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SD Utilization

What is SD Utilization?

SD Utilization enables Node Operators to use SD from the Utility Pool for running ETHx validators. Node operators can obtain the necessary SD to set up an ETHx validator from the Utility Pool for a nominal utilization fee and operate an ETHx node with ETH-only exposure.

What is Utilization Position?

The Utilization Position of a node indicates the total SD that currently needs to be paid back to the Utility Pool. The Utilization Position includes the SD Utilized along with the fee that has accrued over time.

SD Utilization Position = SD Utilized + Utilization Fee

Utilization Fee

The Utilization fee is the fee paid by the node operatos to utilze SD from the Utility Pool for SD bonding. This fee is determined by the Utilization rate and the amount of SD utilized from the Utility Pool.

Utilization Limit

An ETHx node node operator can utilize a maximum of 1 ETH worth of SD per validator.

Utilization fee calculation

  • Utilization Position: The fee on the utilized SD accrues with each block and gets added to the utilized SD, giving us the current Utilization Position of a node operator. It represents the amount of SD node operators need to pay back to the pool to close their utilization position. Utilization Position = SD Utilized from the pool + Fee accrued.

  • Block Utilization Rate: The annual utilization rate (currently 10%) is divided and calculated at the block level. This rate determines the utilization fee charged per block. Block Utilization Rate = Annual rate / Total number of blocks in a year Block Utilization Rate = 10% / 2,628,000 = 0.0000038%

  • Compounding Interval: The compounding interval depends on the number of times the Utility pool smart contract state changes. For example, whenever a node operator utilizes SD or makes a repayment, the state changes for all the node operators in the ETHx network.

  • Block Delta: This is the number of blocks between two state changes. For instance, if the utilization position is calculated on day one and then again on day two, the block delta will be 7200 (the number of blocks in a day). Similarly, if the utilization position is calculated after 2 months, the block delta will be 7200 * 60, which is 432,000 blocks.

The calculation formula then becomes: New Utilization Position = Old Utilization Position + (Old Utilization Position X Block Delta X Block Utilization Rate)

For example

let's say a node operator utilized 1000 SD on day 1, and the contract state changes after 5 days. Here's how we calculate the new utilization position:

New Utilization Position = 1000 + (1000 36000 0.0000038%)

New Utilization Position = 1001.369863

This means the new utilization position after 5 days would be approximately 1001.37 SD.

Rules for Node Operators

  • Node operators need to have an active node on the ETHx network with at least 1 validator (active or in the deposit process) to utilize SD from the Utility Pool.
  • Node operators can utilize SD while adding a validator or top-up SD for the existing set of validators.
  • Node operators should repay their utilized SD and ensure that the Health Factors remain above 1.
  • If the Health Factor for a node falls below 1, the node will be liquidated, and all the validators will be exited from the node to recover the utilized SD.