Node Provider Remuneration
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.
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 + 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)|
|US - FL/GA/CA||1087|
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|
|EU - other||1584|
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|
|US - FL/GA/CA||37031||2||1542||0.7|
|Asia non Singapore||40508||3||2532||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.
With this latest update, there are sufficient node machines for running the current load of canisters on every subnet, and for the decentralisation of the subnets measured in Nakamoto coefficients; no new country entries will be added. Work is in progress on an IC Topology Roadmap for the next half year and the next year, with the objective to assess how many node machines and where new node machines are required for further growth and decentralisation of the IC network. Based on that it will be discussed on the IC forum what changes to make to the Node Provider remuneration table and subsequent proposals will be submitted to the NNS for the community to vote upon.
|Geography||Total costs over 4 years||Multiplier||Monthly reward for 1st node||Reduction coefficient r|
|Europe (other than above)||36996||2||1542||0.95|
|Asia South Korea||51774||2||2158||0.95|
|Asia Sri Lanka||52800||2||2200||0.95|