RIP-000-021: Determining which darknodes will be protected from the increased bond size

Ren Improvement Proposals | RIP
1

Name: Determining which darknodes will be protected from the increased bond size
Author(s): @shiny, @PappyShappy, @Thomm
Category: Governance, funding
Status : Proposed
Scope: Decide on the airdrop to darknodes, which was included in RIP-000-018 “Ren 2.0 funding and Ren Foundation” and determine precisely which darknodes, if any, will receive it.

Overview

We must officially determine which darknodes will receive protection from dilution as proposed in RIP-000-018. A clear difference of opinion has been expressed within the community about the way forward: if darknodes should be protected from dilution in the first place, and if so who will be eligible? General consensus has been reached in RFC-000-051 around the voting options which will be presented in this RIP.

Background

RIP-000-018 was created to decide if and how many new Ren tokens would be minted to fund Ren 2.0. The proposal stated the following: “To maintain the 10,000 darknode limit, the darknode bond would need to be increased in line with how much REN is minted, and a portion of the minted REN would then go to current registered darknodes to allow those bonds to be carried over to the Ren 2.0 network.”

Since this RIP was passed, we have had a significant amount of uncertainty over when 2.0 will launch and whether or not darknodes need to remain registered to receive the allowance. There have also been both current and previous DNO expressing frustration over the addition of this detail within the RIP with little previous discussion and no alternative options to vote. Some DN have deregistered, some have registered since the RIP was passed, many have asked what to do.

This proposal is intended to have current registered DN decide exactly which nodes will receive the allowance, if any.

Details

A large amount of discussion has been had as part of RFC-000-051, where a general consensus has been established around the following three voting options:

  1. Darknode bond increases to 118K. Only darknodes registered at the vote of RIP-000-018, and are registered prior to the activation of 2.0 (either continually registered or de-registered and re-registered), will receive the 18K airdrop, which will be subject to a 26 epoch (approx. 2 year) vesting period.
  2. Darknode bond increases to 118K. Only darknodes registered at or prior to the vote of RIP-000-018, and are registered prior to the activation of 2.0 (either continually registered or de-registered and re-registered), will receive the 18K airdrop, which will be subject to a 26 epoch vesting period. In addition, the first 200 darknodes registered prior to the activation of 2.0, but not registered at or prior to the vote of RIP-000-018 will also receive the airdrop, which is subject to a 26 epoch vesting period.
  3. Darknode bond remains 100K and max (non-treasury) nodes of 10,000 is coded in, no airdrop will need to be provided as compensation for higher bond requirement.

It is out of scope of this RIP to determine what will happen with the tokens that have been earmarked for darknode compensation under RIP-000-018. If option 3 wins, a separate vote would need to be held to decide if they will be burned, stay with the Foundation, or something else.

The vesting period will be all or nothing. Any airdropped tokens will return to the treasury if a darknode deregisters prior to the end of the vesting period, but earnings while the darknode is active will not be affected.

Rational

Option 1 is intended to represent the original context of RIP-000-018, which includes the recommendation “that the Foundation imposes lockup conditions on all allocations, whether to darknodes, investors, or the development team”.

Option 2 is consistent with option 1, except that it recognizes that there was a lot of uncertainty leading up to the vote, and darknodes that deregistered after the FTX collapse should not be penalized. In addition, adding a limited number of other darknodes that could get the airdrop insures that all those that want to continue supporting the project will not be penalized while preserving a reasonable hard cap on total airdropped tokens.

Option 3 prioritizes simplicity by not changing bonding requirements and providing no airdrop. It allows any current and future darknode operator to keep the current bonding and maximum cap and it preserves the entire 180M new REN for funding.

While there has been discussion of having different vesting periods depending on whether a darknode was part of the vote, or depending on how long they have been active, this vote is about the future of the project, not the past, so all airdropped tokens will have the same vesting period. Rewarding and incentivizing long term support of the network are better suited as part of managing community funds or other similar means.

Other related issues were discussed in various threads for this proposal, e.g., using REN as Gas and how best to insure future funding, but they are outside the scope of this RIP and will need a separate RFC/RIP process.

Voting

The vote will happen using Ranked Choice voting. This will prevent the vote to split between different options, the vote with the highest weight at the end of the voting period will win.

Snapshot vote

Implementation

  1. In three days the vote will be posted on Snapshot
  2. Voting will be live for 7 days
  3. We will work with the Foundation to have the winning vote implemented. However, the Foundation, as fiduciary of the minted tokens under RIP-000-018, has final authority over the tokens (even under terms of RIP-000-018).
  4. After the vote concludes, we will work with Admin to make an announcement of the results and any actions that should be taken by operators.
4 Likes
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In my opinion. As a DNO, the “air drop” in option 1 or 2 doesn’t actually provide a sufficient amount of protection to warrant the change in complexity and time to update everything. In options 1 and 2, the only thing they protect is your CURRENT (and/or a small number of new) nodes. Adding more nodes after that would STILL REQUIRE the additional 18k (but option 3 does not require extra tokens). For items 1 and 2 since the air drop is vested for 2 years, I can effectively continue to run my node(s) for that entire time with the 100k ren I have. (but again, same is true if option 3 were adopted, except with 3 I can spin up new ones too). It’s only if/when I deregister that it matters. If after two full years and then a DNO de-registers, then later wants to re-register, they’d be covered since they vested long enough and got their 18k upon de-reg. Isn’t that a small subset to protect to warrant all this change? Otherwise it’s just an 18k parting gift for someone no longer interested.

If I can continue to run my nodes for 2 full years with just my 100k, whether I get an airdrop in 1 and 2, or not in 3, then why do I care? It seems less about protecting current DNO’s and more about penalizing future investors (which btw big point here: that also includes current DNO’s who want to spin up additional nodes in options 1 and 2, and need to buy 18k more each). Any argument about tokens hitting the market and affecting price doesn’t really hold weight. Option 1 and 2, the tokens are “protected” from the market for 2 years, but then all hit the market at the same time (that could be reeeeal fun). Price of token might be protected for a short term, but also the extra 18k needed could actually negate buying and even cause more selling for folks who now feel 118k is out of reach. So there goes your price protection from the vesting. For option 3… sure… the node income may be diluted amongst some new nodes, but the treasury doesn’t just get dumped on the market. It can slowly methodically be spent on protocol growth, burned, etc. It’s fully controlled. In the end, VOLUME across the network is what matters, which increases node income. And for that, 2.0 need to get out the door with the least amount of work. Price of token is secondary, and follows volume anyway to reach a competitive APR and ROI.

I’m mostly just trying to wrap my head around someone being so in favor of the air-drop. What is it exactly that is so enticing about it? Two years down the road being able to de-register and re-register? Wouldn’t you just be selling anyways? Does that vote really align with the success of the protocol? I think people hear air drop and think free money. It’s not. And current DNO’s are protected with any of the 3 options. So why not just keep it simple.

And THANKS TO EVERYONE for all the hard work on this, let’s get it over the finish line!

2 Likes
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First you have to consider that with the extra tokens for inflation, the only way to keep the 10,000 node limit (and not have extra sort of useless tokens floating around) is to raise the cost of each node to 118,000 each. So the purpose of the airdrop was to keep currently running nodes from having to go buy more tokens just to stay running. Everyone else is forced to buy more - that’s the cost of not running and the spoils for those who are registered. The vesting period is there so nobody can just receive the airdrop and then deregister and sell, it either gives tokens back to the treasury if they leave or it only lets them keep them if they have stayed long enough to have proven a level of commitment.
Option #2 was created to give some consideration to those who go may have registered late or deregistered early due to the events surrounding Alameda; it gives them some mercy because of the crazy situation and gives some more potential DNO who are paying attention a chance to get in with the 100k they have saved up. This was never about worrying about token dumps on the market. It’s just trying to maintain the same tokens / max darknodes ratio and I guess protecting some nodes from the effects of inflationary supply, and the vesting is just to avoid taking the drop and running early.
Option #3 is definitely simple and fair to all future DNO, but it does either introduce a greater max darknodes which dilutes rewards or we have to code in a maximum darknode count, which leaves 180 million Ren out there with no purpose and could affect tokenomics (although with using Ren as gas this effect may be lessened a bit). It also takes current darknodes and dilutes the worth of their investment.
Coding in the airdrop and the vest are not going to be difficult, so this is basically a non-issue.

2 Likes
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I think it stands on its own merits to incentivize DNs to register with this vote (i.e. Option 2) setting up the most robust DN network for 2.0 to build on. Decentralization is a major competitive advantage over LayerZero at this point. Wormhole is trash tech but Jump provides a lot of ecosystem momentum. LayerZero on the other hand is solid tech, is composable, and also has significant ecosystem benefits due to its investor syndicate. It’s going to be difficult to compete with them, but one competitive dimension where REN can shine vs those players is decentralization. Additionally, we need to grow the REN community. Ideally with long-term vocal members who can help bring attention to REN and assist in ecosystem development. This is the way we overcome the significant ecosystem advantages of both Wormhole and LayerZero. The underlying REN tech is superior to both LayerZero and Wormhole, but ‘If you build it, they will come’ is not going to cut it. Thus, I think it behooves the community to incentivize decentralization and ecosystem development with this vote (i.e. Option 2).

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I am still undecided on 2 or 3, don’t think 1 is a good idea. With 2 we can get the most amount of initial registrations and probably have around 2000 nodes right from the start. That is good because everyone running a node will be incentivized to be active community members and marketers. If we leave bonds at 100k, many will sit on the sidelines to stay liquid.

1 Like
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As a long time DNO, I can see the draw for option 1 & 2, but I tend to agree with @CryptosInSand that both of these options are more about protecting the current DNOs at the expense of future DNOs (including current DNOs that want to expand). As noted in the write up, this is about the future of the project not the past and preserving our ability to grow the network and decentralization should be our top priority.
For option 3, all current and potential new DNOs are on equal footing and IMO gives us the maximum flexibility to manage the new 180M REN for the benefit of the community. I think with this flexibility we must first get the Foundation, DAO, and 2.0 up and running ASAP. Then we need to decide on how to make sure we have long term funding so we don’t face the need for more tokens ever again. For example, do we formalize our current “tax” system for all DNs, create treasury nodes (see RFP-000-050), or some other solution? However we fund long term continuing operations, the selected option should minimize any dilution or drain on DN earnings, be fully transparent, and incentivize long term support of the network. If we can get our long term funding solved quickly, so that we can begin judiciously supporting projects that expand and enhance the REN network, then we will be in a position to burn as much of the new REN as possible to avoid any inflation issues.

1 Like
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Not sure I understand this comment? Other than the 1 DN I have running so I can vote, most of my bonds are on the sidelines waiting for 2.0 to start up (I needed to update my Digital Ocean API tokens anyway and I don’t see a reason to keep spending money on resources while there is no income). When the time comes, I plan to re-register the rest of my DNs to be ready for the start up of 2.0, no matter which way the vote goes. If someone is more concerned about liquidity, it seems to me that they would have sold already, or perhaps they are a speculator with no interest in running a DN. Can you explain why you feel that leaving bonds at 100K will keep more people on the sidelines? I was thinking just the opposite, since keeping the bond at 100K means there are no worries about missing the “extra 200” or needing to go out and buy 18K more REN for any newcomers in that position.

1 Like
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Thanks again everyone for helping push this through and participating in the debate!

My position is still as before. I’m in favor of option 3 to make no change to the bonding requirements and provide no airdrop:

  • Simple, least hassle and complexity for the protocol going forward
  • I think it is unfair to let token holders bear the burden of inflation while protecting operators
  • Benefits decentralization down the line by not penalizing would-be operators/those who are not bonded
  • Even with increased bond there is no guarantee that operators won’t still be diluted in their income, because of the inflation there will likely be more operators anyways
  • Using an airdrop to compensate operators at the expense of token holders is a bad image imo, would prefer not to start 2.0 in that way

I’m starting to feel like a broken record listing my reasoning over and over again so I’ve kept it to a quick summary. For more of a deep dive I’ll refer to the first couple of posts in the RFC, I think its captured quite well and eloquently there.

2 Likes
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There will always need to be liquid markets though, so there will always be a reasonable amount out there

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The snapshot vote is live: Snapshot

Happy Voting!

1 Like
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Originally I would have been strongly in favor of (1) because it’s what was already voted on, but in light of @CryptosInSand’s comments, I think (3) makes the most sense.

What’s most important is the project’s success. Let’s keep it simple (stupid) and leave more funds available to the foundation. The loss of value due to inflation to DNOs will be negligible if the project is successful and hardcoding the 10k DNO limit will prevent rewards from being diluted (although we were far from the 10k limit anyway).

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“i’m mostly just trying to wrap my head around someone being so in favor of the air-drop. What is it exactly that is so enticing about it?”

Why would I not be in favor of an air drop? I’m not trying to be patronizing, but as a DN owner I think the more fair question is why would I not want the airdrop? It’s essentially free money.

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2.0 is going to start off slow. Historically, dn count went up as rewards went up. You and I may be loyal fRens ready to help out, but many are opportunists and with little yield will not want to risk locking a bond for little return. It’s also new tech, with a different market, so there is more risk involved than a year ago.

The airdrop can then also be seen as a reward for those bonding under such conditions, helping the network in an uncertain beginning.

As time goes on people will just get used to a node costing 118k. The shock will wear off and those of us who were here will enjoy greater yield down the road.

That being said, I’m still not convinced it’s the best choice. I understand all the reasonings behind #3 and am squarely on the fence. Gonna sit tight until near the end and hopefully we get some more posts here with some good persuasion :slight_smile:

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Is this the type you can change your vote? Just curious.

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“what’s most important is the project succes”

Sure but there is no guarantee or even a reasonable assumption that choosing 3 sets up ren 2.0 for more long term success than any other vote. It’s all speculation at this point. regardless of how the vote turns out, what will make ren 2.0 successful is a decentralized working product.

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did my part and voted.
nothing new to add to the ongoing conversation.

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congrats everyone :slight_smile:

edit: Everyone should vote for #2 (I am definitely not one of the 200 registered DNs after 018)

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As posted on the RFC page I would be more in favour of the option #3.

There is no need to complexify the launch of REN 2.0; and let the team focus on what really matter (As mention competition won’t wait for REN).
The foundation is supposed to work in the best interest of the project (I might be too candide on that one - but I tend to believe that we are in the same boat). If the foundation is funded more than initially expected; it means more initiatives could be well founded - increasing the chances of success of REN overall.

I would prefer to see the bond kept at 100k REN; with / without the upper limit in the number of DN set to 10k; and no airdrop no matter if a vesting period is in place.

Anyway I’ll go with whatever choice the community decides as a whole.

19

It’s not free money. Think about the economics of what will happen. In the long run, the theoretical value of REN is equal to the earnings return from running a DN, so let’s say the hypothetical value is $1 so the cost to own a DN is $100K under 1.0. If the vote ends up increasing the bond to match the total supply, then it should still cost $100K to own a DN, just the value of a single REN will adjust accordingly (i.e., approx. $0.85) assuming the earnings return is the same under 2.0. So, options 1 & 2 aren’t about getting free money, they are about exchanging a token worth $1 for 1.18 tokens worth $0.85. If we don’t use the new 180M REN (or what’s left of it after the airdrop) to expand the network, and increase the value of the earnings stream for all DNs, then this is all moot. So in order to vote for options 1 or 2 you must believe that 180M less the airdrop is enough to accomplish this goal of increasing network revenue.

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Yes you can always change your vote as long as the vote is still active. I believe this is always the case on Snapshot.