GoodNodes Reflections: Week Two

GM, what a crazy two weeks for GoodNodes!

From a successful launch on Velodrome with large bribes, to massive community interest and engagement, a vibrant and engaged set of holders in Discord, and the first steps towards setting up our nodes, these first two weeks have been a wild ride. In its first two bribe epochs, GoodNodes has distributed 800,000 GNode, worth over $500,000 at present value, accruing directly to veVELO lockers (through bribes) and GNode LPers (through emissions)! Between the GNode-USDC and GNode-VELO pools, the project has attracted $2m in TVL, and secured 10% and 15% of the epoch’s votes for the first and second week, respectively. It’s been a successful week by any metric, and we’re just getting started!

Capitalizing upon this exciting community engagement, I wanted to take some time to give a bigger-picture vision about GoodNodes, its integration with Velodrome, and how the team views each phase of the token distribution. The boundaries between phases are not intended to be rigid, but are merely a conceptual map of how the project plans to function. I also want to answer some of the most common questions about the project.

Phase One: Bootstrapping and token distribution

This is our current phase, where GoodNodes is using the Velodrome flywheel for token swaps to distribute the token to the Velodrome community. There are many reasons why we wanted to launch through Velodrome — we consider it amongst the best ways to launch a new project that is cashflow driven.

First, there were no token sales, meaning GoodNodes can launch in a compliant manner and avoid or minimize any future regulatory headache. All tokens were distributed as token swaps, GNode for VELO, and through the secondary LP — no presales, advisor allocations, seed rounds, etc.

Second, launching GNode through VELO bribes is as fair and transparent a launch as possible and avoids a lot of the shady practices that can sometimes occur around token launches. Everyone either received GNode for their veVELO votes or directly from the secondary liquidity pool with a transparent price and transparent tokenomics.

Third, Velodrome has a passionate, knowledgeable, and dedicated community on the edge of DeFi, and distributing tokens to veVELO lockers gives an early equity stake in GoodNodes to some of the most active members of the crypto community. Optimism as a chain felt especially well-suited to launch what is essentially a professional node-running operation that uses real cashflow to generate real income.

Fourth, launching through bribes allows GoodNodes to trade its tokens not for funds, but for cashflow. Bribing in this way is essentially trading GoodNodes’s equity for veVELO’s cashflow. In contrast to a presale, seed, or other kind of launch mechanism, which provides the project with a large upfront payment without any future income, launching through bribes allows a project to launch with sustainable income. This is more suited for GoodNodes, which benefits from consistent monthly income to run the servers necessary to run nodes for incentivized testnets and mainnet projects.

Fifth, we believe strongly in Velodrome’s future, not only as a liquidity solution but also as a way for standard businesses to trade equity for cashflow in order to bootstrap their businesses and allow veVELO holders to share in potential upsides of those businesses. That’s exactly what’s happening right now — GoodNodes is distributing equity (tokens) through bribes to veVELO lockers in exchange for the veVELO cashflow necessary to boostrap the business. GoodNodes receives income to jumpstart the business, veVELO lockers receives bribes, and LPers receive emissions — all made possible through the VELO flywheel.

During this bootstrapping phase, the main focus is on distributing GNode tokens in exchange for a veVELO position, trading equity for cashflow. This is why GoodNodes isn’t selling any of its VELO and has no plans to — the veVELO is an essential component of the project design. Already, GoodNodes has locked 60,000 veVELO, and has accumulated around 1.2 million VELO, presently being used to LP the GNode-VELO pool and which will soon be locked as veVELO to secure node-running income.

This phase also includes a lot of administrative tasks such as launching social communities like discord and telegram, registering GoodNodes as a Wyoming LLC, setting up the website, and answering community questions. The tech team is also hard at work setting up the first few node projects — this will likely look like 10–20 servers running nodes for one project, with a new project added to the servers roughly every week or two weeks until the targeted projects are stood up. As new incentivized testnets are released, new projects will also be added to the stack. The tech team wants to ensure GoodNodes is built on a solid foundation first and so this initial phase includes a lot of theorycrafting and planning about how to structure the servers to make adding additional projects much easier. As a result, once the first servers are launched, adding projects should be much quicker.

The length of this first phase will vary based on the success of the bribe program, but the bulk will likely last 2–3 months, where the project is continually accruing cashflow and standing up the node infrastructure.

Phase Two: Scaling the node-running infrastructure

GoodNodes phase two will start once the project has hit a critical mass of cashflow and nodes launched, likely around two or three months after the initial launch. During this phase, bribes will continue in order to build a strong veVELO position and continue to distribute GNode tokens, but the primary focus will be on improving and scaling the underlying tech stack to put the cashflow to its optimum purpose. This stage will likely focus primarily on incentivized testnets as they have a higher potential ROI, but as cashflow increases GoodNodes will likely add more nodes for mainnet projects. This will occur both with cashflow received from the veVELO position but also from testnet tokens accrued to the treasury from prior node projects.

Phase two is also likely when the first node-running rewards will be distributed to GNode token holders. Most of these incentivized testnet rewards are either locked/vested, or it takes time for liquid secondary markets to develop to enable trading of the tokens. Once reward tokens are received and trading is enabled, they will be distributed to GNode holders according to the whitepaper, with a portion being held back in the treasury to either supplement operations or expand into mainnet node-running on behalf of the project.

Based on cashflow needs, GoodNodes can also begin acquiring stakes in promising projects launched on Velodrome through bribes, and put those tokens to work farming on behalf of GNode holders or otherwise use the tokens in whatever ecosystem the token represents. This is another way GNode holders can get diversified access to interesting crypto projects.

This bulk of phase two will likely last another 2–3 months.

Phase Three: Accumulating more projects, focusing on mainnet projects, and improving GNode Holder UI/UX

Phase three will start around when GoodNodes has mostly saturated the opportunities available for incentivized testnets. GoodNodes will continue adding more testnet node projects as they appear, as well as Velodrome-launched projects, but the focus will likely switch more to running mainnet nodes as more capital is deployed on behalf of GNode holders.

This will also be a prime time to work on UX/UI improvements for GNode holders. Possibilities include web and mobile apps to see a user’s proportional share of nodes and estimated rewards, claiming rewards, delegating testnet rewards to GoodNodes in order to run mainnet nodes on your behalf, and other functions to give holders a deeper dive into the business operations.

The ideal endstate would be GoodNodes holding a diverse index fund of interesting crypto projects, with tokens received at venture capital prices because of node-running services provided to those projects, using sustainable financials derived from using the VELO flywheel to trade equity for cashflow, and distributing a steady stream of reward tokens to GNode holders.

Frequently-asked questions:

Thank you to the GoodNodes community for earnestly engaging the project and bringing such great questions! We’re aiming to schedule a full AMA with the entire team, including the tech team, relatively soon, but I also wanted to answer some common questions, at least preliminarily.

“Why are you bribing with a SCAM TOKEN with NO VALUE with NO PRODUCT?”

This was a common question early on, but each aspect is wrong. First, GNode isn’t a scam — it’s a tokenized business engaging the VELO flywheel to boostrap by exchanging project equity for cashflow. Second, the token does have value — it was paired with $50k USDC at launch, this liquidity rapidly expanded allowing all bribe recipients to sell their GNode tokens at the advertised bribe price or higher, and the liquidity pools are over $2m at the moment.

Third, GoodNodes does have a product — a team with expertise and willingness to provide a service on behalf of tokenholders. This is the structure of nearly every business on the planet. Where there is an intellectual disconnect is that crypto speculators aren’t used to seeing “as a service” products very often. They’re used to aping the 4th GMX fork on the 7th chain and consider this the only way in which a crypto project can offer a “product” because a team has deployed some open source code to facilitate financial speculation. GoodNodes isn’t that — the core product offering isn’t some new financial derivative or other piece of software. This isn’t software-as-a-service. GoodNodes is just a boring business you’ve seen everywhere else in life — using income received to provide a service that hopefully ends up profitable for all involved. GoodNodes is the crypto equivalent of a cardboard box factory — providing a necessary service to an ecosystem that isn’t particularly interesting on its face but for which people are willing to reward the business. Where GoodNodes is innovative is merely (1) it is tokenized, allowing for rapid and easy capital formation (the real use case of crypto), (2) it is engaging the VELO flywheel to trade equity for cashflow, allowing the project to launch in a compliant manner and bootstrap operations.

This isn’t any less a legitimate use of the VELO flywheel as a project looking to incentivize liquidity for its pairs. In fact, I suspect there will be an increasing use of the VELO flywheel for exactly this purpose — veVELO lockers essentially trading their cashflow for business equity, allowing them to speculate on the token value, LP rewards, as well as the underlying business. It’s an exciting usecase that’s not fully explored but holds tremendous value for veVELO lockers.

“What is GNode’s plan to support early GNode LPs and token holders?”

The primary focus right now is on distributing GNode through bribes in exchange for VELO emissions in order to build a veVELO position. GNode token holders can share in the VELO emissions by LPing in the GNode-USDC and GNode-VELO pools, but would also be exposed to potential impermanent loss in these pools.

“How will the node work? Hardware based or cloud based? How will it scale?”

To begin with, we’ll be using cloud-based servers because of the easy scalability as new projects are routinely added and because of the relatively limited starting capital. As the capital deployed grows and economies-of-scale are present, GoodNodes will likely transition to bare metal solutions.

“Please explain in detail how the vesting works and how that will affect future price appreciation”

The vesting is all available in the white paper. Essentially, team tokens have a six-month cliff with a one-year vesting, treasury tokens have a one-month cliff with a two-year vesting, and the bribe/LP tokens unlock at 1% a week. The 1% a week doesn’t mean a full 1% will be used — at the moment, GoodNodes is using less than half of this. The 1% unlock rate is just designed to give GoodNodes a steady stream of potential bribe/LP tokens as needs vary.

The team can’t comment on price appreciation and each holder needs to do their own due diligence around the project according to their own needs and goals.

“How many team members are there and what are each individual’s role?”

Four people. The goal is to launch with a relatively lean team, and scaling it as needed. Mustached runs the crypto integration side. Our tech team lead oversees our tech team. Our tech team has a hardware and software lead who implement and scale the node-running as required by GoodNodes.

“Security concerns — Has any of the protocol/contracts been audited? Treasury funds in a gnosis safe? What is the team doing for transparency to show that the project is not a rug?”

The project contracts are extremely simple ERC20 contracts since nothing fancy is needed in the actual token — it is simply a way to facilitate capital formation and engage the VELO flywheel. Treasury tokens right now are fully locked and there are no treasury funds (node rewards) to safeguard, but yes they will be placed in a gnosis safe once received. For transparency, the team tries to be as honest and upfront about all aspects of the project through the whitepaper and in response to community questions.

“What is GoodNodes closest competitor? what other successful project similar to goodnodes is out there? how will GoodNodes improve or do better than other similar projects?”

As far as we are aware, there is no tokenized competitor to GoodNodes. All other competitors are profitable private businesses, with rewards flowing to either principals or shareholders, depending on the structure of the company. For example, Monad is working with a handful of professional node-running operations, and their initial validator set will also be competitive. GoodNodes’s unique value proposition is tokenizing and engaging the VELO flywheel to allow token holders to share in the project’s upside.

“Is there a medium/long term plan for incentivizing liquidity in anything other than gnodes? It’s worked great so far but would be interesting if we could develop a warchest strategy for using other assets over the longer term as gnodes supply starts circulating more.”

Since GoodNodes will be receiving a variety of tokens as part of operations, it’s possible some of those could also be used as bribes. This would essentially be trading treasury assets/income to offset token dilution, and might be an appropriate strategy at times.

“This might seem unorthodox but maybe we could try not voting for gnodes with the protocol owned vevelo… sounds like there is tons of gnodes already to bribe with, and self voting is not likely to change total votes recieved so could be a nice way of building other assets for treasury without selling any gnodes to do it.”

Yep — that’s the plan! The whole purpose of accumulating veVELO would be to bribe other pools for their rewards and use that income to run nodes. The GNodes bribes are mainly ways to distribute tokens in exchange for veVELO income and to incentivize liquidity on the liquidity pools.

“How long is the team committed to high bribes both GNode pools?”

Short answer — as long as it is sustainable and makes sense to trade equity in exchange for cashflow! There are a lot of factors that go into determining the bribe amount. But since bribes are the sole launch mechanism for GNode, the goal is to continue bribing the pools.

“Which chains/network will the first nodes be?”

We have a list of about 20 projects at the moment. The first ones to focus on will likely be Taiko, Shardeum, Lit Protocol, and Subspace. We’ll also be partnering with these teams to share more info about their projects through the GoodNodes twitter, so holders can learn more about the underlying tech.

“There a finite amount of profitable nodes to operate at any given time, how long would it be expected to reach this point or some sort of steady state where projects are phased out and new ones are phased in/how sustainable is the gnodes business model. can you provide nodes for live chains? there can’t be that many testnets all the time”

This is partly true — there is a finite amount of profitable incentivized testnets to run. It will likely be around 3–4 months until GoodNodes saturates those opportunities, and then subs in new projects for old ones as their incentives roll off. As incentivized testnets move to mainnets, GoodNodes will also be in a prime position to transition into running mainnet nodes for those projects. There are also a variety of mainnet nodes/validators/etc. to run which can absorb almost unlimited capital.