COTI Full Node Fee Policy
- COTI network uses a transparent and equitable fee model. All fees are collected by Full Nodes, operated by the COTI community and serve as the basis for stakers’ rewards
- Starting June 1st COTI will allow node operators to define their own fee rates given the guidelines described below (change it from the current default fee rate: min(0.01%, 25 COTI)
- The rates set for the nodes can be changed every 3 months
- Information about how rates are calculated and a sensitivity analysis are provided below, to help node operators optimize their fees
COTI network uses a transparent and equitable fee model. All fees are collected by Full Nodes (decentralized servers run by ordinary users in the COTI network). The network receives a portion of fees, collected by Full Nodes, to support infrastructural components such as: Double Spend prevention Nodes, Trust Score Nodes and History nodes. This aspect of fees in the network has been named “The Network Fee”, while the rest of the fees collected has been named “The Full Node Fee”.
In COTI, all the fees are transferred by separate base transactions, bundled into the transaction data structure with the corresponding payment amount.
All fee-base transactions include:
- Full Node fee
- Network fee
- Rolling Reserve
Network fee Policy
In all use cases and workflow of the COTI Network, Network Fee is calculated by Trust Score Nodes based on the payment data. Trust Score nodes calculate the Network fee based on the payment originator’s Trust Score. In case of standard payment for goods or services, the originator of the payment is a Merchant sending the request to pay. In case of a remittance or general purpose transfer the originator is the Sender.
The Network Fee is calculated in the following way:
Full Node Fee Policy
Full nodes are the “front end” of the COTI network. All user operations in the decentralized network are conducted by Full Nodes, and, in return, Full Nodes charge fees. In COTI, Full Nodes are also conducting proof-of-work required to approve/confirm a transaction, which makes the fees very reasonable as it compensates the node for its actual contribution and for its resource allocation.
How Full Node fees work
The most common types of payments are: 1) pull payments or payment by a request and 2) push payment or simple transfer. COTI, as a payment system, provides both in an efficient and convenient manner. The flow of operations for these two types is different, but in both cases the user initiates the payment, whether it is a merchant initiates a request to pay for goods or a user wants to transfer funds, has to choose one of COTI Full Nodes. The user can have a preferred Full Node or alternatively request the COTI Node Manager to suggest one for him.
After the Full Node is selected:
- The payment originator sends a fee request to the chosen Full Node,
- The full node (1) sets the fee; (2) creates the data structure called Full Node Fee Base Transaction Data (FFBT Data), which includes the amount, originator’s address hash, the Full Node fee and the Full Node wallet address; and then (3) signs it and sends it back to the user,
- The user (1) inputs the FFBT received into the transaction bundle; (2) calculates the required amounts for input base transactions; and (3) sends the transaction to the Full Node. It must be the same Full Node.
- The Full Node checks its FFBT structure and signature, in addition to other validation checks, and propagates the transaction if it is valid.
The important point is how Full Nodes sets the fees. Because of different operating environments, different levels of service and support offered by Full Nodes, COTI network does not dictate the Full Node fee level. Full Nodes are free to set their price, while Merchants and Customers are free to choose the Full Node. As a result, we assume that competition will adjust Full Node Fees to a reasonable market price.
When a node is initiated, it announces itself to the network. The message sent by the node also includes his Full Node fee parameters (otherwise other nodes will reject it). If it’s valid, the Node Manager includes the node in the nodes’ list and starts to offer the node to users and gateway services.
It is crucial that the node will follow its announced fees when setting fees for users. Violation of this rule is a serious case of misbehavior, and it will lead to decrease in its Trust Score and to expelling the node from the staking program.
Full Node fee and COTI staking program
The staking program is intended to compensate COTI users for running Full Nodes and provide service to others by distributing monthly reward on their deposited stake in COTI coins. The program sets the total reward, including Full Node fees collected during the month. COTI itself pays the difference in case the fees don’t make up the total reward. For participating nodes, the rules are a little different. For the fees to be distributed fairly, we designed and implemented a probabilistic distribution model. The model provides the maximum expected fee income for Full Nodes setting their fees at the recommended level. The model also requires full nodes to set the upper fee limit (nodes not following this rule are not allowed to participate and stake). Full node operators will be able to reset their fee structure on a monthly basis.
The recommended fee parameters for Full Nodes participating in the staking program are the following:
Fee percent = 0.1%
Minimum fee = 0.1 COTI
Maximum fee = 100 COTI
The below numbers are based on the following distribution and fee collected projections -
The calculations in the table below took lognormal distribution for transaction values with mean ~15,000 COTI
From the above table, it is clear that the median transaction cost is the most profitable, as merchant transactions which get more out of every transaction are less probable to occur and to assign to a given node. Also, since the distribution of transactions is normal, the nodes which set their fee to minimum don’t receive high rewards although a lot more transactions are processed through them.
It is important to note that the baseline for the comparison is similar for all the above calculations meaning all other factors taken into account in the distribution model, such as: staking, reliability, trust score, etc., are the same.
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Technical whitepaper: https://coti.io/files/COTI-technical-whitepaper.pdf