Handling of Node Provider rewards

Cross posting this topic as it is extremely relevant to the course of corrective action:

Most of them can’t work out to turn on the computer in the first place @LefterisJP

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Distributing deferred rewards that would have gone to node providers to both node providers and neuron holders when node providers are already receiving less than expected is a very clear example to me of a tyranny of the majority.

It’s very important imho the NNS does not abuse its power and take from some to give to others. It will erode trust in what node providers can expect before they go out and buy hardware. Otherwise when the price goes too high maybe neuron holders should start donating its maturity to node providers (it’s a tongue in cheek suggestion because it makes no sense).

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I assume the proposal that Bjoern was referring to was the idea if ICP token price drops below the $1XDR causing a shortfall in tokens that the burden of the reduction might be born out of the total reward pool for both Neurons and Node Providers (rewards for everyone get reduced) and consequently, once the token price recovers, then the backlog would be shared among everyone (Neurons and Node Providers). I didn’t take it that Bjoern meant diverting catch up rewards owed to NPs to Neurons/maturity. Is that right Bjoern?

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Oh that would make more sense… I hope you’re right!

In extreme circumstances of low prices I think delaying all inflation of both neurons and NPs might make sense

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Yes, correct this is what I meant, i.e. the burden of the reduction could be shared by neuron holders and node providers. I think tracking of foregone rewards and paying them out later is also an interesting idea but is a somewhat independent measure. I also assume that tracking & later pay out would be more demanding technically.

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Hey @dfisher I read the comment from @bjoernek differently than what you described here. I think he was saying that neuron owners could share the burden of controlling inflation so it doesn’t all fall on node providers. In other words, node provider reward reductions could be smaller if all neuron owners also accepted reductions. In Bjoern’s comment, I don’t even think he went as far as defining reward reduction as permanent, temporary, or just a deferral. All he said was that neuron owners could share the burden if push comes to shove and we need to make changes that prevent inflation from getting out of control. From my perspective as just a neuron owner (not a node provider), I can agree with this idea of sharing the burden.

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I like the idea of an immediate fix to the downward spiral issue w/defferal of rewards. 1ICP/XDR threshold may be close enough for this purpose. We should implement something soon.

There is a broader discussion of rewards that is needed but could be treated separately from this downward spiral issue. And, there should be either a minimum fiat amount or schedule that ensures a floor for payment of the network issue otherwise you swap the inflation spiral problem into a “no one will ever be a node provider” or network shutdown problem.

Separately from the above, with Short-term interest rates increasing, I think there is a whole discussion around the structure of Neurons/rewards. None of this has played out as I thought it would - that everyone buying ICP would lock up for rewards and increaing prices would favor staking. Instead we have the opposite.

Short-term interest rates combined with Maturity + NP rewards are a train wreck for spot pricing. You can think of it this way, as a short-term holder of ICP, I pay a tax in terms of maturity and NP rewards to hold an unstaked token.

The only two reasons I have to hold are that I think there is a short-term possibility of a favorable near-term trade or, the belief that I can’t forecast performance well enough but believe that the likelihood of a rapid upswing is such that if one doesn’t hold ICP, you will not have sufficient time to buy-in and capture the benefit (ie. ICP has option value).

I had expected that 90 percent of token holders would stake and that simply never happened. I think there were a couple of factors that weighed in against that possibility:
1 The time based release of seed holders and others over a prolonged period. This causes sell pressure over a long period of time. Instead of one quick exit, you get a steady and protracted sell-off.
2. Maturity doesn’t compound but gets paid out - so inflation can be spent, again causing sell pressure.
3, No way to lock up people that are fans but are scared of the six month gap to earn rewards

You add in market manipulators, fud, SBF, Sol shenanigans and the lockup freezes at 50%. Not what we wanted. I saw that Dom had tweeted out that there were proposals for flattening the rewards curve and that seems like it is in the right direction.

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I was intrigued by the spiral problem and decided to do some analysis that I would like to share. These are just some charts comparing some blockchains that I believe are at a market level of comparison with IC.
In some analysis, such as social dominance and trading volume, BTC and ETH were not included for obvious reasons.

The Circulating Supply:

  • The interval comprises the period after the ICP circulating supply definition has been updated (April 19th).
    According to the new definition, noise aside, there appears to be no excess ICP being minted over time compared to other blockchains.

The Price:

  • This chart shows that when we look at the history, even though ICP’s price performance has been terrible, it’s not alone. Since the day the market topped (Nov 8th, 2021), the price behavior has been very similar between these projects.

  • Above, the rate (ICP price)/(other crypto price) shows the relative valuation of ICP to others.
    To chart this, a significant reference was sought in the market as the price of ICP is only falling. The timeline starts on the day of the - possible - bottom of the BTC bear market (Nov 21th, 2022).
    Since then, ICP has performed better than many.

  • Still, another way to look at price behavior is by dividing “price/(market cap of non-stable altcoins except ETH)”. It’s kind of a herd effect measure, showing performance relative to the altcoin market as a whole.

The Direct Price Impact of NP Rewards:

  • On the chart we see the price of ICP (candles), the market cap of non-stable altcoins with the exception of ETH (line) and payout days for NP rewards (vertical lines).
    More than illustrating the apparent lack of correlation between the rewards received by NP and the price of ICP, what is even more striking is that the behavior of the ICP price is much more dictated by the movement of the altcoin market as a whole.

The Social Dominance:

  • When we analyze social dominance (the proportion of mentions on social media about some cryptocurrency in relation to the total number of mentions of all top100 cryptos) over the last 2y (Aug. 2021 to Aug. 2023), it is clear that ICP is well below most of these projects.
    The top lines are SOL, ADA, MATIC. BNB and ETH were excluded from the comparison.

The Trading Volume:

  • The lack of engagement on social media, the bad reputation acquired by FTX’s manipulation of the launch of the ICP token in conjunction with the terrible timing of the launch (2 days before BTC lost support in the May 2021 correction) and the current market moment ended up not encouraging trading and price speculation on exchanges, leading to low trading volume.

The Staking Volume:

image

  • Finally, just one more interesting fact, since when staking the volume available in the market is reduced, generating a kind of pseudo deflation. The table shows the proportion of the circulating supply that is in the form of a stake (out of market). More details here.

Further Considerations:

  1. Even though the data displayed here does not offer a solution to the “death spiral” problem, I hope the information provided helps in the process.
  2. On Sep 17, CoinMarketCap recorded total 24h trading volume of 4509737.48 ICP. The NP rewards for the month, according to the IC dashboard, were 729965 ICP. Using @Kyle_Langham’s reference that ±65% of NP rewards are sent to exchanges, and assuming they are all sold, the NP Rewards selloff for one month would represent 10.5% of the 1-day ICP trading volume.
  3. When the value of the ICP, and consequently the ICP/XDR rate, falls, the number of tokens minted for NP rewards increases, however, the cost of the cycles (in ICP) increases in the same proportion. In a healthy condition, these forces counterbalance each other when the price changes.
  4. The operational cost in IC is extremely low, burning little ICP to use, unlike what happens in Ethereum.
  5. ICP has suffered a lot since the launch of the token and to this day it still doesn’t know what a bull market (altseason) is. This lack of a positive reference in the past kills the enthusiasm of new people who get to know the project. Seems like a scam.
  6. Restricting or preventing the entry of new NPs is a defensive way of dealing with the problem that seems like a shot in the foot. Decentralization is a valuable currency in this world.

Conclusion:

  • As we can see from the charts, the supply-based model is only part of the equation and does not impact asset prices that directly. The effect of the increase in supply with the fall in price is very obvious, but I believe that the weight of this is much less compared to other actors.
  • The ICP problem appears not to be the excess of selling pressure, but rather the lack of buying pressure.
  • I find the idea of a hard cap interesting as an emergency measure, considering that the bear market does not seem close to ending.
  • More force and energy must be put into expanding the ICP name with A LOT of marketing, as already suggested here.

Reinforcing that we need influencers speaking to the masses; volume on social media, on those lists of “moon bags” and “greatest potentials for the next bull run” that people love to speculate about; more buyers of the ICP token, either because they speculate on the price increase, or because they believe in the project.
Sorry if I went on too long.

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This is really helpful information. Thank you so much for working up the data and posting it on the forum in this thread @Fernando. This seems like a fresh eyes perspective from someone with a statistic / analytics background. I noticed your forum account is new, but have you been around the ICP ecosystem for long? Would you mind sharing your background? I’m impressed with the detailed analysis you provided here. Thanks again.

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Goodmorning! This is really useful information, however I wanted to provide a few clarifications.

You’re referencing a combined volume from Spot, Perpetual & Future Markets, however, only the Spot Market can truly be utilized in this calculation, as perpetual & future markets do not trade real ICP tokens but rather “lots” that represent ICP - in an attempt to “predict” its direction.

Future & Perp users can only trade with other Future & Perp users, therefor it does not affect the ICP supply.

As such, if you reference spot volume, you’ll notice that the true volume of ICP is less than a few million dollars, as depicted in the “Spot” chart below:

Secondarily, while the fiat value burnt will remain the same, and the ICP value increases, this does not offset the current reward ratio of Node Providers.

As of present day, we’re burning .84% of what we reward Node Providers.

In the instance ICP’s price falls, yes, we’ll be burning more ICP, but we’re still only going to be burning .84% of what we mint, as depicted below:

Again - thanks for taking the time to collect this data!

I’m grateful that the data was so enlightening. thank you for the recognition!

in fact, I “met” the project just a few days ago. Until then I had the same impression that most people have: “a project with many promises, which is not worth investing in because it will never be worth anything”. But it was a video from Jerry Banfield’s channel that sparked my interest and I started to see it with different eyes and I already dove head first into the study of the IC ecosystem. For the first time I felt that the users’ voice counts, so I decided to give my 2 cents here.

I have a degree in mechanical engineering and have been following the cryptocurrency world for some time.

I will try to contribute whenever possible.

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You’re right. The difference is considerable.
I was looking and luckily I found an API that separates spot volume and extracts data from past dates as well. If it helps, I can share the piece of code I wrote to do this in google sheets.
According the data, the spot volume of ICP on September 17th was approx 2.7mi. If we calculate the percentage change due to selloff, (65% of 729965)/[2.7mi - (65% of 729965)] = 21.3%.

I fully agree. That’s why I added the “healthy condition” part, which is not what we are experiencing at the moment, as you pointed out.

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I agree that the main issue with ICP is the lack of buying interest, particularly from the demand side rather than the supply side. But it’s essential to be clear about the type of marketing needed. In simple terms, we need to know why people would want to buy ICP.

It’s crucial to note that, as a non-profit organization, Dfinity can’t engage in marketing solely for stimulating demand from speculative purposes.

In my view, it’s better to have people interested in buying ICP because they want to use the network, not just for speculative trading/investing.

To increase demand for network usage, we need products and services that people can use in their daily lives. This way, people will buy ICP because they genuinely like the products, not just for speculation.

Of course, if there are no ready services / products that regular folks can buy, what are we selling? Without any product / services available, there won’t be any demand for network usage.

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@bjoernek

Can you please help me figure this out?

Geography Total costs over 4 years Multiplier Monthly reward for 1st node Reduction coefficient r
US 31034 2 1294 0.7

1294 XDR ?

1294 / ~2.6791(Conversion Rate on the dashboard page) = 482,99 ICP reward?

Yes, that is correct. Just for consistency of notation, I would say 482.99 ICP (not 482,99).

Bjorn,

The node provider rewards were issued monthly in ICP, calculated by applying a 200-day moving average. When did it change to 30-day moving average?

Sorry if that is the wrong name.

I should clarify my situation and I am happy discuss live at any time. I own 21 nodes and I was confused last year why my token awards did not match the 30 day moving average price. That is what we were told and expected. Katie Peters informed me in September 22 that “they” switched the Spot price for ICP awards to a 200 day moving average from the original 30 day to make it more fair so I was receiving awards at a much higher base price than the market price as the ICP token fell. I needed to sell at the sometime muck lower price to cover taxes, data center fees and equipment cost. Again, Katie told me and actually another node owner who was in the call that we would make it up when the ICP token recovered. I see from your note that it is now at or back to a 30 day moving average again which has negative impact on my finances as I planed for this to be static at 200 day average. I am very confused. Please let me know if I am missing something here and if the calculations changed from 30 to 200 and then back to 30 day moving average for awards. If it did, please point me to the proposal and the vote for this action. Thank you very much and I look forward to your response Dfinity team. Have a great day and go ICP. I see a bright future for the company.

Hi Brian!
The 30-day moving average is still used. I verify this every month. I am quite confused as to what you are remembering regarding a 200-day moving average. I have my spreadsheet proving the 30-day moving average for every single distribution. I would be happy to go over them with you! You’ve got my email address.

ICP prices are indeed volatile, so you will either lose some money or gain some money depending on which way the price is currently going. I’m sure you’re just as happy as we are that ICP is gaining value!

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