9 reasons that make Chainflip Validators so attractive
With mainnet almost here, I thought writing my very first listicle would be a bit of fun. In the opening weeks of Chainflip’s life, the Validator auctions will take centre stage.
Lots of people in the broader Chainflip community may not know or understand what makes Chainflip Validators such an essential part of the protocol.
In my view, Chainflip Validators present among the most exciting node operation opportunities in the industry, so I thought I’d go ahead and explain why that is with 9 reasons that make Chainflip Validators so attractive.
What Operators Look For
Before we start, a quick overview of the three main factors that staking providers, institutions, and individual operators tend to consider when looking at opportunities to run nodes for any blockchain project:
- Revenue Potential - This one is also quite obvious - how much revenue can I expect from running this node? Is the rate of return predictable?
- Operational Overhead - How much is it going to cost to run? How much maintenance will I have to do? How closely do I have to monitor my node? Both the monetary and human resource costs must be factored in here.
- Project Longevity - If I acquire the necessary collateral, do I believe it will hold or increase its value over time, even in an adverse market environment?
Every decision as to whether or not to run a node in a project is an assessment of the combined effect of all three of these factors. At the end of the day, it is this cost-benefit analysis that determines the success or failure of a node network and its economics.
Let’s use them as a base for the 9 reasons Chainflip validators are so attractive.
Revenue Potential
Reason #1 - High Opening Reward Rates
Chainflip’s token-economic system programs a simple reward per epoch based on a target emission rate - but the auctions system encourages a dynamic yield to scale with the required collateral. We recently released an article explaining what we think will happen in the opening weeks and months of the network, and go into the underlying mechanisms to explore the projected collateral growth and market dynamics at play - https://blog.chainflip.io/auctions-swapping-tge/
In summary, Validator operators can expect strong yields, especially in the opening weeks, as the collateral rises to a stable level, starting well above the projected 12-20% annual rate of FLIP return we anticipate when the dynamics reach equilibrium.
Even Backup Validators will enjoy a high yield in the opening weeks!
Reason #2 - Strong Real Yields
The “Real” yield will also be high, as the emissions system grants almost all of it to Validators, meaning there aren’t any other dilutive elements programmed into the system that would reduce the effective yield. A validator earning a 20% yield against an 8% annual emission target has a real yield of 12% - and that’s before factoring in the burn rate (more on that in a second). If the burn rate exceeds emissions, the real yield would exceed the headline yield rate and make real yields greater than the effective 12-20% rate granted by the emission target.
Reason #3 - Unlocked Rewards
Some projects require the node operator to shutdown or completely retire their node to access any rewards. This can be painful and subject the operator to unlock times where they would lose rewards that otherwise would be earned.
Chainflip Validators can remove any excess stake, including rewards, at any time outside of the Auction window to pay for any costs of operation and distributions needed without having to pause or cancel operations. This makes redistributing collateral a lot easier as well and leads to a healthier auction dynamic. It also reduces short and medium-term risks associated with node operation.
Operational Overhead
Reason #4 - Low hardware costs
Despite the fact that Chainflip validators are running the largest TSS-based decentralised custody system in existence, the actual hardware requirements for these machines are shockingly low. I personally run my own validators on a $15/mo VPS and have had no performance bottlenecks whatsoever. This is in stark contrast to some projects like Solana and Thorchain which require servers that can easily run into the thousands of dollars to run - on *just* the hardware. Chainflip uses a surprisingly low amount of CPU even during Keygen ceremonies. 2 vCPU machines have been happily chugging along in our 150-node public network to all of our amazement! We don’t recommend using that for mainnet, but regardless, low hardware costs means less overhead to eat into a Validator’s rewards.
Reason #5 - Nicely Packaged
Setting up, updating, and migrating Validators can be a huge pain for all node operators. Often projects have such complex or finicky Validator systems that operators sometimes have to dedicate full-time DevOps engineers to their teams to run these nodes reliably and keep them up to date, relying on complex containerisation and lots of manual configuration to handle even the most basic operations. I still for the life of me can’t run a Goerli Ethereum node that works properly without spending hours or days on it and giving up in frustration.
Chainflip ships apt packages that remove huge amounts of work for operators that follow the standard configuration. Updating a node can be completed in just two commands, and changing the config is very straightforward. We also offer Chainflip as a docker container and have k8s compatible packages also on offer for those operating at an institutional level to mesh better with existing systems. Whatever mode of operation you seek as an operator, Chainflip gives you the power to choose, but a very easy-to-use default that minimises the human cost of maintenance, which is often the main predictor of Validator retention. If it’s easy to keep it running, operators are likely to stick around for longer.
Reason #6 - Great Community
Chainflip has been running testnets for over 2 years. We’ve built an amazing community of experienced operators who have helped us refine and improve the overall operator experience over time. There’s a long list of features and tools yet to come, all directed by community feedback. The 40,000 strong Chainflip Discord community forms a great bedrock of support, where the team also provides support openly and quickly so that access to information is public and rapid.
The community has also helped us develop amazing documentation through this continuous feedback loop. Operators will not have to guess their way through setup, maintenance, or troubleshooting. The community and team are there.
New projects often struggle with documentation and tooling, but Chainflip punches above its weight in terms of both. At Chainflip Labs, we appreciate and abide by the open-source ethos, but also feel responsible for providing the necessary tools around it rather than relying on the community to build stuff that should ship with the protocol by default.
Project Longevity
Reason #7 - Real End-User Utility
Without really trying to dunk too hard on other PoS/Validator based projects, a lot of the time new projects that need operators ship with very little end-user utility out of the box. New L1s and L2s have to prove that they are attractive to developers before anything useful gets put on top of them.
Chainflip launches with a very concrete utility - cross-chain native swaps. As such, it’s much easier to evaluate the thesis of the project as an operator, and to make direct comparisons for the kind of utility being offered in the marketplace.
Reason #8 - Burning Mechanism
The protocol also factors in a Network Fee as a core part of its social contract. 10 bps on every swap is collected in USDC, used to buy FLIP from within the JIT AMM itself, which is then burned by the protocol completely automatically.
This creates a direct relationship between usage and value capture, leveraging the same kind of mechanisms as Ethereum’s now famous EIP-1559 fee-burning proposal, which has mostly neutralised emissions even in this bearish market environment.
If Chainflip attracts consistent volume, operators are more protected against downside price risk through this mechanism which directly supports the price *and* offsets the protocol emissions used to pay them.
Reason #9 - Backing & Track Record
Any operator wants to know that the project they are supporting is still going to be there in a year. With so many teams struggling under the weight of the economic situation and stagnation in the global markets, it’s becoming harder and harder to know who has the staying power to push through the other side of the bear market.
Chainflip, having recently closed some additional funding and with some of the best names in the space behind us, is in a great position to enter the market and capture market share in this tough market environment. We’ve got over 3 years of development work on the project under our belt. Our 28-person team is stable, experienced, and willing to go the distance. With names like Blockchain Capital, Pantera, Framework, Delphi Digital, and many more supporting us, we have a great network to drive the project forward and have a competitive offering for all Web3 users when the markets begin to recover.
Our mission is to displace the centralised exchange, and we take that very seriously.