Concerns have been raised in various posts by reviewers and other members of the community about links between Node Providers. These concerns center around the theoretical possibility of too many “linked” Node Providers ending up on the same subnet and the implications thereof.
Node Providers are not involved in the allocation of specific nodes to subnets. Dfinity makes these changes, and it gets reviewed by the community when “Subnet Management” proposals are submitted to the NNS. Reviewers consider the Nakamoto Coefficient change and accept proposals where this measure stays the same or improves. There are also limits placed on certain attributes (decentralisation targets)
There are also many valid reasons for these links, just to name a few:
- The message that Dfinity was looking to onboard new Node Providers reached many of the Gen-2 node providers through “word-of-mouth”, resulting in links between the Ultimate Beneficial Owners of the Node Providers. Although the individual Node Providers are independently owned and operated, you may find that the Ultimate Beneficial Owners are friends, family or business associates that all responded to Dfinity’s message, and got approved by the IC community as part of the onboarding process. (@katiep confirmed this in other posts)
- Structuring node operations through different entities is a legitimate and standard business practice for several reasons, including:
- Data centre requirements (some require contracts with legal entities)
- Operational and tax efficiency
- Many node providers got to know each other through attending events like the Node Provider Lab hosted by Dfinity in Zurich in May 2024.
- Some Node Providers procure IT services (Monitoring, remote hands etc.) from service providers that specialise in products for Node Providers. All Gen-1 Node Providers relied on Dfinity to assist with the technical aspects of the node operations until about year ago and had to find alternative service providers for the most recent maintenance tasks.
Given the valid theoretical concerns and all the valid reasons why there may be links between some Node Providers, I would like to propose that:
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we add a multi-value field to the NodeProvider record in the registry, where Node Providers can declare the existence of a link, by submitting a proposal to the NNS to update this field, with the NodeProviderID of a linked Node Provider(s). (@sat @bjoernek @samuelburri)
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reviewers can then, as final step, ensure that there are no links to any other Node Provider on the subnet, when reviewing “Subnet Management” proposals.
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the exact reason for a link is not important and remains private. This way there is no excuse for the failure to declare a link to another Node Provider. We also can’t have these online “court cases” all the time on the forum, just to explain or defend a particular link. The community can address the security concerns by incorporating the disclosed links in the subnet allocation decisions.
We do need a definition for what we as community regard as a declarable link, as well as penalties, should it come to light that a Node Provider failed to declare a declarable link to another Node Provider. Penalties can only be applied if there are clear rules regarding the links that should be disclosed and the links that are not material.
The following list could be a starting point of our upcoming debate of what would be regarded as a declarable link:
- An effective control share in the operations of another Node Provider - YES
- A minority share in the operations of another Node Provider - MAYBE
- Where the Ultimate Beneficial Owners of the Node Providers are related (detailed definition of related needs to be established) - YES
- Where the Ultimate Beneficial Owners are co-investors in other projects - NO
- Where the Ultimate Beneficial Owners are working or did work together at the same company - MAYBE
- Where the Node Providers in question use the same IT company / “remote hands” for node maintenance - YES
- Where the Node Providers in question use the same Internet Service Provider - YES
- Where the Ultimate Beneficial Owners in question attended the same school. - NO
- Where the Ultimate Beneficial Owners in question both attended the same event at Dfinity talking about the challenges of being a Node Provider. - NO
- Where the Ultimate Beneficial Owners in question attended business meetings together unrelated to their Node Provider business. - NO
- Where the Ultimate Beneficial Owners in question go on holiday with other Node Providers. - NO
- …
This list could go on forever, but I hope to illustrate the need for a well-considered set of rules that determine what “links” Node Provider’s must disclose.
Could we please discuss this in more detail at the next Node Provider Working Group scheduled for 24 March 2025? @louisevelayo