Vite Full Node Reward Calculations #EarnWithVite @vitelabs
(Disclaimer: I currently operate full nodes for rewards in the Vite ecosystem, and this post was made for #EarnWithVite promotion. This is how I #EarnWithVite, but this is not financial advice.)
For all newcomers, Vite is a decentralized ecosystem featuring a DAG based blockchain with feeless transactions, smart contracts, a decentralized exchange (ViteX), and a fast growing community in anticipation of Vite's universal cross-chain bridge. To incentivize Vite users and organizations to provide certain needed services, various rewards are given in exchange. As there are many different services necessary for the network and ViteX exchange to run properly, there are accordingly many different ways to earn rewards.
In this post I focus on the reward calculations for operating a full node, currently one of the more lucrative opportunities in the Vite ecosystem. I will cover some basic reward calculations, some simple estimates of expected returns, and some speculation on how this may affect the price of Vite in the near future. While I won't cover the steps to set up a full node, there are full guides as well as a helpful community available in case you get stuck. If you're interested in setting up a node after reading this post but have some concerns, feel free to ask questions in the comments or send me a DM.
Earning rewards by operating a full node requires some basic technical ability, an always-online VPS, and a stake of 10000 Vite. The rough minimum requirements for the computer/VPS are at least 4Gb ram, around 200Gb storage, and a unique IPv4 IP address. There are various VPSs available that provide capable services for under $10 USD per month. The 10000 Vite required will cost under $2000 USD at current prices, and after staking the Vite is locked in a contract for 1 month. To keep earning rewards the Vite must remain in the staking contract, but after a month you can withdraw the staked Vite. Finally, the rewards are only earned if your node maintains a minimum daily uptime of 90%.
For the last several days, a single node with 10000 Vite staked has given returns of ~17 Vite/day, amounting to a decent rate of 62% APR. Including expenses for a VPS ($8/month), this is ~57% APR. Furthermore, these are numbers are without compounding the returns. With sufficient capital, if you compound the returns by bringing additional full nodes online, you can bring this up to a maximum of 85% APY at the current rate (or 77% APY with expenses). See here for basic background on APR vs APY, and here for a Mathematica notebook with these calculations. Summarizing, we have:
|Current Full Node Rewards (2012-04-20)|
|62% APR [?]|
|57% APR (w/ $8/month VPS)|
|85% APY [?]|
|77% APY (w/ $8/month VPS)|
|[see calculations here]|
Is this too good to be true? This is where things get more complicated. Right now the incentive structure set up by ViteLabs is very generous to current full node operators, as they are hoping to expand the Vite network in anticipation of ViteBridge. However, as more operators set up full nodes, the rewards will drop somewhat due to the details of the reward formula. On the other hand, as more operators set up full nodes, demand for Vite increases due to the 10000 Vite staking requirement, providing upward pressure on the price of Vite. This upward pressure will likely more than compensate node operators for the drop in the daily reward amount. Therefore, to evaluate Vite as an investment we have to look at the details more closely, especially to understand likely changes to the rate of daily rewards as more nodes are added and the pricing of Vite.
The full node rewards in the current reward schedule are funded through two methods:
- Snapshot Block Producers (SBPs) are special full nodes that help operate and secure the Vite blockchain, and are rewarded intrinsically by the network for each snapshot block they produce. ViteLabs has set up and operates a SBP with a stake of 10 million Vite, plus the 10000 staked per full node operator, with all rewards generated by the SBP in each day divided up among full node operators equally. This SBP (the "FullNodePool") can be thought of as a "trust" that can continue to provide rewards to full node operators indefinitely. These rewards ("SBP only") can be calculated using the formula linked here (Q in the formula), using some reasonable estimates.
- ViteLabs is currently providing additional rewards directly from the Vite Foundation. The total amount of additional rewards grows with the rewards provided by the FullNodePool, with the intent to mitigate the drop in rewards when new full node operators set up nodes. While this reward grows with the number of full nodes running, it has a maximum of 16000 Vite/day, and so will be sustainable by the Vite Foundation for quite some time. These extra rewards ("extras") are calculated using the formula linked here by plugging in the "SBP only" rewards from above.
Finally, we can compute the total rewards (sum of the "SBP only" rewards and the "extras") and then compute the rewards per node, shown in the following plot:
We can then convert these to annualized returns (the APR and APY) as a function of the number of nodes:
The calculations for these plots can be found here. Note that these plots actually underestimate the current rate of SBP rewards. This calculation with the current count of 1450 active nodes predicts a total reward per node of 14.6 Vite/day, while full nodes are actually receiving ~17 Vite/day. This is primarily because there are an additional 3.5 million votes for the FullNodePool that do not have operational full nodes. Since there is no assurance that these votes will remain indefinitely, I would consider these 2-3 Vite an unexpected, and likely temporary bonus! As such, I did not include this 2-3 Vite excess rewards for the above plots.
So, will this high APR last indefinitely? No, we can see from the plots above that the APR will drop as more nodes are started. However, this ties in to part of why it makes sense to start a full node now. Not only does one get large returns for as long as they last, but the value of the staking investment is likely to increase as more operators purchase Vite and start additional nodes. In my personal investment strategy, I view 30% APR as extremely good if such a rate can be maintained. Thus, my valuation for Vite is tied in part to the number of full nodes currently operating:
|Number of nodes||%APR||%APY||Evaluation|
|n < 1500||> 52%||> 69%||strong buy|
|n < 2000||> 43%||> 53%||strong buy|
|n < 3000||> 33%||> 38%||buy|
|n < 4000||> 27%||> 30%||hold|
Note that only ~1500 full nodes are currently operating as I write this (check the live number here), and so again, my personal view is that now is still an excellent time to start another full node.
We can also (very roughly) translate this into a pricing guideline for Vite. Over the past several days I've looked at the sell depth on the Binance exchange. I've found that a buy order for the required staking amount for 500 nodes (i.e. buying 5 million Vite) tends to roughly correspond to a price movement of around $0.05 USD. Extrapolating like this is a bit of abusive speculation, but my personal valuation guide from above would roughly translate to:
|Added nodes||Vite Price (USD)||Evaluation|
|+0||Vite < 0.20||strong buy|
|+500||Vite < 0.25||strong buy|
|+1500||Vite < 0.30||buy|
|+2500||Vite < 0.35||hold|
If other investors have similar evalutions, this table suggests the price of Vite will increase in the near future to around $0.35 USD, with a total of ~4000 full nodes operating.
All of these calculations apply to operating a full node for profit. I understand if that's your primary interest, and if so, you are the intended audience for this post (after wall, we all want to #EarnWithVite!). But, on the other hand, if you also believe in the Vite ecosystem and have hopes for the promises of ViteBridge, running a full node also gives some satisfaction in that you're playing a part in helping Vite thrive.
If you made it this far, thanks for reading. If you think this was helpful for learning how to #EarnWithVite, and you're interested in more writeups like this (perhaps on mining/trading/staking rewards on ViteX or on quantifying risk), please let me know in the comments.
tl;dr: Operating full nodes is a great way to #EarnWithVite. Vite's full node rewards give over a 60% APR with a Vite price of less than $0.20 USD. This APR will likely drop somewhat when many more people operate full nodes, but the associated Vite buying pressure will likely push the price of Vite substantially (estimate of over $0.35 USD).