Node operator auction
Auctions are a part of the Byzantine Finance protocol to fairly and efficiently match stakers with operators in a framework that is beneficial for both of them. They are a mechanism to find an optimal balance for the price of validation credits (VCs).
Operators set fixed bids upon joining the protocol. An auction is the event where the top few are selected to become part of a DVT cluster. An operator's bid, unless edited by the operator, remains constant between auctions.
When joining the protocol, node operators submit standing bid parameters describing the price they are willing to pay per validation credit and the number they wish to purchase. These parameters constitute their bid, and bids are then ranked by their auction score.
Once set, these parameters create a smart contract that acts similar to a limit order on an exchange: When an auction event is run, which happens every time a new operator is needed in a DVT cluster, the top few bids are selected and executed immediately - the bid is transferred to the auction contract and the operator is selected.
For a detailed view of node operator auctions, see Auction mechanism.
Standing bid parameters
Operators joining the protocol may freely select and change these values anytime:
Discount rate, i.e. desired profit margin
Duration (in days) of operating period
The desired discount rate is combined with a moving average of operator returns over the past 30 days to calculate the final auction bid.
For details on this, see Auction math for econ nerds.
Auction triggers
An auction (the selection of the top node operators based on auction score) is run every time one or more new operators are needed in a DVT cluster. This happens if:
A new DVT cluster needs to be formed
An operator leaves an operational DVT cluster and needs to be replaced
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