Similar to fundraising mechanisms for crypto like ICOs and ILOs, node sales are another popular capital-raising model for blockchain networks. In this blog, we will understand the concept of node sales and open doors for you to explore this innovative fundraising approach.
Role of Nodes in Blockchain
Before diving into the depths of node sales, let us review what nodes are and their role in a blockchain network.
Blockchain is a decentralized network that has various nodes that are interconnected to each other. Nodes in a blockchain network are physical devices like computers that store key information, including metadata of all types of transactions in the blockchain. Having data stored in a distributed manner, the node ensures security and transparency across the blockchain network.
Nodes can be of two types: Full nodes and Lightweight nodes. As the name says, full nodes are the ones that store all the validated transactions, including the past and present ones. Whereas lightweight nodes do not have a record of all the blockchain transactions, they can extract the required transaction data from full nodes.
What are Node Sales?
Node sales are a fundraising way out for blockchain and crypto projects in which buyers (individuals or entities) purchase a license (Node License) to operate on one or more nodes in a blockchain network. This process can be an initial sale during the launch of a network or an ongoing opportunity for new participants. Moreover, many projects that launch node sales structure price tier, which means prices are lower at first and then rise over time. This develops FOMO (fear of missing out) among the participants, leading to quick sellouts of nodes.
Examples of Node Sales
Let us go through examples of some successful node sales:
XAI
XAI is a Layer 3 game built on Arbitrum that launched the first node sale in November 2023, through which they sold around 34,000 nodes and raised a capital of $40 million in three months. XAI gave 50% of their tokens as rewards to the node operators and supplied over 1 million XAI tokens to the early sale participants as tokens of rewards for free.
Aethir
Aethir node sale was launched in March 2024 and is one of the major successes in the Web 3 decentralization era. It overperformed XAI node sales and sold around 73,800 checker nodes, raising $120 million in capital in just one month.
Sophon
Sophon is a modular Layer 2 chain with an entertainment ecosystem that leverages zkSync’s Hyperchain technology and uses Celestia for its Data Layer. Like Aethir, Sophon also gained immense success through its node sale launched in May 2024. Sophon raised around $60 million by selling 121,000 nodes in less than a month.
Examples of Node Sales | |||
| Node Sale | Launched In? | Number of Nodes Sold | Fund Raised |
| XAI | November 2023 | 34,000 nodes | $40 million (3 months) |
| Aethir | March 2024 | 73,800 nodes | $120 million (1 month) |
| Sophon | May 2024 | 121,000 nodes | $60 million (less than a month) |
Why Node Sales?
Apart from high capital-raising capacity, node sales benefit both users and projects. The given points below signify why users and projects should participate in the node sale:
For Users
- Golden opportunity to become a stakeholder in a potentially growing project.
- Financial rewards given in the node sales can contribute to the user’s passive income.
- Users can have voting rights and decision-making authority in the project’s decisions and governance.
For Projects
- Through node sales, projects can raise funds, distribute network control, and encourage decentralization.
- Node sales ensure that no single entity has full control over the network, enhancing the project’s security and resilience.
- Node sales have broader public participation, which helps the business to promote the project and attract a dedicated user base, leading to long-term success.
Hence, all the above advantages of node sales contribute to its popularity, making it fascinating for new ventures in the blockchain field.
Who can launch Node Sale?
Node sales can be launched by various entities within the blockchain and cryptocurrency ecosystem, each with specific purposes and target audiences.
- Blockchain Projects: Startups and existing networks.
- DeFi Platforms: Decentralized Finance Platforms.
- Infrastructure Providers: Staking-as-a-service companies.
- DAOs: Decentralized Autonomous Organizations.
- Consortiums and Alliances: Industry-specific groups.
- Investment Firms: Blockchain-focused investors.
Who can participate in the Node Sale?
Participation in a node sale is open to all. Individuals interested in blockchain and crypto projects or businesses can invest in node sales.
- Individuals: Cryptocurrency enthusiasts and investors.
- Staking Service Providers: Manage nodes for clients.
- Developers and Validators: Contribute to network operations.
- Institutional Investors: Various funds and firms.
- DAOs: Decentralized Autonomous Organizations.
- Community Members: Blockchain enthusiasts.
- Governments: Explore blockchain technology.
- Partnerships: Collaborative blockchain initiatives.
How Node Sales Work?
Most of the projects that launch node sales follow Structured Pricing Tiers. This means that node licenses are first sold at low prices, and prices are raised over time to create a sense of urgency among the public, which helps rapidly sell nodes.
The node license is the right and authority given to the participant to operate on one or more nodes. Every node license has a set Non-Transformable Period from a few months to a year that ensures the dedication and stability of the participants in the network.
Also, different types of sales, like Public Sales and Whitelist Sales, are thrown in to attract as many participants as the project can. The public sale is open to all, while a whitelist sale is a private sale where an already-approved list of participants is given access to special benefits during the sale. Hence, businesses reward the early contributors and participants for their support.
To operate on the nodes, users must download and install it. Moreover, different project nodes have specific Software Requirements tailored to their networks. Users who do not know how to run nodes can opt for Nodes-as-a-Service (NaaS), which will facilitate the process at a nominal fee.
Any project that launches node sale follows a Reward Structure where a specific percent or portion of their token supply is reserved to be given as rewards to node operators. For instance, 15% of the token supply was reserved in Aethir for checker node rewards. The reward for each node operator is proportional to the number of active nodes across the network. These rewards are given gradually over time to ensure participants’ longer commitment. However, if a party withdraws their rewards early, they may incur a penalty or forfeiture of benefits.
Process of Node Sales
The following are the steps involved in node sales:
Announcement & Registration
The project first announces the node sale details, dates, benefits, and financial and technical requirements. Interested participants register for the node sale and complete KYC/AML verification if required.
Node Purchase & Setup
Participants purchase tokens through smart contracts or token sale platforms to acquire nodes. They then download and install the software required to run the node.
Node Activation & Governance
Nodes get activated, allowing participants to engage in network activities, decision-making, voting, contributing to its operations, governance, and security.
Earning & Withdrawing Rewards
Node operators are given rewards through transaction fees and block rewards gradually over the vesting period. Some may withdraw the rewards early after paying a penalty fee or forfeiting benefits.
Ongoing Engagement
Node operators continue to engage with the project community, contributing to growth and stability and participating in governance.
Benefits of Node Sales
Node sales bring several benefits that are mentioned below:
Improved Decentralization & Security
Earlier nodes offered a limited profit potential and had more infrastructure expenses. But now, nodes have become profitable and thus gain popularity. Broader adoption of nodes reduces the chances of few entities controlling the network, which reduces the risk of centralization. Hence, this distributed authority promotes decentralization, security, and network transparency.
Increased User Involvement & Engagement
In the past, token holders and node operators were separate groups, and the latter were smaller due to technical barriers and consensus mechanism constraints. However, today’s projects release many node licenses, attracting many node sale participants. Moreover, the reserved token rewards and decision-making authority promote broader and deeper engagement of node operators.
Efficient Fundraising
Unlike other fundraising mechanisms, node sales avoid distributing many tokens to private investors and ensure that a significant portion stays reserved for the community. Also, the node sale funding attracts only dedicated blockchain and crypto enthusiasts who invest in the project for the long run. Thus, node sales are an efficient fundraising way out that benefits both the participants and the projects.
Risk & Challenges
With numerous benefits of node sales also come some risks and challenges, which both parties must know:
- Market Fluctuations: Like any other crypto project, the value of tokens and rewards keeps fluctuating and is prone to losses. Therefore, investors must thoroughly research before investing in a node sale event.
- Regulatory Challenges: There are no set standards and regulations related to node sales, and thus, compliance with law and taxation remains uneven, and changes occur frequently.
- Operational Risks: Software engineers and computational resources would be required to perform continuous monitoring and improvement to ensure the smooth working of the nodes.
Hence, node sales are a great option for any new startups in the blockchain and cryptocurrency domain. It would not only. They would not only raise loads of funds for the project but also build a loyal customer base that would contribute to the project’s success in the long run.
To get consultations about node sale launch and participation, you may get in touch with Blocktech Brew via email at business@blocktechbrew.com
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