On-chain Node Beneficiaries 💸 (scalability without sacrificing independence)

Governance NNS Governance
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Background

The IC is marketed as operated by “independent parties”, providing the IC’s foundational selling point of “deterministic decentralisation”. Independence is an imperative, not just a nice-to-have. What is meant by independent should be clear, intuitive, and easy to grasp by anyone who may make use of the IC now or in the future. Any formal ties or arrangements between two parties, such as financial or legal commitments, are clear indicators of some level of interdependence or interrelation.

The original idea was that node providers would act as independent parties (1 node from each node provider per subnet). Whether by accident, or intention, node providers are permissibly no longer independent. The best example of this is GeoNodes LLC, George Bassadone and Bianca-Martina Rohner. The former node provider is comprised of the latter two node providers, and so these can only be considered independent if the 3 are collectively recognised as one independent party. Recognition of this has led to the introduction of the concept of Node Providers Clusters, originally proposed on this thread. Clusters then become the “independent parties” that the IC depends on.

The exact definition of what qualifies as a cluster is still to be ironed out, and some are keen to see financial ties between node providers falling outside the scope of what should qualify as a cluster. Discussion related to this aspect can be found on the following thread →

As it stands, the foundation appears to be leaning towards allowing financial ties between node providers without considering them clustered, pointing to the concept of ultimate beneficial owners (UBOs) as a well-defined framework for managing these sorts of relations (or not so well-defined).

Problem Context

Interdependence <> Independence

Allowing for node providers to be financially interdependent/interrelated makes it very hard to argue the case that IC subnets are composed of independent parties. At the very least, it makes the concept a hard sell to those who would come to use and depend on the IC.

Infinite Scalability vs Capital Constraints

At the same time, it’s harder to scale the IC to more nodes if the means of financing more nodes is heavily restricted. Funding/investment, ownership, and potential for control or coercion are concepts that are currently tangled up (or at least not clearly disentangled in a reliable way that NNS participants can clearly see and confidently depend on).

Innovation vs Regulation

Taking a heavy-handed approach regarding restrictions limits potential for innovation in this space, such as the concept of DAO-financed nodes or subsidising nodes via NNS, DFINITY, or SNS grants. Should all recipients of such support be considered to belong to the same cluster? On the other hand, it’s extremely important that the IC doesn’t sacrifice robustness for scalability.

Root of the Problem

Off-chain agreements directly between node providers:

  • limits visibility (hampering decentralisation determinism)
  • challenges the idea of party independence (which is a foundational requirement on the IC)
  • means node providers organise amongst themselves for mutual benefit. There are other activities that fall under this category that would be detrimental to the IC.

A Possible Solution

Nodes, node providers, and node operators are strongly modelled concepts on the IC, and are stored in the NNS registry. For a recap on why the NNS has the concept of node operators (in addition to node providers, see below).

Node operators are represented to reflect the reality that node providers may finance and own the nodes, but that doesn’t mean they’re the ones operating and maintaining those nodes. I would argue that the NNS needs to go one step further, and model the reality that just because a node provider owns the nodes, it doesn’t mean they’re the only one entitled to reward distribution from those nodes.

Relationships between node providers (particularly where money changes hands) should be mediated by the NNS. This decouples the two entities, and removes their need to self-organise for exclusive mutual benefit.

Node Beneficiaries

Rewards are periodically minted to node provider wallets via NNS proposal. Instead of the node providers then dishing those rewards out to their affiliate node provider partners, the NNS should instead recognise those partners as ‘Node Beneficiaries’ and the NNS should divide up and dish out the rewards as necessary (via the same reward proposals that already exist). Importantly, this arrangement is at the continued discretion of the NNS (rather than the parties in question), and is clearly visible to all NNS participants. The potential for leverage between node providers is therefore mitigated.

This also opens up numerous opportunities for the IC:

  • The NNS could act as a match-maker between
    • those with funds who would like to invest in infrastructure growth (but without the hassle of handling node ownership, data centre contracts, etc.)
    • those with technical ability, who would like to own the physical nodes, and who would like to get their hands dirty managing and maintaining nodes (or deciding who to delegate that to)
  • Dynamic Vesting: Percentages could include a vesting schedule (e.g. investor share decays over a number of years)
  • Tokenisation: Beneficiary rights could be tokenised, enabling secondary markets for node revenue streams without touching the node provider
  • DAO Beneficiaries: A DAO canister can appear as a beneficiary, receiving rewards and redistributing internally under its own governance.

There is certainly appetite for these sorts of setups.

If this sort of framework had been in place ahead of the recent node transfers, a large amount of controversy could have been avoided. This model does not prevent node providers and financiers from also striking private side deals, but it removes the necessity to do so.

Ideas have been circulating for a while regarding DAOs that could benefit from node provider rewards (e.g. SNS of node providers, Node Provider DAO, Node Provider Vault). Developers are finally taking bold moves to try and make this a reality. I believe the IC needs something like what’s described above for these sort of arrangements to be feasible.

Please share your thoughts below and help drive this topic forward. There are numerous existing threads that this discussion relates to, in particular:

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