SKALE Community Proposes Chain Pricing Model

A recent proposal posted by SKALE dev contributors on the SKALE community forum seeks to formalize chain pricing and network economics.

The intention of the proposal is to support the network beyond its initial bootstrap phase, paving the way for sustainable, market-led expansion of the SKALE ecosystem.

Early Subsidies

Like most other blockchain platforms, SKALE has subsidized its early expansion, operating a "loss leader" model to prioritize rapid growth.

Supply increases (inflation) pays validators to secure the network and allows gas costs to be kept low—or, in SKALE's case, zero, without pushing those costs onto chain owners.

However, there comes a crunch point where fees have to be increased, or else a perpetually subsidized model must be accepted, with the undesirable consequence of long-term inflation.

SKALE is uniquely positioned NOT to fall into this crunch. A key feature of SKALE Chains is that they don’t impose gas fees on end users. Instead, they are powered by Chain fees which compensate validators and stakers (delegators).

During the first three years of the network's existence, inflation was always intended to play this important bootstrapping role. However, in the near future, network fees will start to supplement this, enabling inflation to be reduced. "To ensure the network’s success, fees need to play a crucial role in sustaining the network from years 3-6. By year 7, our aim is to have over 90% of rewards sourced from chain fees instead of inflation."

The inflation schedule has been hard-coded into the SKL token smart contract, and can only now be altered through a decentralized vote. The launch of SKALE decentralized governance now allows a long-awaited update to this model, paving the way for a new phase in the network's evolution.

Sustainable Network Security

The next stage is intended to ensure continued profitability for SKALE Chain validators. Phase 2 is a temporary measure, designed as a stepping stone on the way to a more granular and market-led approach, while also taking into account factors such as the need to balance network load with the number of active validators.

The ultimate goal in this phase is for SKALE Chain pricing to reach a point of validator hardware profitability while setting a target load price of $1M USD equivalent in SKL tokens paid per year per chain with the network at a 70% load. The design of SKALE Chain price operates on a sliding scale where each additional chain costs more than the previous one when the number of nodes in the network is fixed. This system incentivizes validators and delegators to set up more nodes as the return increases, which will consistently keep the price per chain near the middle load price point.

Chain Pricing Model

The price for renting a SKALE Chain will be calculated based on:

1. The number of existing chains, and
2. The number of active nodes in the network

In short, if the network is closer to full capacity, chains will cost more. This is similar in principle to gas fees on Ethereum mainnet rising at periods of high network usage, with the difference that the costs are borne by chain owners—and network capacity can be increased by adding more nodes.

The first chains will cost 8% of the cost at the "Target Rate", which is 50% network utilization. This sum (around $3,600 per month) does not change until the network hits 45% utilization, at which point it starts to rise sharply. At 50% network utilization, chains will cost around $46,000 per month. That cost will steadily increase until it hits the "Growth Rate" of 70% Network Utilization. At this point, SKALE chains will cost around $84,000 a month, or $1 million per year.

The steeper price curve is intended to incentivize the launch of more nodes, helping to maintain a healthy balance between supply and demand for validators.

Chain Payments And The Europa Hub

Chains will be paid for in SKL tokens, locked in a smart contract on Europa, to take advantage of SKALE's gasless infrastructure, as well as Europa's proximity to mainnet and role as a liquidity hub. An oracle will determine the USD-equivalent amount of SKL to be paid to validators.

The final phase, scheduled for 12-18 months down the line, will see the introduction of more granular and dynamically-adjusted pricing for SKALE Chain rentals.

As the network continues to grow and capture additional value through dynamic pricing, it opens doors to new use cases and expands the SKALE ecosystem. The increased scalability and SKALE’s economic efficiency through pre-purchasing attracts developers and enterprises seeking a blockchain solution that can handle high transaction volumes at the lowest unit cost. This influx of dApps and businesses enriches the ecosystem, fostering innovation, collaboration, and the development of new revenue-generating models.

This is an exciting stage for the SKALE ecosystem. As the network moves beyond its initial bootstrapping phase, validators, chain and dApp owners, and community members all have the opportunity to shape the future of the project, playing their part in establishing a robust and sustainable blockchain platform for onboarding tens or hundreds of millions of new Web3 users in the coming years.

Please provide feedback on the forum post. In the coming weeks a vote will be proposed through the SKALE DAO Snapshot.

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