# HP Rewards

Hardware Providers (HPs) play a critical role in the Impossible Cloud Network (ICN), and the rewards structure is designed to incentivize their contribution effectively. The ICN reward system encourages strong growth in network capacity, fosters high utilisation, and ensures HPs maintain high service standards.

<figure><img src="/files/Qp3Lajrgmva9GaFSM0yr" alt=""><figcaption><p>Figure 1: Flow of HP Rewards in the ICN Network</p></figcaption></figure>

The ICN reward system for HPs is split into two main categories:

* **Utilisation Rewards**: Based on actual usage by Builders, rewarding HPs for the capacity they actively contribute to the network.
* **Capacity Rewards**: A temporary subsidy designed to bootstrap new network capacity, gradually decreasing as utilisation rises to sustainable levels.

This flowchart illustrates how **Hardware Providers (HPs)** earn rewards within the **Impossible Cloud Network (ICN)**. The rewards structure is influenced by several factors, including **Access Contributions** provided by **Builders**, **commitment periods**, and **collateralisation levels**. Rewards are split into two categories: **Utilisation Rewards**, which are generated based on actual usage and **Access Requirements**, and **Capacity Rewards**, which are temporary incentives for capacity contribution and regional utilisation. These rewards are summed and adjusted with a **Reward Multiplier**, resulting in the **Total HP Rewards**.

***

## Utilisation Rewards

Utilisation Rewards are provided to HPs based on the actual use of their hardware resources by Builders. This aligns rewards with network activity, encouraging HPs to provide capacity at competitive rates. Reward Formula:

$$
\text{Utilisation Reward (ICNT)} = \text{Cluster Price} \times \text{Booked Capacity} \times \text{Period}
$$

**Self-Sustaining Model**: Utilisation rewards are fully covered by Builder Access Requirements.\
\
**Competitive Incentive**: HPs within a cluster can adjust their prices to compete for Builder capacity requests. The cluster price is defined as:

$$
\text{Cluster Price}=\min(\text{Unit Price}, \text{Max Cluster Price})
$$

***

## Capacity Rewards

Capacity Rewards are a temporary subsidy designed to bootstrap new network capacity in early stages of growth. They are distributed to **Hardware Providers (HPs)** regardless of the utilisation of their resources, helping support the network during its initial phase.

* **Definition**: The Capacity Reward is an incentive provided to HPs to ensure capacity is available, even when utilisation is low.
* **Reward Scaling**:

  * **Subsidy for New Capacity**: Aimed at incentivizing capacity growth in new network regions.
  * **Based on Capacity Contribution**: HPs receive rewards proportional to the capacity they provide to the network.
  * **Scaled by Regional Utilisation**: The reward level adjusts depending on how much of the capacity is being used within a region.
  * **Decreases Over Time**: Capacity Rewards gradually taper off as regional utilisation improves and the network becomes self-sustaining.
  * **Decreases with Token Price Increases**: When ICNT appreciates significantly, rewards are dynamically adjusted downward via the Market Adjustment Factor (MAF) to avoid excessive issuance.

  $$
  \begin{align\*}
  \text{Capacity Rewards Per SN }(t) &= \text{SN CapacityShare} \times (1 - \text{Region Utilization}(t)) \\
  &\quad \times \text{Bootstrap Release}(t) \times \text{MAF} \\
  \\
  \text{SN Capacity Share} &= \frac{\text{SN Capacity}}{\text{Region Target Capacity}} \\

  \\
  \text{Region Utilization}(t) &= \frac{\text{Region Booked Capacity}}{\text{Region Target Capacity}} \\
  \\
  \text{Region Booked Capacity} &= \text{Capacity Booked in a Region} \\
  \\
  \text{Region Target Capacity} &= \text{Region-Specific Target Capacity Parameter} \\
  \\
  \text{Bootstrap Release}(t) &= \text{Region Max Release} \times \left(1 - \frac{t}{48} \right) \\
  \\
  \text{Region Max Release} &= \text{Region-Specific MaxRelease Parameter}

  \\
  t &= \text{Month (1 to 48)}

  \end{align\*}
  $$

  | Region  | Region Target Capacity, TB | Region Max Release, ICNT/TB/month | Max Cluster Price (ICNT/TB/month) |
  | ------- | -------------------------- | --------------------------------- | --------------------------------- |
  | POL-WAW | 50,000                     | 5.60                              | 1.40                              |
  | DEU-FRA | 100,000                    | 6.44                              | 1.40                              |
  | NLD-AMS | 100,000                    | 6.44                              | 1.40                              |
  | DNK-CPH | 100,000                    | 6.44                              | 1.40                              |
  | GBR-LON | 100,000                    | 6.44                              | 1.40                              |
  | USA-NYC | 100,000                    | 6.44                              | 1.40                              |
* **Purpose**: The capacity rewards aim to attract HPs during the network’s growth phase, providing incentives for expanding capacity until the network reaches a sustainable level of utilisation.

### Market Adjustment Factor (MAF)

To avoid misaligned rewards during significant price shifts, **Capacity Rewards** are corrected using the **Market Adjustment Factor**, which adjusts rewards based on fortnightly price movements.

MAF is updated every 28 days, only if the volatility threshold is triggered.

Volatility threshold:

$$
\left| \frac{P\_t - P\_{\text{ref},t}}{P\_{\text{ref},t}} \right| > k \cdot \sigma\_{28d}
$$

Where:

$$
\begin{aligned}
& P\_t && \text{: current price} \\
& P\_{\text{ref},t} && \text{: price at last MAF update} \\
& \sigma\_{28d} = \sqrt{ \frac{1}{27} \sum\_{i=0}^{27} \left( r\_{ i} - \bar{r}*{28d} \right)^2 } && \text{: 28-day standard deviation of daily log returns} \\
& \quad r*{i} = \log\left(\frac{P\_{i}}{P\_{i - 1}}\right) && \text{: daily log return on day } i \\
& \quad \bar{r}*{28d} = \frac{1}{28} \sum*{i=0}^{27} r\_{i} && \text{: average log return over last 28 days} \\
\ & P\_{\min}= $0.36 && \text{: minimum recovery anchor} \\
& k=3&& \text{: sensitivity multiplier}
\end{aligned}
$$

The update mechanism if the volatility threshold is met is defined as:

**Price Increase — Suppress MAF**

$$
\text{If } P\_t > P\_{\text{ref},t}:
\mathrm{MAF}*{t+1} = \left( \frac{\max(P*{\text{ref},t}, P\_{\min})}{P\_t} \right) \cdot \mathrm{MAF}\_t
$$

#### Price Decrease — Recover MAF

$$
\text{If } P\_t < P\_{\text{ref},t}: \mathrm{MAF}*{t+1} = \left(1 - \frac{P\_t - P*{\min}}{\max(P\_{\text{ref},t}, P\_{\min}) - P\_{\min}} \right) \cdot (1 - \mathrm{MAF}\_t) + \mathrm{MAF}\_t
$$

> If the price drops to or below the defined recovery floor ($0.36), the MAF is fully restored to 1.0.

This mechanism ensures that the protocol remains adaptive to market conditions while protecting the ICNT reserve from unsustainable depletion.

Current MAF : 1.0

***

## **Payout Timing**

All earned HP rewards are **disbursed with a one-month delay** (≈ 30 days after the end of each accrual period) to allow for metric verification, dispute resolution, and any applicable slashing adjustments before funds are released.

***

## Slashing & Penalties

To maintain network integrity, **slashing** is enforced in cases where HPs fail to meet their commitments, including downtime, performance quality violations

**When Slashing Occurs**

* **Collateral at Risk**: HPs put up Node Collateral as a guarantee of their service.
* **Slashing Events**: Triggered by service failures or breaches of performance thresholds, slashing can apply to both the HP’s own collateral and any delegated collateral.

For more detailed information on the slashing mechanism and its consequences, visit the[ Slashing](https://docs.icn.global/icn-economics/hardware-providers-hps/collateral/slashing) section.

***

## Rewards for HPs

At the end of the commitment period, HPs have the option to either withdraw or recommit their collateral, enabling them to maintain eligibility for rewards.

\\


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