REN-collateralized nodes: Introduction to Darknodes

A brief overview regarding nodes and their incentives within Republic Protocol’s ecosystem.

Quick summary: Darknodes match orders within Republic Protocol. Requirement for running a darknode is 100,000 REN tokens staked as collateral and a fast, stable Internet connection. It is not computationally expensive to run a node. Darknodes earn fees from the orders that they match and settle. Users who provide liquidity are able to run additional darknodes because they are economically aligned with the network. This ruleset is hardcoded into the protocol. Fees can be earned in ETH and arbitrary ERC20 tokens.

Introduction

Nodes play a critical role in peer-to-peer systems providing both security to a protocol and facilitating actions within a network. This is no different for Republic Protocol’s decentralized dark pool. Diving straight in, this post will introduce the role of darknodes, outline the economic incentives for running one and shed light on a list of preliminary operating requirements.

1. Darknode outline

A darknode’s primary function is to match orders from Republic Protocol’s distributed hidden order book. This is a process that is not as computationally expensive as Bitcoin mining and is more collaborative. Once a darknode has discovered a match and the order has been settled, the darknode operator is rewarded with a trading fee associated with the particular order. Note that order shares are distributed evenly throughout the network. Going forward the fees earned from a transaction settlement will not be exclusively paid in REN. Rather, nodes will be able to work to earn fees in other currencies such as ETH and arbitrary tokens.

The preliminary requirements for running a Darknode are as follows:

100,000 REN tokens for staking as collateral.

A consistent internet connection — (to be formally defined at a later date).

2. Finite supply of nodes

Similar to many existing currencies/protocols with collateral-backed nodes — such as DASH and ZCOIN — the maximum number of darknodes within the Republic Protocol dark pool are finite. While the final figure has not been confirmed (pending economic review), the maximum number of nodes will likely (not finalized) be limited to less than 4,000 in total.

EDIT: This number has now been finalized as 10,000. View here: https://medium.com/republicprotocol/protocol-upgrades-and-additions-cb724b1ef246

3. Darknode categories

EDIT: This section has now changed. We are leaving this here for historical purposes. For updates, view here: https://medium.com/republicprotocol/protocol-upgrades-and-additions-cb724b1ef246

As with any exchange, liquidity is the determining factor for success. This is the reason we have decided to hard code an incentive layer for liquidity providers directly into our protocol by creating two categories for node operators, “Standard” and “Liquidity”, with a maximum number of nodes allowed within each group.

Incentive design

The philosophy is not to design a protocol where a user is rewarded simply for being wealthy. Financial incentives within the protocol should be most accessible by those who have the network’s best interest at heart; in this case, increased liquidity within Republic Protocol.

During the initial period of the Republic Protocol public network release, liquidity nodes will incentivized additionally through a market making program in to bootstrap the exchange’s liquidity.

Final thoughts

As always, feedback is welcome. The design of these nodes is an iterative process. Feel free to email us at support@republicprotocol.com with any feedback, suggestions or questions.

— Taiyang Zhang, CEO, Republic Protocol