Nym node min profit margin and max operator cost implemented

Here’s what the change means for operators and stakers

Author: Nym

September 17, 20247 mins read

Here’s what the change means for operators and stakers

Earlier this year, the Nym node operator community voted on whether to implement a minimum profit margin and maximum operator cost.

Languages: Русский // Türkçe // Bahasa Indonesia // 中文 // українська мова // Tiếng Việt

This came from a suggestion by a community member as a way to prevent a “race to the bottom” when it comes to operator rewards and to ensure that operators can make a decent earning for providing a good service.

With the Caramello release last week, this community decision went on-chain. The core team has been monitoring how this has affected the distribution of rewards across Nym node operators and stakers. With this change, average operator rewards have doubled from 1.4 NYM per epoch (about 24 NYM per day) to more than 2.8 NYM per epoch (51.5 NYM per day) for high performing nodes of min. 20% stake saturation. Staker APY has changed roughly from 13% to 10%.

Before going into the details, let’s take a look at the bigger picture.

The bigger picture

The Nym network is starting to see a gradual increase in usage. The NymVPN is in its public Beta stage and now open for testing by anyone in the world. The goal of this new testing phase is to better troubleshoot the app and network ahead of its commercial launch.

Increasing usage of the Nym network also means the Nym core team is demanding more from the operator community. The goalpost of a good quality Nym node is moving regularly as new releases roll out and performance measurements come in (so check here to see if you are still a Panda).

Note: Very soon, any node that falls behind the past 3 releases will no longer be eligible to be in the active set. The Operators Guide changelog is the best place to follow up on new versions, updates, and release notes.

Meanwhile, the rewards going to Nym nodes must reflect the efforts that will be needed in these next few months to get the network up to scratch.

Adjustments to Nym token economics

The Nym network has been live for nearly two years now. This means that there is now real world data on how NYM token economics is performing. The primary objective of the token economic design is to ensure top quality of service and coverage of what may likely become the world’s most powerful privacy network.

One of the team’s findings is that staking, which was intended as an economic measure of community confidence in the quality of a given node, hasn’t worked very well. One possible reason is a tendency to “stake and forget,” leaving NYM tokens idle on outdated nodes instead of contributing to ensuring good quality.

At the same time, the community has been experiencing turbulent crypto markets, leaving some operators struggling and out of pocket. The Nym knows this has been difficult, but is confident that the value of the NYM token is fundamentally linked to the performance of the Nym network which is just now coming to fruition.

For these reasons, emphasis will be increasingly placed on performance rather than reputation as a proxy for good service. It is good to keep this bigger picture in mind when analyzing the reward data following last week’s change.

New minimum and maximum parameters

As of last week, the following ranges were set for operator cost and profit margin:

Profit margin (PM): 20%–50%
Operator cost (OC): 0–1,000 NYM

These ranges were set on-chain and apply to all Nym nodes. This means that operators cannot set their PM and OC outside of these ranges going forward, and values which fell outside of these ranges were clipped to the maximum/minimum.

Nym nodes are selected to do work for periods of 1 hour called epochs. If they have good performance and high stake, they will have a higher chance of being selected to do work and receive rewards. Here is a simplified overview of OC and PM and how these parameters determine the share of rewards that node operators and stakers receive.

OC is a monthly value meant to cover the costs of actively operating a Nym node. OC is paid first by the reward algorithm before any other rewards. This means that stakers only start receiving staking rewards after OC has already been awarded to the operator.

Note: The OC parameter assumes 100% activity. For example, if your node is selected to do work for 50% of the epochs in a month, the OC for that month will be 50% the OC you configured. So if you set OC at 500 NYM and your node is selected to do work for 50% of the epochs throughout the month, then your node’s OC will be 250 NYM for that month.

PM is the node operator’s share of all the rewards that their node generates (after covering OC). Let’s say your node has a 20% PM and it generates 100 NYM in profit for an epoch. In this case you receive 20 NYM as operator rewards, and the remaining 80 NYM is split among the stakers of your node proportionally to the size of their stake stake. As the operator, you must have some stake on your own node.

Impact of minimum profit margin and maximum operator cost

Maximum PM and OC are simple safeguards protecting stakers from abusive behavior. Reducing the minimum OC from 40 NYM to 0 NYM was requested by a few old node operators with highly saturated nodes — OC doesn’t matter to them as much anymore, and 0 is a nice round number.

The most impactful change is the implementation of a minimum PM. Previously the network-wide average PM was around 5% and some nodes had even lower values at 1% or even 0%. As the minimum is now 20% across the board, the share of operator and staker rewards shifted notably.

Staker APY has changed roughly from 13% to 10%. Meanwhile, average operator rewards have doubled from 1.4 NYM per epoch (about 24 NYM per day) to more than 2.8 NYM per epoch (or 51.5 NYM per day) for high performing nodes with a min. 20% stake saturation.

These changes are in line with the projections shared and discussed with the Nym community during the vote on instituting the minimum profit margin.

Note: Not all operators will necessarily see an effect of these changes. The actual increase in rewards depends on their individual parameters and performance. For example, not all operators will be in the active set in every epoch, so their rewards will not reach the top level.

The changes only come into effect when a node actually gets into the active set and gets their first reward since the contract update. Underperforming nodes might therefore still show in the explorer as having a PM or an OC outside of the currently permitted bounds.

What next?

Nym node rewards will be changing significantly over the next months in line with the Nym roadmap. As announced earlier this year, this includes the completion of “project smoosh,” gateways joining the reward set (with reward ratios also the result of community vote), and credentials kicking in as evidence of work done in the network.

The Nym team has collated all of these upcoming changes in a Nym node roadmap. The roadmap will be presented at a Nym node town hall that will take place on the 10 October.

All current and potential Nym node operators and stakers are invited. Further details, agenda, and invitations will circulate over the next couple of weeks. In the meantime, please reach out to us on Telegram or elsewhere with any questions you have about these changes and how they affect you!