Auction math for econ nerds

The formulae we use to calculate the various elements of the auction mechanism.

Auction score

Auction score determines the final ranking of an operator in the auction. It primarily depends on the validation credit bid (see below), but slightly moderates this in favour of operators wanting to operate for longer periods of time and those with a better reputation.

$$V_{score} = P_{VC} * 1.001^{t_d}*r_{reputation}$$

• $V_{score}$ = the final auction score

• $P_{VC}$ = validation credit bid

• $t_d$ = time in days for which an operator wishes to run the validator

• $r_{reputation}$ = node operator reputation, defined as a %.

Node operator reputation

For this, see Node operator reputation.

Validation credit bid pricing

The size of the DVT cluster is determined dynamically based on the number of operators in the network and the security requirements of the staker, and operators are aware of the cluster size they are signing up for upon bidding. Thus:

$$P_{VC}(n_{cluster}) = \dfrac{R_e*(1-D)}{n_{cluster}}$$

• $P_{VC}(n_{cluster})$ = price of a validation credit for a cluster of size n

• $R_e$ = expected daily return of a full validator across the period

• $D$ = discount rate, i.e. desired profit margin

• $n_{cluster}$ = number of nodes in the cluster

Total auction bid

And the total auction bid therefore is:

$$P_{bid} = P_{VC}*t_d$$

• $P_{bid}$ = total auction bid