We’ve made the conscious decision to reduce the barrier to entry for new storage nodes and to ensure that we have a stable network of reliable storage nodes by implementing a set of incentives designed to ensure the best experience both for nodes joining the network and people storing data on the network.
We architected the network to run on low-powered hardware or even recycled hardware so that prospective SNOs wouldn’t need to invest in expensive mining equipment to join the network. We created the concept of held amount so that SNOs wouldn’t need to pay an up-front stake to start sharing space on the network. After we reduced our prices in April of 2021 to make the service even more competitive with other cloud object storage providers, we left the SNO compensation rates the same.
From the early days of Storj, we’ve been committed to making sure that running a storage node was economically rewarding. Our target has been to share 60% of any revenue we generate with the network. We have a number of other incentives including surge payouts and L2 payout bonuses. Currently as you point out, we pay much more than 60% and it’s fair to ask whether that is sustainable.
We’ve tried to build a good relationship with node operators as adoption of the service ramps up. We’re seeing increasing adoption in a range of use cases, many of them high-bandwidth use cases. As we get more traction and the service grows, we will make changes to the incentive structure as the needs change.
Right now, we’re happy to continue to pay those extra incentives because at this stage of the network, we need to grow demand. We are focused on growing customers and revenue much more than unit economics at this point. As we grow, we can make adjustments, but we’re happy to pay a little extra to keep our long-term node operators happy because that translates directly into a great customer experience for customers trying decentralized storage for the first time.
What does this mean for the future? We are currently optimized for easy-onboarding with a low cost of entry. Right now we are seeing more traction in great, high-bandwidth use cases and slow but steady growth of capacity. As we onboard larger, multi-PB customers, we’ll need to grow the network, but we need to grow intelligently.
If the network grows too quickly and we have too much supply with insufficient customer demand, we run the risk that the profitability of nodes may be insufficient to retain operators, causing churn in the network. Too much churn clogs the network with repair traffic, reducing performance and if catastrophic, potentially impacting durability. Overall, we need to be able to reward steady state operation, incentivize growth when additional capacity is needed and to moderate growth if we start to see too much supply.
We are currently putting together a plan for future capacity management, proposed changes to the incentive structure as well as evaluating a shift from held amount to a staking mechanism. Consistent with what we have done in the past, we will be soliciting feedback from the node community before implementing any significant changes.
We’re very happy to have a strong relationship with our node operators and won’t do anything to jeopardize what we’ve built together. Stay tuned for more details throughout the rest of this year. We’ll be increasing communications around potential changes as things become more concrete.