State of POKT Network Q1 2024

Key Insights

• Supply-side rewards grew 198% to $4 million in Q1’24 due to the 228% increase in the average POKT price; simultaneously, inflation decreased by 3.1% QoQ to 4.5%.
• The total POKT staked at the quarter’s end grew by 3% to 821 million POKT in Q1’24 (nearly 49% of circulating supply staked), reaching $178 million (+33% QoQ).
• POKT Network onboarded four new gateways in Q1’24: Liquify, Chainstack, Developer DAO, and Raid Guild. These gateways plan to start routing relays through POKT Network in Q2’24.
• POKT Network’s Shannon Upgrade is set to launch in H2’24. It will bring interoperability with Celestia and IBC ecosystems and allow the permissionless deployment of new gateways.
• POKT Network implemented the final upgrade to its legacy protocol, Morse. The upgrade incorporates incentives for node operators to service more data sources (including AI) and lays the groundwork for gateways to build LLM- and AI-focused partnerships.

Primer

POKT Network (POKT) is a Decentralized Physical Infrastructure Network (DePIN) that coordinates and incentivizes a network of infrastructure providers (suppliers) around the world to provide the computing power needed to host and serve access to any open data source via Remote Procedure Calls (or RPC). Today, POKT Network is best known for a decentralized RPC service that enables users (applications and developers) to write and read to 60+ blockchains through a network of ~15,000 nodes distributed across 22 countries. However, POKT Network now has a number of teams and RPC businesses within its ecosystem focused on expanding to serve adjacent use cases such as account abstraction, indexing, and oracles, as well as non-Web3 use cases such as inference requests for open-source LLMs.

Using a Stake-for-Access model, suppliers must stake POKT to serve RPC requests and builders must stake POKT to access the network. Gateways are businesses built on top of POKT Network that abstract away POKT staking and node communication for end users. Gateways provide end users with tailored pricing, customer support, and value-add features along with Web2 UX. POKT Network benefits from the synergies created by many different gateways with specialized BD teams. Also, gateways benefit from reselling the protocol’s core service while only paying the protocol the low-cost gateway fee of $0.85 per million relays, which is ultimately used to buy back and burn POKT.

POKT Network currently runs on its own Proof-of-Stake (PoS) blockchain built using a custom version of the Tendermint SDK. However, the network is transitioning to leveraging the Cosmos SDK, backed by CometBFT's PoS consensus. It will also use the Rollchains module to leverage Celestia's data availability layer, enabling interoperability with the Celestia ecosystem and other rollup networks. The module also introduces IBC interoperability. In addition to this transition, the Shannon Upgrade will permissionlessly enable any gateway to join POKT Network. This unique model in the RPC space resembles a Layer-1 blockchain that extracts value directly from the activity of its Layer-2 projects (gateways). Permissionless gateways are turning POKT Network into an RPC base layer that can host novel access points specializing in any use case, broadening the network’s user base.

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Key Metrics

Performance Analysis

Financial

The revenue generated by POKT Network consists of:

• Supply-side rewards: generated from POKT issuance, where 85% is distributed to suppliers in proportion to the number of relays they service, and 5% is distributed to block proposers (validators). The remaining 10% goes to POKT DAO and is not counted as revenue.
• Gateway revenue: accounts for Gateway fees burned by POKT DAO and accrued fees from transactions. PIP-29 introduced a gateway fee of $0.85 per million relays serviced, where gateway operators send gateway fees to POKT DAO to be burned.
• Transaction fee revenue: accounts for 1% of the transaction fees rewarded to block proposers, while the remaining 99% goes to POKT DAO.

In Q1 2024, roughly 97% of total revenue represented supply-side rewards from POKT issuance. The other 3% was split among gateway burns and transaction fee revenue.

Supply-Side Rewards

Net new POKT issuance dropped 2% QoQ. However, the average price of POKT increased by 228% in Q1. This led to supply-side rewards growing 198% QoQ to $4 million, its highest value in the past year. Despite less net new POKT, the smaller supplier set led to a 0% QoQ change in POKT rewarded per capita. But due to the jump in the average price of POKT, nodes earned 208% more per capita in U.S. dollar terms QoQ.

Gateway Revenue

Gateway revenue is a function of relays, at $0.85 per million relays serviced. Gateway revenue followed the 45% decline in relays, dropping by 51% QoQ. In Q1, only two gateways were active (Grove and Nodies), and four were announced to be deployed in the coming quarter (Liquify, Developer DAO, Raid Guild, and Chainstack). These new gateways will likely bring activity that will increase gateway relays and gateway revenue next quarter. With the pending Shannon Upgrade enabling gateways to join POKT Network permissionlessly, POKT Network may be able to increase revenue enough to match inflationary rewards in the future.

Currently, the rewards given to supply-side participants exceed the amount of POKT burned by gateway fees. These gateway fees are currently fixed, so that the total POKT burned is determined by both the number of relays processed and the current market price of POKT. A relay refers to an instance where a gateway burns $0.00000085 in POKT. As the price of POKT increases, the quantity of POKT needed for the fees decreases, leading to less being burned.

When gateways pay their fees by purchasing the required amount of POKT, this buying activity adds upward pressure on the asset's price, enhancing the deflationary effect of the burn. In addition to the deflationary effect, POKT aims to maintain a consistent profit margin in USD for node operators. In other words, an increase in the POKT price could also help reduce the inflation rate in the network.

Market Cap

POKT delivered strong price performance in Q1. The market cap measured at the quarter’s end grew 31% QoQ, after nearly reaching the $500 million mark in January. The upward volatility led to the average price of POKT to grow 228% QoQ.

Network Usage

POKT Network is a decentralized solution that enables RPC businesses to outsource their RPC infrastructure to POKT Network in order to provide builders with access to blockchain data. These builders can range from exchanges to wallets to other applications that want to read from blockchains (e.g., retrieve wallet balances or smart contract event logs) or write to them (e.g., interact with DeFi liquidity pools).

POKT Network recently implemented an update (from PIP-33) that enables suppliers to adjust the calculation of custom multipliers of relay rewards. Currently, gateway fees are fixed regardless of the relay request. Some examples of these requests include standard eth_getBalance requests, more complex archival calls, requests from more computationally intensive chains such as Solana, or adjacent RPC request types such as data from DePIN networks or LLM inference requests. This protocol update lays the foundation for onboarding new data types with higher costs per request. Once live, the update will incentivize suppliers to serve expensive relay calls (e.g., relays from AI projects or LLM models). These more expensive costs per request are expected to be matched by higher gateway fees, which should then increase protocol revenue.

Relays Served

Relays served are a proxy for measuring the demand that POKT Network processes. Though this demand originates at gateways, it is processed by suppliers on POKT Network and directly relates to the revenue generated by the protocol.

Relays serviced by POKT Network decreased by 45% for the second consecutive quarter. This is a result of all subsidized traffic being turned off in Q4 2023. Q1 was the first full quarter to feel the effects of this action. Only two out of the six total gateways were active in Q1. POKT Network is poised for substantial growth in the upcoming quarters as the remaining four gateways begin operations and additional gateways join the network.

Relay Chains

Relay requests are routed to any of the 60+ supported blockchains (relay chains). POKT Network can support the routing of relay requests from any relay chain that uses the remote procedure call (RPC) standard.

The 45% QoQ drop in relays largely came from Ethereum and Polygon, which saw relays decrease by 69% and 57% QoQ, respectively. This may indicate that builders using the relay subsidies on Grove were primarily building on these two networks. For reference, Grove was the original POKT Network gateway that cut subsidized traffic in Q3. If other chains continue to account for roughly half of POKT Network’s traffic (46% in Q1) as volume grows, this could suggest that builders are more interested in developing applications on a variety of different chains.

Suppliers

Suppliers (staked node operators) on the POKT Network route relay requests between gateways and relay chains before the responses are ultimately forwarded to applications. They must stake at least 15,000 POKT ($3,300 as of March 31, 2024) to serve RPC requests. Nodes that unstake POKT are referred to as unstaking nodes and must wait 21 days before their POKT is unstaked. Staked suppliers that double-sign a block or fail to sign a certain amount of blocks within a set time period are called jailed nodes.

POKT Network ended Q1 with roughly 15,000 suppliers, only a 2% drop QoQ. Unstaking nodes decreased by 37% QoQ, to their lowest level in the past year. With the average POKT price increasing by 228% QoQ, more suppliers may be incentivized to join the network in the coming quarter as supply-side rewards become more profitable.

Validators

Validators are suppliers that propose and validate blocks on POKT Network’s blockchain. All validators are suppliers, but not all suppliers are validators. The top 1,000 suppliers in terms of POKT staked are eligible to become validators. When they propose a block, validators earn 1% of transaction fees and 5% of POKT inflation.

Block proposers on POKT Network dropped by 4% QoQ, following the decrease in suppliers. The decrease could have been expected given that suppliers are chosen to propose blocks. Hence, fewer suppliers should lead to less selection variability, producing a lower average number of block proposers in the quarter.

Staking Participation

POKT Network uses a Stake-for-Access model, also known as a utility token model, to capture value. POKT's total supply is 1.7 billion, and it is inflating at 4–5% annually, with reductions targeted.

Newly issued POKT is distributed to network participants as follows:

• Suppliers: 85%
• POKT DAO: 10%
• Validators (Block Proposers): 5%

POKT Network used to issue new POKT for each relay, directly paying nodes through minting. With the implementation of Parameter Update Proposal-32 (PUP-32) in June 2023, the POKT issuance was set to target a maximum of 220,000 POKT per day. Suppliers earn POKT rewards for each relay serviced. The amount of rewards is determined by how many nodes they have staked in the network and how often gateways select them based on their past performance (e.g., latency, correctness, and uptime).

POKT will continue to inflate until revenue from relays outpaces POKT minting. In Q1, 18 million net new POKT entered circulation. Because the total amount of POKT staked (+23 million POKT) grew more than inflation, the percentage of staked POKT grew by 1% QoQ, reaching 49%.

Suppliers (+3.0%), POKT Network users (+4.9%), and POKT DAO (+0.2%) all staked more POKT in Q1 than in the previous quarter. In total, roughly 821 million POKT was staked by the end of Q1. Suppliers continued to dominate the stake share, accounting for 94% of the stake, while POKT DAO and POKT Network users accounted for 5% and 1%, respectively. As more gateways join the network and the Shannon Upgrade is deployed (enabling gateways to permissionlessly join POKT Network), POKT Network users should see an increase in the absolute value and share of POKT staked.

Developments

Morse Upgrade Completed

POKT Network has been running on the Morse protocol since July 2020. In its final upgrade before transitioning to Shannon, POKT Network implemented a reward multiplier with the help of community contributors. The multiplier incentivizes node operators to scale RPC services to serve AI projects and other open data sources, such as indexing, oracles, account abstraction, and other DePINs. In this upgrade, POKT Network also implemented updates to custodial staking and rotations for application staking.

Shannon Upgrade

POKT Network plans to implement the Shannon Upgrade in H2 2024. In late March, POKT Network launched the private testnet, with the public testnet expected in the coming weeks. POKT Network also partnered with audit provider Thesis Defense to review the upgrade implementation. The Shannon Upgrade will leverage the Cosmos SDK, CometBFT's PoS consensus, and the Rollchains module to access Celestia's data availability layer, enabling interoperability with the Celestia ecosystem and other rollup networks.

Most notably, the Shannon Upgrade will remove remaining scaling constraints, provide IBC and Celestia interoperability out of the box, and immediately enable permissionless gateways. This last point creates potential for exponential growth as more businesses can make the most of outsourcing resource-intensive RPC infrastructure while benefiting from the cost-effectiveness, uptime, and scalability of POKT Network’s DePIN.

Gateway Server

Nodies, POKT Network’s second independent gateway, launched the POKT Network Gateway Server in February. The Gateway Server is a lightweight HTTP server that enables developers to access POKT Network with lighter-weight node requirements, laying the groundwork for POKT Network’s growing gateway ecosystem. In addition, the software is open-sourced and enables builders to create additional implementations to access POKT Network. The new gateway businesses in Liquify, Chainstack, Developer DAO, and Raid Guild are being onboarded and will likely start impacting volume in Q2.

Governance

Scaling POKT Network (PUP-33)

PUP-33 was approved in March by POKT DAO. The proposal suggested scaling key network parameters, such as expanding the blockchain’s block size from 8 MB to 16 MB. It also suggested that the minimum number of proofs that nodes must publish to claim their work should increase from 10 to 500. These adjusted parameters allow more sessions and interactions to be processed efficiently. As a result, the network can handle increased loads and complexity, such as servicing more chains and onboarding more gateways.

POKT Liquidity on CEXs (PEP-67)

PEP-67 was approved in March by POKT DAO. This proposal requested $3 million in POKT (12.5 million POKT maximum) to be used as liquidity across centralized exchanges. This proposal aims to eventually get POKT listed on tier-1 exchanges.

Modular Governance Upgrade (PIP-37)

PIP-37 was published in March after introducing a novel governance structure that incorporates reputation as the core aspect behind governance power in the system. It seeks to resolve the short-term thinking and economic maximalism that categorizes token-weighted systems while optimizing voting power for impactful parties. These impactful parties consist of three designations: citizens (active community members), builders (developers/contributors), and stakers (users that deploy capital to POKT Network). This upgrade builds on the existing governance model covered by Messari last year, automating the proof-of-participation system with verifiable credentials. The proposal was not passed to allow more time for discussion.

Ecosystem Updates

Gateway Announcements

POKT Network’s first two gateways, Grove and Nodies, went live before the start of Q1. In February, POKT Network announced the launch of its third gateway, Liquify. Liquify processes over 500 million relays daily and serves notable chains like THORchain, Dymension, and others. In April, POKT Network announced three new upcoming gateways: Developer DAO, Porters (backed by Raid Guild), and Chainstack.

AI Integrations

After implementing the final Morse upgrade, POKT Network incorporated incentives for node operators to service more expensive relay requests, which are often made from projects in AI or LLM models. There is a cost difference between serving AI-oriented requests and simple blockchain requests. As a result, the protocol introduced a variable reward multiplier that affects downstream pricing for gateways like Grove. Adapting to this upgrade, Grove announced a private LLM pilot to which it will serve RPC requests. This pilot is one of four active R&D projects currently exploring potential AI use cases.

Gateway Partnerships

Grove and Nodies announced a series of partnerships throughout Q1. Many of these partnerships involve the gateway establishing itself as the core RPC provider for the partnered entities. Notable partnerships are listed below.

• Grove: Radix (Layer-1) and Celestia (data availability layer)
• Nodies: NoScription (inscription protocol on Nostr Note Chain), Nym (awarded Nodies with a grant to build privacy-enhanced RPC networks), Metis (Ethereum Layer-2 rollup), and Planq (EVM-based Layer-1 built on the Cosmos SDK)

Optimism RetroPGF

In January, POKT Network received roughly $245,000 (61,771 OP) through Optimism’s Retroactive Public Goods Funding (RetroPGF) program. Leading up to this funding announcement, POKT Network had served over 11.5 billion relays for Optimism and over 781 million relays for Base. It also integrated with multiple chains built from the OP Stack and provided free public endpoints for developers.

Ecosystem Dashboard

TogetherCrew launched an ecosystem dashboard for the POKT Network community. The dashboard features metrics focused on the community, governance, protocol activity, and POKT token usage.

Closing Summary

POKT Network is making protocol changes that continue to distance it from its competitors. It is the only RPC network with multiple gateways that also plans to support permissionless deployments, making it a de facto base layer for RPC services. Despite a 45% drop in RPC relays after turning off subsidized traffic, POKT Network should see a boost in relays as more gateways deploy.

As the most decentralized RPC protocol with over 15,000 suppliers, POKT Network will soon launch a major upgrade enabling interoperability with the Celestia ecosystem and other rollup networks. This will remove remaining scaling constraints, provide IBC interoperability, and enable permissionless gateways.

Throughout Q1, POKT Network nodes received $4 million in rewards due to the 228% increase in the average POKT price. To end the quarter, the amount of POKT staked reached 49% of the circulating supply for a value of $178 million. As POKT Network continues to expand its ecosystem and improve its core product, it will become the decentralized standard for RPC infrastructure.

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