LinkPool Economics

So far we have had some amazing interest in LinkPool, with the total proposed stake of all our signups totalling over 5 million Link! We’ve also been receiving a lot of questions from the community surrounding some of the economics of the platform so I thought I would address some of these questions as well as a few other areas. But I mainly I want to set some realistic expectations so that when LinkPool goes live, people are not upset with their lack of lambos.

If this is the first you are hearing about LinkPool, then please take a read of this great article on what and how we are trying to achieve by co founder Jonny Huxtable

LinkPool: The first Network of Chainlink Nodes Backed by a Smart Contract

Expectations & Assumptions

While developing LinkPool before the ChainLink network is live, some may think we are jumping the gun a bit considering how far away we are from a full implementation of the ChainLink network and the lack of details around what actual rewards will be (more on that later) and if the idea of pooling is even economically feasible. We strongly believe in the long term potential of the ChainLink project which is why we are doing this.

Naturally we need to set the expectation that because mass adoption of the ChainLink network will not happen overnight, the initial rewards may seem disappointing. However, we are building LinkPool based of a few of ours and many others strong expectations that there will be:

  1. Large adoption of the ChainLink network
  2. Multi-blockchain support
  3. Lots of nodes required
  4. Token price increase

Because of these, we see LinkPool as having an amazing opportunity for a first mover advantage and massive potential alongside the ChainLink network. If you haven't already, have a read of this article by Signal Capital on why they are so bullish on ChainLink and why we are too.

However our aim is not only to provide our pooling and infrastructure to the network, but also to assist the adoption of ChainLink through developing open source custom adapters to progress multi-blockchain support and niche use case. We see the income we generate from our pooling service as a way of bootstrapping our custom adapter development and being able to both work on it full time and expand.


LinkPool Node Queuing

Places on a node will be granted on a first come first serve basis and rewards will be distributed on a per-node basis so you will only earn rewards from the node your link is staked on. We will deem a node is full once it has hit a certain amount of Link tokens staked on it (which is yet to be determined) but it will likely be at a point of diminishing returns, that is, the point where any additional link has no further effect on the rewards. Withdrawing your stake on a node will lose your spot on that particular node and to re-stake you will have to choose the next available one who’s reputation and profitability could be far lower.

People who decide to stake their Link early will get the added benefit of securing a place on some of LinkPools first nodes which we hope will become some of the most prominent with time. People who join LinkPool further down the line will likely need to stake on a newer node whose reputation will require building up through completing successful jobs.

It is our aim that there will always be a node available to stake on but in the alpha & beta stages we may limit our scaling functionality to ensure automated scaling works as expected.

LinkPool Fees

When staking with LinkPool, our service fee is only deducted from any future Node earnings, this means there is no upfront or hidden costs for using the service and the amount of Link you have will never decrease over time.

Any Link tokens that our nodes generate as reward, 30% will be deducted for our fee and the remaining 70% will be distributed proportionally between the stakers (although these are by no means fixed and would hope to decrease them over time). We believe this amount to be fair since we are investing strongly into our infrastructure to ensure the reliance, redundancy and security of our nodes, as well funding future expansion. We highly expect our running costs to dwarf our income from the LinkPool fees initially but realise the long term potential of the service we are trying to provide.

Edit: it seems some of the community thinks our initial 30% is a tad high. This is my fault as I should have elaborated more on why we came to this figure which is mainly based on our infrastructure which Jonny Huxtable will be covering soon


LinkPool Returns

As the main-net is not currently live and it will be an open market, it’s currently impossible for us to derive the ROI this early on or what rewards from the ChainLink network will look like. However as confident as we are in the ChainLink network gaining popularity, combined with an increasing token price, we are still unable to determine a long term monthly ROI on initial stake, but initially as the network gains traction we are optimistic returns could be in the 0.1-1% range (not accounting for token price increases however) and higher as network adoption increases. The economics of the ChainLink network rewards system will likely need some fine tuning and time to mature so this is also something to keep in mind, for better or for worse.

Edit: I decided to remove the sentence regarding our long term ROI goal as I felt it was being misinterpreted and slightly misleading.

The amount of reward a user earns will be proportional to their stake on that particular node, so if a user owns 10% of all the Link on a node, they will earn 10% of all the rewards that the node generates after fees. To expand upon an example co-founder Jonny used in this article, fees and returns work as follows (using arbitrary figures)

  • Node A has a total of 50,000 LINK staked on it
  • Staker A has 10,000 LINK on Node A (20% of the LINK on Node A)
  • Node A makes 500 LINK in rewards (1% of the Node’s total stake)
  • LinkPool deducts 30% as fees (150 LINK)
  • Node A now has 350 LINK in available rewards to distribute between stakers
  • Staker A earns 20% of the available rewards (70 LINK) and now has 10,070 LINK staked on Node A

The longer a node is adequately staked and functional, the more reputable the node will become and thus have an increased likelihood of being selected for tasks. As mentioned, because of this it will be in the stakers interest to keep their Link staked so as to not lose a spot on a popular node.


Penalty Payments

Another obvious concern is how penalty payments will be dealt with when pooling. We expect the majority of the penalties by the network will be a result of node downtime and unresponsiveness instead of false data. The way our node infrastructure is being developed for redundancy and reliability, any penalty payments due to node downtime or unresponsiveness should be non-existent, we are confident enough in this respect that all penalty payments will be paid from our own “hot wallet” and would never be the stakers responsibility to pay.

One benefit to pooling when it comes to penalties is that in order for a node to accept a job, the node is required to put forward a portion of Link as collateral (which is then used as the payment in the event of a penalty) if a node has all its Link locked up as collateral for penalty payments it cannot accept any more jobs, so simply put, the more Link a node has on it, the more jobs it should be able to accept and more concurrent jobs = more rewards.

One thing to note is that penalty payments are optional by the contract creator so not all jobs will be subjected to possible penalties


Summary

I hope that has helped to answer a few questions around the way economics of LinkPool will work and its future potential. We have some exciting developments updates around the infrastructure that is being developed by Jonny Huxtable and a first look into the LinkPool UI/UX that is being developed by myself, Mat Beale. If you have any further questions, feedback or are interested in investing please feel free to contact either of us on Twitter or our website.