The wait is over: we’re deploying the multi-coordinator market on the Hermez Network testnet! Anyone can now run a Hermez Coordinator on the Rinkeby network.
After a few weeks of testing, we will launch the Hermez Coordinator module on mainnet, opening a decentralised market of batch producers.
In this article, you’ll find an explanation of what a Hermez Coordinator is, how the Coordinator market will work once we deploy it on mainnet, and the technical specifications of becoming a Coordinator. Let’s jump right in!
What Is A Hermez Coordinator?
Since we launched the Hermez mainnet, we’ve been processing transactions through the Boot Coordinator, a central piece of the Hermez protocol whose function was to help bootstrap the network during its initial phase.
However, as explained in the whitepaper, our goal has always been to open a decentralised market of Coordinators.
A Coordinator is our term for the user that processes batches of transactions on the Hermez rollup. It’s a similar role to the miner on the Bitcoin network or stakers on Ethereum 2.0.
At any given time, one Coordinator is responsible for creating batches on the rollup chain, selected among several registered nodes via an auction process.
There is no limit to the number of registered Coordinators. Becoming a Coordinator is entirely permissionless via an auction process.
How Does The Coordinator Market Work?
Coordinators will participate in the auction by sending an on-chain transaction to the auction smart contract. Bids are always paid in HEZ.
Coordinators must own some HEZ to participate in the auction. They need to hold at least as many tokens as they wish to bid in the auction. This will naturally create buying pressure on the HEZ token.
When a Coordinator wins the auction, they have the right to forge as many batches of transactions as possible during the slot.
- Slots will be 40 Ethereum blocks long (~10 minutes).
- The number of transactions per batch depends on the circuit used. Hermez accepts two different circuit sizes: 400 transactions and 2048 transactions.
Coordinators make money by setting and collecting the transaction fees. They can expect a revenue per transaction, and each Coordinator will select to forge the more profitable transactions from the transaction pool.
They profit from these fees minus the operational costs and the bid price for the slot.
Coordinator Market And HEZ Tokenomics
The Coordinator market is a fundamental part of the Hermez tokenomics design, along with our Proof-of-Donation mechanism.
The HEZ token is purely a utility token, whose only function is for Coordinators to bid for the right to process transactions. Coordinators that win the auctions are also paid in HEZ for their services, and they must own HEZ to bid in further auctions. This creates buying pressure on the HEZ token.
On the other hand, the Coordinator market activates the Proof-of-Donation mechanism, which states that 40% of each winning bid gets donated to fund Ethereum public goods, 30% goes to reward network users, and the remaining 30% gets burnt.
The constant burning mechanism creates deflationary pressure on the HEZ supply, benefiting all token holders as the total supply constantly decreases.
How To Run A Coordinator?
The specifications to run a Coordinator are:
- PostgreSQL database
- Ethereum Node
- Coordinator Server running the hermez-node repository. A reasonable server spec is AWS instance c5ad.2xlarge with 8 vCPU and 16GB RAM
- Proof Server running the rapidsnark repository. A server spec able to run the ~2000 transaction circuit is AWS instance c5ad.24xlarge with 96 vCPU and 192GB RAM.
We have prepared a fully detailed guide on setting up a Coordinator, which you can read here.
As soon as we're confident enough with the performance of the coordinator market on testnet, we'll proceed to deploy it on the Hermez Network mainnet.