Pocket Economics for Node Runners
The mission of Pocket Network is to provide reliable, blockchain-agnostic, decentralized infrastructure to web3 applications at a fraction of the cost of centralized competitors. To fulfill this mission, we created an incentive layer that completely changes how nodes are compensated for providing infrastructure services.
We designed Pocket Network with a unique economic model based on the POKT token that benefits all participants. To gain access and benefit from the protocol, POKT is purchased and staked by both developers and node runners, but due to the unique incentives on each side of the market, staking differs between the parties.
This article will focus on the node-specific aspects of the economic model. For a high-level introduction to the entire economic model, please see our Economics Brief. For a full picture of the economic model, see our Economics Paper.
Nodes runners stake once per node to participate in Pocket Network and the protocol’s proof-of-stake consensus. The minimum stake required to run a single node is 15,000 POKT. The initial amount of POKT needed to stake as a node is not dynamic, but can be raised or lowered by the Pocket DAO to ensure a stable barrier to entry and adjust for changes in POKT price. Staking additional POKT beyond the minimum stake increases the probability that a node will be selected as the block producer which comes with an additional reward (more on this later).
The minimum stake keeps nodes honest. If a node is identified as a bad actor, its stake is subject to penalties. If a stake falls below the minimum amount through serving incorrect data or incorrect block validation, 20% of the minimum stake for that node will be slashed and jailed. If a node submits a fraudulent relay batch, 100% of its stake will be slashed.
Once the initial costs of a node are covered (POKT stake and hardware), the only marginal costs are electricity and bandwidth for providing the compute to complete relays. These marginal costs for nodes are extremely low and, most importantly, increase linearly as work increases. Our testing shows that a single node on Pocket Network can serve millions of daily relays.
In exchange for servicing relays for applications, nodes are compensated in POKT. Unlike most traditional block rewards, Pocket Network’s reward is dynamic. POKT rewards are directly proportional to the number of relays and transaction fees in a given block. For every relay that is served on Pocket Network, .01 POKT is minted. Of that .01 POKT, the node who served the relay is rewarded 89% (.0089 POKT), the Pocket DAO receives 10% (.001 POKT), and the block producer receives the remaining 1% (.0001 POKT). All nodes in the network have an opportunity to produce a block, but their chances are proportional to their stake.
For example, if a node serves 100,000 relays they will earn 890 POKT. Additionally, by participating in the proof-of-stake consensus, the node will have an opportunity with each block to be a block producer and earn 1% of the total block reward. If a block has 1,000,000 relays in it the block reward is 100 POKT.
The optimal economic strategy for node runners is to replicate as many nodes as possible with the amount of POKT held. By spreading their stake across multiple nodes, node runners maximize their chances of being chosen in as many sessions as possible, providing them with the most opportunity to serve relays and earn rewards within the network. This strategy provides redundancy if one of the nodes does not get selected for a session.
Using the previous example, if our POKT node runner held 50,000 POKT, instead of staking the entire amount on a single node, the node runner could stake his or her POKT evenly across three different nodes. If each of the three nodes served 100,000 relays, the total reward for this particular node runner would be 2,670 POKT. Each of the three nodes would also have a chance to be the block producer.
While Pocket Network will depend on professional infrastructure providers to provide the bulk of the infrastructure for applications, due to the low marginal cost of running a full node, we expect there to be a long tail of individuals running nodes. Ensuring a low minimum stake to become a node is important to optimize the number of nodes within the network. With that in mind, it is incumbent on Pocket Network (and supporters) to continue to lower the barrier to entry technically and financially for non-technical users to run full nodes. Having a large number of diverse node runners is important to keep the large node runners honest.
To learn more or discuss economics with our team, please join our Discord.
1 This value is subject to change based on DAO resolution to control the amount of POKT inflation.