Exploring Enhancements to NOP Incentives for Long-Term Alignment

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As a significant SDL holder and passionate supporter of stake.link, I’ve been reflecting deeply on the current incentive structure for Node Operators (NOPs) and the extent to which it drives long-term alignment between NOPs and the broader protocol ecosystem. Recently, I’ve noticed a concerning trend of NOPs selling their vested SDL tokens upon unlock rather than staking them within the protocol to generate stLINK rewards and participate in governance, as we had originally believed they would. I believe this pattern stems from misalignments in the NOP incentive design that are worth addressing constructively as a community.

To be clear, the purpose of this post is not to criticize NOPs or question their commitment to stake.link’s success. NOPs play an essential role in the protocol and deserve to be rewarded handsomely for the work they do and the value they provide. At the same time, I think it’s healthy for us as a community to continuously evaluate whether the incentive systems we have in place are optimally designed to encourage the long-term-oriented behaviours that will make stake.link maximally sustainable and successful over time. These concerns are not mine alone; in conversations with other stake.link community members, especially active SDL holders, I’ve sensed shared worries that the current NOP incentives may not be best structured to drive protocol health long-term.

The NOP incentive structure codified in SLURP-8 made a lot of sense for rewarding NOPs who were already contributing to the protocol. However, now that we have some real-world data on how NOPs are behaving with respect to their unlocked SDL allocations, I believe some of the potential downsides of this model have become apparent:

  • NOPs are incentivized to sell their vested SDL as quickly as possible to capture upfront liquidity, rather than maintaining exposure to the protocol’s ongoing growth and success,

  • NOPs don’t get to participate fully in (and benefit from) stake.link’s long-term trajectory because their protocol ownership is effectively sunsetting after the vesting period,

  • NOPs are not incentivized to contribute to governance and help shape the protocol’s evolution because their stake is time-limited rather than perpetual

I believe we have an opportunity to evolve the NOP incentive model in a way that significantly improves long-term alignment while still generously rewarding NOPs for their critical work. Of course, any changes would have to be developed collaboratively with active input from NOPs and other key governance stakeholders. But I think exploring some options could be very fruitful for ecosystem health.
Here are some initial ideas:

  • For the portion of each NOP’s 1M SDL allocation that remains locked, permanently stake this SDL to the protocol on their behalf, allowing them to earn max-boosted stLINK yield in perpetuity as long as they continue serving as an active NOP,

  • To preserve the original intent of the 1M SDL allocation, grant each NOP an additional 500K SDL (also permanently protocol-staked) to ensure their total compensation actually increases under this new model,

  • Codify these permanent SDL stakes in a smart contract that automatically delegates staking to earn each NOP optimal LINK yield so long as they remain an active stake.link contributor, with unvested amounts returned to the DAO treasury if an NOP voluntarily exits.

Under this revised incentive flow, NOPs would maintain a powerful economic incentive to stay aligned with stake.link’s long-term success without sacrificing any of their originally promised rewards. In fact, the 500K SDL top-up grant means NOPs would come out ahead while benefiting from much more upside exposure to the protocol’s growth. Crucially, this approach would also guarantee that stake.link continues benefiting from each NOP’s ongoing participation and governance contributions while potentially helping us onboard additional NOPs.

To reiterate, these are just some initial thoughts to kick off a discussion. Any changes to NOP incentives would require a formal SLURP proposal with careful design and broad buy-in, especially from NOPs themselves. My goal with this post is simply to start an open conversation about how we might be able to enhance stake.link’s incentive structure to optimize for long-term protocol sustainability and stakeholder alignment.

To be clear, these concerns aren’t mine alone. In discussing the issue with other stake.link community members, especially active SDL holders :nail_care:t4:, I’ve noticed a shared sense that our NOP incentive structure is not optimally designed to drive long-term ecosystem health.

I’m very eager to hear perspectives from across the stake.link community on these issues and ideas, and have the following questions that I think we should be asking :

For NOPs:

  • How does your existing stake.link participation fit into your overall business model and operations?

  • What are the key factors that will drive your continued engagement long-term?

  • How do these initial ideas resonate with current NOPs?

For community:

  • How well do you feel the current NOP incentive model aligns with stake.link’s long-term sustainability? What are its key strengths and weaknesses?

  • What should be the primary goals of stake.link’s NOP incentive structure? Rank the following in order of importance:
    a) Maximizing long-term NOP participation
    b) Rewarding NOPs for short-term bootstrapping efforts
    c) Encouraging NOP governance contributions
    d) Enabling NOP upside exposure to protocol growth

  • What other approaches should we be exploring to maximize long-term alignment between NOPs and the stake.link protocol?

  • What other successful incentive models from other Web3 protocols are worth considering as we explore enhancements to stake.link’s approach? What can we learn from their designs?

This is a collaborative brainstorm and I welcome all ideas. If this discussion reveals promising paths forward that the community is excited about, I’m happy to work with more experienced stake.link contributors on scoping a formal SLURP proposal. But the first step is opening an inclusive, constructive dialogue to align on both the problems and opportunities ahead.

Designing sustainable economic incentives is one of the most important challenges for any Web3 protocol, and stake.link is no exception. I believe we have a unique opening at this early stage to thoughtfully calibrate our incentive structures to drive long-term success for all participants, especially the NOPs who are so critical. I’m excited to work together as a community to explore these important questions with open minds and a collaborative spirit.

Please don’t hesitate to share your honest thoughts and reactions, the best solutions will come from integrating diverse perspectives across the stake.link ecosystem. Thanks in advance for engaging constructively on this complex but critical issue for stake.link’s future!

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If NOPs continue to sell their vesting SDL rewards, it suggests a concerning misalignment between their incentives and stake.link’s long-term health. By permanently protocol-staking NOP allocations, we can ensure operators have perpetual skin in the game via the stLINK yield they generate, tying their economic interests to stake.link’s ongoing success. This is a critical issue for the protocol’s sustainability that we must address head-on as a community.

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Hey man thank you for bringing this up as its been a pretty hotly debated topic that doesn’t seem to have clear resolution. What I would like from the get go is a chat with the NOPs. Can be informal, can be through text even, but just an open dialogue. Because truthfully I don’t understand their actions. I don’t think we need to beat around the bush here, they’re certainly allowed to sell their SDL after vesting but why are they? Not only does it signal a misalignment in incentives, but it shifts the seemingly symbiotic relationship we have to a bit more of a hostile one. It makes me and others wonder if they’re here for the long run. I should never be asking myself “what happens in the next iteration of staking? What if some or all of the NOPs selling their SDL decide they don’t want to do this anymore?” A open dialogue with the NOPs would go a LONG way in alleviating that concern.

I’m a realist. I understand they are a company and they have employees and bills to pay. If they don’t want risk assets on their balance sheets full stop, I get it. But I would like to hear them say that because they’re literally giving up a free revenue stream in the form of stLINK earned by locking their SDL. That’s truly what I don’t understand. They don’t want link on their balance sheets? That’s alright because that’s the basis of the symbiotic relationship we’re in. They earn fees off our link and we get to stake in their allocation. But when they’re given SDL, why sell it vs just max locking? Max locking shows alignment with the protocol and the community, it earns free stLINK that they could then sell and its very little (if any) risk to them. And this isn’t even to mention they’re clipping sells into a fairly illiquid and low MC token.

At best it seems ill advised to sell and at worst it seems malicious. I want to keep this relationship between NOPs, SDL and the community thriving for as long as possible. There is a very, very bright future ahead for us. But NOPs selling seems to indicate they don’t share that vision.

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I’m with SCD on this I know the initiatives to incentivize nodes come from a reasonable and positive place but if we can get to know exactly what the nodes want and need to stick around we can shape the incentives to their needs. I’d like a dialogue between the nops. Like SCD said it doesn’t have to be a live discussion even if they just tell us like how they’re doing, what would help them to the job, what they’d like to see to double down on SDL.

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Absolutely we need an open dialogue with the nops asap.

As such, I’d like to formally invite each nop to jump into this discussion with a comment right here to provide their thoughts regarding this post and their long term intentions with stake.link so that we can all have a mutual understanding of where the important people who underpin this entire protocol stand for the long term.

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GM sers,

Good to see the discussion about this getting started. The relationship and alignment with the NOPs has long been a topic I was circling on.

We have to keep two things in mind:

  1. The relationship between the protocol, community, CC and the NOPs is not a given

  • It is not only for the NOPs to engage more but for SDL and the community to make them want to engage more

  • Everyone has opportunity cost and a full understanding of them creates alignment

  • A shared vision will help us to find the best working model going forward

  1. NOPs run very demanding infrastructure and often lack dedicated teams with firepower towards BD work, socials, etc.

  • We need to find ways to make their life easier while engaging more

  • We cannot expect them to monitor X, TG, Discourse Forum, etc. while SDL might just be a very small portion of their portfolio (this will change hopefully once we get really going here)

We therefore need a structured and well organized process to engage with the NOPs. Anything that might deter them or creates negative sentiment will not help us.

Therefore, I asked Jonny to make me intros to start speaking to the NOPs. The main goal is to understand the current situation NOPs are in, how they see the future and priorities and what their view is on SDL.

From there we can develop an alignment function which might include more incentives (honestly, I don’t believe this is the solution but we will find out in the process).

Feel free to drop any specific questions you have for the NOPs and I will include them in my questionnaire.

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