Node sales have emerged as a groundbreaking model to raise capital, captivating the attention of users, projects, and investors with their innovative approach. As decentralised builders with extensive experience in IDO launches, Impossible Finance has been at the forefront of this movement to successfully architect and launch numerous node sales to-date. Our mission is not only to facilitate these sales but also to empower the community with the knowledge needed to make informed decisions.

In this blog post, we'll delve into the intricacies of node sales, so you can navigate this new fundraising frontier with confidence.

The Role of Nodes in the Blockchain

Before diving into what a node sale is, it is important to lay out what exactly nodes are and what they do in the blockchain ecosystem.

Blockchain nodes are computers that participate in the blockchain network. They maintain a copy of the entire blockchain, including all the transactions that have ever occurred on the network. Nodes ensure the security and decentralisation of the blockchain network by validating and relaying transactions, as well as participating in the consensus mechanism of the blockchain. This is the process by which agreement is reached among multiple nodes on the validity of transactions and the state of the ledger.

There are different types of nodes in a blockchain network:

• Full nodes: store the entire blockchain history and validate all transactions
• Lightweight nodes: rely on full nodes for transaction verification but do not store the entire blockchain themselves.

Nodes may also contribute to the decentralisation of computing power of a network, whether that be for storage, processing trades, DeFi transactions, or other actions of value within the ecosystem. More on node utilities below!

Why Node Sales?

Node sales are a new innovative way projects can raise capital, accelerate decentralisation of the network and build a strong base of network participants and contributors.

Node sale is a form of capital raise where buyers purchase the right (or licence) to operate a node within a network, rather than typical token sale where buyers purchase a token with a vesting schedule. Purchasing a node licence is equivalent to acquiring a “permit” to operate a work and get a reward in return (in this case in the form of the network’s native token). Node sales also recover valuable elements from the Proof-of-Work era, where node operator works need to run a node in order to receive rewards for their work, in the form of tokens.

Following the success of XAI’s node sale in November (the largest public node sale at the time, raising $20 million), subsequent node sales have further validated and expanded the model's popularity and efficacy. Aethir and Sophon, for instance, significantly outperformed XAI's initial record, raising over $150 million and $60 million respectively (at the time of writing), comparable to some of the highest IDO raises, as seen in the table below.

Beyond capital raised, the popularity of node sales can be attributed to the nature of its democratised opportunities that result in several benefits to both users and projects.

Firstly, node sales allow for broader participation beyond traditional token sales where VCs tend to hold exclusive access in private sales. By the time tokens are launched to the public market, prices and valuations have already been driven up, exacerbating the “Low Float & High FDV'' phenomenon, causing immense selling pressure over time, leaving little to no upside room for post TGE common investors. Node sales carry less of this risk as token rewards from running nodes often include a vesting period, while still being able to raise the same if not more capital.

Node sales also allow more public participants to get investment opportunities with terms and sizes similar to VCs, although having vestings to shoulder this size comes as a tradeoff. This can help build the foundation for a community that is committed to and concretely incentivized to bring long-term value for the project.

Other benefits of node sales include:

Taken from Impossible Finance Core Buidler Calvin Chu’s X Post. Read the full post here.

• Price discovery - Can lead to a valuable datapoint for token listing because public users are involved with a vesting, which they are not usually accustomed to in other cases
• Long-term committed community that is concretely incentivized to bring long-term value for the project
• Fast decentralization for the networks that need validators or other decentralization of computation contributions.
• Offering whitelists and early opportunities such that project’s community allows actual users to get early exposure to the token. This is strictly better than early activity airdrops that are prone to be just farmed and dumped
• Creating buyback protection programs and other protections can actually give specific communities/users a free call option on the token at launch to participate.

Rewards for Early Participants

Node sales are conducted before a project’s network launch, and often before TGE. This gives node sale participants the opportunity to receive rewards that might be distributed to early contributors. It also gives them exposure to the project’s tokens at an early stage, and increases their chances of receiving potential airdrops in the future. If future projects follow in the footsteps of XAI and Aethir, airdrops to node buyers could be a standard practice for all future node sales.

This analysis by 6th Man Ventures further suggests that airdropping to core contributors and users of the network is more beneficial for the success of the token once it’s going live.

How Do Node Sales Work?

Mechanics

Node sales generally operate on a tiered pricing structure, where participants can purchase node licences at different costs. In addition to the public sale, projects may have a Whitelist Sale round where a pre-approved list of participants are given exclusive access to certain privileges during the sale event. This system is used to reward and incentivise key contributors, partners, or early supporters of the project. Users buy these licences, which grant them the right to run and operate a node within the network. These licences typically include a non-transferability period, ranging from a few months to a year, to ensure long-term commitment and stability within the network.

When a project launches nodes, users must download and install the appropriate software to run them. The type of software required depends on the specific node. For example, Aethir and Sophon nodes have distinct software requirements tailored to their respective networks. Users who are unfamiliar with or prefer not to run nodes themselves can opt to engage with Nodes-as-a-Service (NaaS) providers, a 1 click solution to help facilitate the process at a small fee while still earning their node rewards.

Reward Structure

A portion of the project's total token supply is reserved as rewards for node operators. The amount of rewards each operator receives depends on the number of active nodes in operation. These rewards are distributed over time, which from an investment perspective is similar to a vesting period. Withdrawing rewards early may incur additional fees or forfeiture of a portion of the rewards, encouraging long-term participation.

Aethir Token Distribution Model where 15% of the token supply has been reserved for checker node rewards.

By incentivizing long-term commitment, this model aims to build a robust foundation of genuine users and contributors to the ecosystem. For instance, in the Aethir network, users earn vATH tokens which vest into ATH tokens after 120 days of claiming. If an owner chooses to withdraw early, within 30 days, a 75% penalty is applied, and they lose eligibility for bonus rewards. After the initial 120 days, the default vesting period extends to 180 days. Additionally, there is a minimum requirement of 10 ATH for withdrawals, which can be managed through the Owner Portal.

This reward structure ensures that only those who are genuinely invested in the project's success remain active, contributing to a more stable and reliable network.

What To Look Out For

As more node sales hit the market, it is crucial to understand some key considerations before deciding on whether to participate in a node sale.

Node Utility

We briefly introduced the role of nodes on the blockchain earlier. But there also exist different nodes that serve various functions in the blockchain ecosystem. Before making the commitment to purchasing and running a node, be sure to understand exactly what value the node will bring to the particular project.

In the case of XAI, Aethir and Sophon, each node played a unique role for each network.

• XAI - Sentry Node
• Aethir - Checker Node
• Sophon - External Node
  

Fully Diluted Valuation (FDV) and Tokenomics

The FDV signals a project’s valuation to investors. Given how most node sales occur before TGE when tokens are yet to be circulated, FDV is a key metric used by investors to determine a project’s value. Read more about implied FDV and finding the breakeven point from FDV here.

Given that node rewards are tied closely to tokenomics, (ie. a portion of token supply is usually reserved for node rewards) it is also important to have an understanding of the token’s utility, distribution, vesting schedules, demand and supply mechanisms among other details. Purchasing a node signals a confidence in the project and what they are building. So do check out the project’s tokenomics, and read up on various reports.

Impossible Finance releases a research report, which includes tokenomics, for the node sales we help to launch in order for users to gain more knowledge on the project they are choosing to invest in.

• Aethir Research Report
• Sophon Research Report
  

Whitelisted versus Public sale

A Node sale can be divided into 2 sections: Whitelisted and Public sale. While XAI opted for a 100% public fair launch in a FCFS manner, Aethir and Sophon allocated a large portion of their Node sale to Whitelist. While we believe there are merits for both approaches, a combination of Whitelisted and Public delivers on several ends:

• Clarifying risk and reward of this type of investment opportunity
• Ensure the fair chance for everyone to participate
• Partially reduce botting and sniping
• Introduce a new investment paradigm for different entities (VCs, Syndicates, etc.)

Current and Future Traction

A project’s current traction could be a good indicator of its potential success as a large initial audience can translate more easily to real users in the future. But beyond follower numbers on social channels, dive deeper by identifying investors or notable thought-leaders and credible sources that might have voiced support. With that being said, be sure to always DYOR.

Check the project’s future plans, roadmaps or growth direction and discern for yourself if traction can continue to pick up in this cut-throat crypto landscape.

Potential Risks

As with every investment, node sales come with their fair share of risks. Key areas to look out for are potential slashing of rewards for node operators, the viability of the project’s technology and the credibility and/or background of the team.

As suggested above, the effective FDV that users are buying into can only be calculated after the number of participants is fixed, creating a risk for both Project teams and Node buyers:

• Project teams that put up a fixed percentage of their token face the risk of giving out too much token and dilute themselves hence forced to raise as much as they can.
• Node buyers cannot determine the effective FDV of the node sale since the more node licences sold, the higher effective FDV each buyer is buying into.

We acknowledge the risk and are actively working and advising project teams with a clear sale structure that delivers on both effectiveness in capital raise and transparency for the users.

Useful Resources

• Understanding ROI: https://theblock101.com/what-is-node-sale
• Breakeven Calculator: https://docs.google.com/spreadsheets/d/15GvtLNgJ6LxJB_PYR6ES8XQwjLC2Nsb1Pftm3qesEqs/edit
• What is a Crypto Node and How to Operate One: https://theblock101.com/what-is-node-sale

Impossible’s Role in Node Sales

Our Role and Expertise

At Impossible Finance, we have been instrumental in driving and pioneering some of the most successful node sales to date. With a proven track record of success in projects like Aethir and Sophon, and participation in XAI’s node sale, our contributions have raised significant funds and garnered widespread participation. Specifically, through these projects, we have engaged tens of thousands of node buyers and activated a robust ecosystem of partners.

Key Achievements

• XAI: Activated our KOL network that helped account for 25% of XAI’s 26M USD raise and provided marketing support
• Aethir: Worked with Aethir as advisors for one year before the sale, and successfully helped to raise 41.9k ETH with 19k+ node buyers.
• Sophon: Garnered 20.8k ETH in funding with 5.8k+ node buyers.

In addition to these impressive fundraising figures, we have activated numerous ecosystem partners, including venture capital firms (VCs), key opinion leaders (KOLs), partner projects, and launchpads, enhancing the overall credibility and reach of each node sale.

Strategic Node Sale Architect

Impossible Finance plays a multifaceted role as a strategic node sale architect, node infrastructure provider, and sales platform. Our contributions to project teams include:

• Advisory: With extensive experience in advising and launching over 20 initial decentralized offerings (IDOs), our research team provides invaluable guidance on node sale economics, tiering, sale strategy, pricing, and referral strategies. This expertise ensures that projects are well-prepared to conduct successful node sales.
• Tech: We serve as a node sale platform partner and infrastructure provider, with our developers building the necessary smart contract infrastructure and user interfaces (UI) for smooth and secure node sales on the blockchain. From smart contract development to execution, our technology team guarantees a seamless user experience for both project teams and investors.
• Network and Marketing Reach: Through our strategic partnerships and extensive connections with investors, venture capital firms, and KOLs, we help projects gain visibility and access to a broad pool of potential investors. Our marketing efforts include designing and executing content strategies with numerous KOLs to manage and disseminate information about each node sale.

Commitment to Quality and Long-Term Success

At Impossible Finance, we believe in identifying and supporting quality teams and projects. Before any form of public launch, be it IDOs or node sales, our advisory services and collaborations with these teams begin long before the success of their launches.

We genuinely believe in the potential of these projects, having witnessed their development and achievements firsthand. This long-term commitment is exemplified by our relationships with projects like Aethir, where we have seen the team’s growth and innovation over time, and Sophon, where our connection with the founders extends back to our shared involvement in the ZkSync ecosystem.

By providing comprehensive support and leveraging our extensive network, Impossible Finance is not just here to facilitate node sales but to ensure the sustained success and growth of the projects we back.

About Impossible Finance

Impossible Finance is the go-to crypto investment platform that empowers you with high-quality, fair and accessible crypto opportunities. We simplify DeFi so you can enjoy fairer investing, cheaper trading and better yields through our accelerator, launchpad, and swap platform.

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