Proposal: While creating incentives for pNetwork nodes, should the attached fee model be applied to cross-chain operations?

Proposal: While creating incentives for pNetwork nodes, should the attached fee model be applied to cross-chain operations?

Proposal: While creating incentives for pNetwork nodes, should the attached fee model be applied to cross-chain operations?

Summary: This proposal would introduce a fee model for cross-chain operations to create an additional incentive for pNetwork nodes. The proposal brings forward the introduction of a 0% fee for peg-in operations and a 0.25% fee for peg-out operations. A further 0.05% fee (or minimum $5.00 fee) to be added when leveraging additional features (i.e. pNetwork Portals). All fees would be distributed across pNetwork nodes and serve as an incentive for their operations.

Abstract: pNetwork nodes are a crucial component for the pNetwork - they are responsible for securing cross-chain operations and increasing the overall security of the protocol (check out the state of the network at nodes.p.network).

This is a proposal to introduce an additional incentive for node operators to reflect their key role within the ecosystem. Such an incentive is translated into an asymmetric fee model that applies to cross-chain operations. The initial fee model that would be applied equals a 0% fee for peg-in operations and a 0.25% fee for peg-out operations. A further 0.05% fee (or minimum $5.00 fee) to be added when leveraging additional features (i.e. pNetwork Portals).

Introducing such a change is aimed to increase active participation in the project while making the system decentralised across a higher number of nodes.

Motivation: The pNetwork is the increasingly decentralised layer powering and governing the cross-chain pTokens solution as well as other features (example: pNetwork Portals). As part of the project’s progressive decentralisation roadmap, a growing number of components are being introduced to the system.

Node operators are a critical component for the pNetwork - they are responsible for securing cross-chain operations and increasing the overall security of the protocol.

For the ecosystem to experience healthy growth, it is essential to align incentives for all participants. Introducing a fee on cross-chain operations processed via pNetwork creates an incentive for entities to spin up a pNetwork node and support the network. From the opposite point of view, a network of nodes contributes to a more stable and higher quality service, making pNetwork more attractive for new users.

When operating a pNetwork node, node operators are eligible for DAO voting rewards (currently set at 42% APY, rewards distributed at the end of every epoch). However, a long-term incentive is needed for the node operation to be sustainable since DAO voting rewards are planned to stop at the end of the second year. Introducing fees for cross-chain operations brings in such a long-term incentive.

Specification: The pNetwork is the increasingly decentralised layer powering and governing the cross-chain pTokens solution as well as other features (example: pNetwork Portals). As part of the project’s progressive decentralisation roadmap, a growing number of components are being introduced to the system - one of these being pNetwork nodes.

For the ecosystem to experience healthy growth, it is essential to align incentives for all participants. This proposal aims to create a benefit for existing pNetwork nodes as well as to welcome new node operators within the network, the upside for them being a redistribution of fees collected by the network.

The PNT token represents a key element of the system as it aligns incentives for all participants. In fact, PNT is leveraged internally by the pNetwork system to enable operations for both node operators and DAO members. The flywheel effect is triggered by the need for node operators and DAO members to hold and stake PNT tokens in order for them to perform their respective roles.

Prospective node operators need to stake a minimum amount of PNT tokens (currently set at 200,000 PNT), which is then used to show their commitment and serves as a bond.

When operating a pNetwork node, node operators are eligible for DAO voting rewards (currently set at 42% APY, rewards distributed at the end of every epoch). However, a long-term incentive is needed for the node operation to be sustainable since DAO voting rewards are planned to stop at the end of the second year.

This is a proposal to introduce an additional incentive for node operators to reflect their key role within the ecosystem. Should the proposal be approved, fees on cross-chain operations would be introduced. The fee structure goes in the direction of incentivising the incoming traffic, therefore setting asymmetric fees on peg-in and peg-out operations. Further fees are added when leveraging additional features such as pNetwork Portals, enabling a variety of more advanced use-cases.

Below, a breakdown of the proposed fee structure:

The proposal sees a 0% fee for peg-in operations and a 0.25% fee for peg-out operations. Further fees are added when leveraging additional features - specifically, the proposal sees an additional 0.05% fee when transferring metadata across blockchains (i.e. this additional fee would be applied when using pNetwork Portals). An example could be the wrapping and un-wrapping of NFTs across chains, with a minimum fee. Should other features be incorporated within the pNetwork system in the future, similar logic would apply.

Should the proposal be approved, flexibility on the technical implementation is given in order for an efficient fee structure to be applied. This may cause small variations on the above (*i.e. small changes on the minimum fee).

The asymmetric fee structure is focused on the overall benefit each operation brings to the pNetwork ecosystem, whereas peg-in operations contribute to increasing the TVL (total value locked) of the system and peg-out operations create an economic incentive for nodes.

Such a structure balances the two operations by introducing an incentive for nodes while facilitating users/liquidity onboarding. Future changes on the initial fee structure are possible and will be applied based on pNetwork DAO governance decisions.

From a user perspective, the proposed fee structure offers an advantage on inbound operations while remaining competitive on outbound operations.

The payment for the fees happens in terms of the asset users transfer cross-chain. As an example, while processing the tokenisation of Bitcoin on Ethereum, a peg-in fee would be collected by the system in BTC and distributed to pNetwork nodes.

Below, a chart showcasing the US Dollar countervalue of fees distributed to pNetwork nodes based on the cross-chain transaction volumes processed.

Join the discussion of this proposal on the pNetwork community channels.