 12781 20870 52175 1087
Asia 7882 15389 23271 58178 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. This required additional hardware and operational expenses. As it was quite difficult to get node providers to implement these changes, a profit margin of 350%, i.e. a multiplier of 4.5, was applied to these additional expenses.

The current remuneration covers only a portion of these additional expenses, so the foundation is currently covering the rest. Once the additional storage is usable by the IC, we propose to update the Genesis remuneration model to cover all expenses. The following table illustrates the maximal rewards received by NPs today. We propose to update the Genesis remuneration model accordingly.

Initial rewards over 4 years (see above) Gen 1 HW Upgrade expenses Incl. profit margin Total Proposed reward per month
USA 41915 7008 31536 73451 1530
US - FL/GA/CA 52190 7008 31536 83726 1744
EU 52175 7008 31536 83711 1744
Asia 58178 7008 31536 89714 1869

[WIP] Gen2HW-ready Remuneration Model

This section presents a proposal for a new remuneration model that accounts for the fact that the second generation of node hardware is significantly more expensive than the first generation. It reduces the profit margin to 90%, i.e. a multiplier of 1.9, as the risk for node providers is lower since the IC is an established blockchain network. The operational expenses are increased to allow for a 10% inflation per year.

Gen 2 HW Ops in 4 years Total over 4 years Incl. profit margin Reward per month
USA 16000 11845 27845 52905 1102
US - FL/GA/CA 16000 17862 33862 64338 1340
EU 12000 18713 30713 58354 1216
Asia 12000 22531 34531 65609 1367

Since the aim is to grow the IC network outside of existing geographies, we are preparing a remuneration proposal for South America, Africa, and Australia as well. This is work in progress.

Conversion Rates and Inflation

The above calculation is based on USD/XDR and CHF/XDR rates as per November 2022.