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Update Interim Gen-1 Node Provider Remuneration After 48 months

Following the adoption of [proposal #127044](https://dashboard.internetcomputer.org/proposal/127044), Node Providers (NPs) conducted simulations that revealed significant concerns about the economic viability of operating nodes in top-tier data centers. The new remuneration model could potentially make it difficult to sustain these nodes and might even lead to server removal from the network. These concerns were shared with DFINITY during the IC Lab for NPs, and since then, a group of NPs has been working on an updated proposal. We have incorporated feedback from the community and DFINITY, and are now ready to present the revised proposal for broader input.

**Why Proposal #127044 Needs to Be Updated**

The current post-48-month remuneration model for Gen-1 NPs ([proposal #127044](https://dashboard.internetcomputer.org/proposal/127044)) will lead to downsizing or a complete exit of these providers. This is not in the community's best interest for several reasons:

1. **Readiness for Future Growth**: The Internet Computer (IC) is expected to experience significant growth in the future. Reducing the number of Gen-1 nodes now would limit the network's capacity to handle sudden spikes in demand, potentially causing a degraded user experience. Gen-1 NPs have been integral to the IC's infrastructure since Genesis and possess the experience and resources needed to scale rapidly. Maintaining these nodes in top-tier data centers is crucial to the IC’s preparedness for future expansion.

2. **Maintaining Positive Sentiment**: A reduction in the number of active nodes, even by a small margin (14%), could be perceived as a failure by investors and developers. This could lead to a loss of confidence, causing a negative spiral in ICP price and harming the overall perception of the IC network. Keeping all Gen-1 nodes active will help maintain a positive outlook among stakeholders.

3. **Cost-Effectiveness of Gen-1 Nodes**: With their initial purchase/setup costs already paid off, Gen-1 nodes are cheaper to operate than Gen-2 nodes. Reducing these nodes would require onboarding new NPs to meet future demand, which would be more expensive and increase inflation. Retaining Gen-1 nodes avoids these additional expenses and ensures efficient use of existing resources.

**Proposed Updates**

After thorough discussions, we propose an approach that maintains Gen-1 NP rewards and network decentralization without reducing the total node count. We ask the community to vote to accept this proposal. Voting to accept would mean:

1. **Smaller Reduction in Rewards for Gen-1 Nodes:** The rewards for Gen-1 nodes operating beyond the initial 4-year period would be reduced by 33% from current levels, rather than the 75% reduction proposed in [proposal #127044](https://dashboard.internetcomputer.org/proposal/127044) (see remuneration table below).

2. **New Reward Scheme in Place for 2 Years:** This revised reward scheme would be in place for 2 years, providing Gen-1 NPs with the stability needed to make necessary commitments to their service providers, such as data centers, ISPs, and other necessary costs.

3. **42-Node Cap:** NPs will be limited to operating a maximum of 42 nodes, in line with the target topology.

4. **Handling Excess Nodes:** Any excess nodes from the 42-node cap can remain on the IC. While reassignment to a “New” NP is mandatory, these nodes may continue in the same or a different data center and/or country. A “New” NP can also be an existing NP with fewer than 42 nodes. No NP will receive rewards for more than 42 nodes, and the new NP will receive the same 33% reduced remuneration for the acquired nodes. New NPs not yet listed in the NNS will be accepted through the self-declaration process and respective proposals.

5. **No Rejection Due to Topology Restrictions:** NPs taking on these excess nodes will be allowed to onboard them without rejection due to target topology restrictions, as this is not an addition of new nodes but a reassignment that maintains the total node count and enhances network decentralization and utilization.

<table style="min-width: 50px">
<colgroup><col><col></colgroup><tbody><tr><td colspan="1" rowspan="1">TYPE-1</td><td colspan="1" rowspan="1">Reward per node per month (in XDR)</td></tr><tr><td colspan="1" rowspan="1">US - California</td><td colspan="1" rowspan="1">1072</td></tr><tr><td colspan="1" rowspan="1">US - other</td><td colspan="1" rowspan="1">1004</td></tr><tr><td colspan="1" rowspan="1">Canada</td><td colspan="1" rowspan="1">1088</td></tr><tr><td colspan="1" rowspan="1">Slovenia</td><td colspan="1" rowspan="1">1152</td></tr><tr><td colspan="1" rowspan="1">Switzerland</td><td colspan="1" rowspan="1">1136</td></tr><tr><td colspan="1" rowspan="1">EU - other</td><td colspan="1" rowspan="1">1061</td></tr><tr><td colspan="1" rowspan="1">Singapore</td><td colspan="1" rowspan="1">1234</td></tr><tr><td colspan="1" rowspan="1">Japan</td><td colspan="1" rowspan="1">1188</td></tr></tbody>
</table>

**Conclusion**

Avoiding the downsizing of Gen-1 NPs, as imposed in[ proposal #127044,](https://dashboard.internetcomputer.org/proposal/127044) is crucial for the community's long-term success. Downsizing could undermine the IC's readiness for growth, damage investor sentiment, and increase costs due to the need to onboard new NPs. Given the economic advantages of Gen-1 nodes over Gen-2 nodes, sustaining their operation is vital to avoid network capacity loss and inflation costs associated with new node provider onboarding.

We urge the community to vote in favor of this proposal to ensure the continued strength and readiness of the IC network. By doing so, we can maintain a positive outlook among investors and developers, efficiently serve high-demand regions, and prepare for future growth without incurring unnecessary costs.

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This proposal was crafted and submitted with [proposals.network](https://proposals.network) – where ideas meet the ICP governance.