docs_tfgrid_economics/docs/node-economics/pricing-model.md

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# Pricing Model & Income Analysis

Understanding the economics of farming is essential for making informed hardware decisions. This page breaks down pricing, utilization scenarios, and ROI calculations.

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## Pricing Components

### Per-Slice Pricing Structure

Each slice has two key price points:

**Minimum Price** (Floor):
- Conservative market pricing
- Ensures farmers can cover costs
- Competitive with major cloud providers at bulk rates
- Assumes moderate demand

**Maximum Price** (Ceiling):
- Premium positioning
- Comparable to retail cloud pricing
- Assumes high demand and full utilization
- Competitive advantage scenarios

**Example: Standard Compute Slice**
- Min: 1.2 CC/month (~$0.15)
- Max: 12.0 CC/month (~$1.54)
- Range: 10x spread between floor and ceiling

---

## Revenue Share Breakdown

Every Cloud Credit (CC) spent on TFGrid capacity is distributed as follows:

```mermaid
pie title Revenue Distribution per 100 CC
    "Farmer (You!)" : 80
    "TFT Burn (Deflationary)" : 10
    "ThreeFold Operations" : 10
```

### What This Means

If a user pays **100 CC** for your slices:

| Recipient | Amount | Purpose |
|-----------|--------|---------|
| **Farmer** | 80 CC | Your income |
| **TFT Burn** | 10 CC | Reduces TFT supply → supports token value |
| **ThreeFold** | 10 CC | Platform development, operations, support |

:::tip Farmer-First Model
With 80% going directly to farmers, you keep the vast majority of value generated by your infrastructure.
:::

---

## Income Scenarios by Node Type

### Scenario Analysis Framework

We analyze three utilization scenarios for each node:

1. **Conservative** (20-30% utilization): Network still growing
2. **Moderate** (50-60% utilization): Healthy network adoption
3. **Optimistic** (80-100% utilization): High demand period

---

### Example: Mini 3 (Certified Node)

**Hardware Investment**: $1,000
**Monthly HW Cost**: 17 CC
**Maximum Slices**: 25
**Typical Active Slices**: 25 (can provide full 25)

#### Conservative Scenario (30% utilization, min pricing)

```
Active Slices: 25 × 30% = 7.5 slices
Price per Slice: 1.5 CC (minimum)
Gross Income: 7.5 × 1.5 = 11.25 CC/month
Your Share (80%): 9 CC/month
Net Profit: 9 - 17 = -8 CC/month (not profitable yet)
```

**Status**: Needs higher utilization or pricing to be profitable

#### Moderate Scenario (60% utilization, mid pricing)

```
Active Slices: 25 × 60% = 15 slices
Price per Slice: 7.5 CC (midpoint)
Gross Income: 15 × 7.5 = 112.5 CC/month
Your Share (80%): 90 CC/month
Net Profit: 90 - 17 = 73 CC/month
Annual Profit: 73 × 12 = 876 CC (~$112/year)
ROI: $1,000 investment / $112/year = 8.9 years
```

**Status**: Profitable but slow ROI

#### Optimistic Scenario (100% utilization, premium pricing)

```
Active Slices: 25 × 100% = 25 slices
Price per Slice: 14.9 CC (maximum)
Gross Income: 25 × 14.9 = 372.5 CC/month
Your Share (80%): 298 CC/month
Net Profit: 298 - 17 = 281 CC/month
Annual Profit: 281 × 12 = 3,372 CC (~$432/year)
ROI: $1,000 investment / $432/year = 2.3 years
```

**Status**: Excellent ROI with strong demand

---

### Example: Large TFGrid Node

**Hardware Investment**: $2,000
**Monthly HW Cost**: 33 CC
**Maximum Slices**: 100
**Typical Active Slices**: 20 (limited by resource balance)

#### Conservative Scenario (25% utilization, min pricing)

```
Active Slices: 20 × 25% = 5 slices
Price per Slice: 7.6 CC (minimum)
Gross Income: 5 × 7.6 = 38 CC/month
Your Share (80%): 30.4 CC/month
Net Profit: 30.4 - 33 = -2.6 CC/month (slight loss)
```

**Status**: Nearly break-even at low utilization

#### Moderate Scenario (50% utilization, mid pricing)

```
Active Slices: 20 × 50% = 10 slices
Price per Slice: 40 CC (midpoint)
Gross Income: 10 × 40 = 400 CC/month
Your Share (80%): 320 CC/month
Net Profit: 320 - 33 = 287 CC/month
Annual Profit: 287 × 12 = 3,444 CC (~$441/year)
ROI: $2,000 investment / $441/year = 4.5 years
```

**Status**: Solid profitability

#### Optimistic Scenario (100% utilization, premium pricing)

```
Active Slices: 20 × 100% = 20 slices
Price per Slice: 76.2 CC (maximum)
Gross Income: 20 × 76.2 = 1,524 CC/month
Your Share (80%): 1,219 CC/month
Net Profit: 1,219 - 33 = 1,186 CC/month
Annual Profit: 1,186 × 12 = 14,232 CC (~$1,822/year)
ROI: $2,000 investment / $1,822/year = 1.1 years
```

**Status**: Outstanding ROI

:::tip High-Memory Advantage
Large TFGrid Node's 512 GB RAM enables premium memory-heavy slice pricing, driving higher income per active slice.
:::

---

### Example: Nvidia 6000 (Dual GPU)

**Hardware Investment**: $30,000
**Monthly HW Cost**: 500 CC
**Maximum Slices**: 2 (dedicated GPU slices)
**Typical Active Slices**: 2

#### Conservative Scenario (50% utilization, min pricing)

```
Active Slices: 2 × 50% = 1 slice
Price per Slice: 300 CC (minimum)
Gross Income: 1 × 300 = 300 CC/month
Your Share (80%): 240 CC/month
Net Profit: 240 - 500 = -260 CC/month (loss)
```

**Status**: Needs higher utilization for profitability

#### Moderate Scenario (75% utilization, mid pricing)

```
Active Slices: 2 × 75% = 1.5 slices
Price per Slice: 1,650 CC (midpoint)
Gross Income: 1.5 × 1,650 = 2,475 CC/month
Your Share (80%): 1,980 CC/month
Net Profit: 1,980 - 500 = 1,480 CC/month
Annual Profit: 1,480 × 12 = 17,760 CC (~$2,273/year)
ROI: $30,000 investment / $2,273/year = 13.2 years
```

**Status**: Profitable but requires patience

#### Optimistic Scenario (100% utilization, premium pricing)

```
Active Slices: 2 × 100% = 2 slices
Price per Slice: 3,000 CC (maximum)
Gross Income: 2 × 3,000 = 6,000 CC/month
Your Share (80%): 4,800 CC/month
Net Profit: 4,800 - 500 = 4,300 CC/month
Annual Profit: 4,300 × 12 = 51,600 CC (~$6,605/year)
ROI: $30,000 investment / $6,605/year = 4.5 years
```

**Status**: Excellent returns with AI demand

:::note AI Premium Pricing
GPU nodes can command significantly higher prices due to AI/ML demand. Market pricing for comparable GPU cloud instances supports these ranges.
:::

---

## Income Comparison: All Nodes at 50% Utilization

Assuming **50% utilization** and **mid-point pricing**:

| Node Type | HW Cost | Monthly Net | Annual Net | ROI (Years) | Annual % Return |
|-----------|---------|-------------|------------|-------------|-----------------|
| 3Node Home | $500 | ~35 CC | ~420 CC | ~10 | ~10% |
| Large TFGrid | $2,000 | ~287 CC | ~3,444 CC | ~4.5 | ~22% |
| Large TFGrid 2 | $1,200 | ~100 CC | ~1,200 CC | ~8 | ~12.5% |
| Mini 1 | $350 | ~30 CC | ~360 CC | ~8 | ~12.5% |
| Mini 2 | $800 | ~60 CC | ~720 CC | ~9 | ~11% |
| Mini 3 | $1,000 | ~73 CC | ~876 CC | ~9 | ~11% |
| Mini AI 1 | $2,000 | ~140 CC | ~1,680 CC | ~9.5 | ~10.5% |
| Nvidia 6000 1x | $15,000 | ~875 CC | ~10,500 CC | ~11.4 | ~8.8% |
| Nvidia 6000 2x | $30,000 | ~1,480 CC | ~17,760 CC | ~13.5 | ~7.4% |
| Tenstorrent 8x | $30,000 | ~1,480 CC | ~17,760 CC | ~13.5 | ~7.4% |

*CC values converted to USD at $0.128/CC for ROI calculations*

---

## Key Factors Affecting Income

### 1. Network Utilization

**What drives it**:
- Total TFGrid capacity available
- Number of active users/applications
- Seasonal demand fluctuations
- Marketing and ecosystem growth

**Your influence**:
- Limited direct control
- Participate in community promotion
- Ensure node uptime and reliability

### 2. Pricing Strategy

**Competitive considerations**:
- AWS, GCP, Azure pricing benchmarks
- Other TFGrid farmers' pricing
- Your node's specifications (certified vs. non-certified)
- Geographic location / latency advantages

**Your influence**:
- Set competitive pricing when marketplace allows
- Offer discounts for long-term commitments
- Premium pricing for certified or high-spec nodes

### 3. Node Uptime & Reliability

**Impact**:
- Downtime = no income during that period
- Poor reliability = lost customers
- Consistent uptime = reputation and repeat business

**Your influence**:
- Invest in quality hardware
- Ensure stable internet connection
- Monitor and maintain proactively
- Use UPS/backup power if possible

### 4. Resource Balance

**What matters**:
- Nodes limited by weakest resource (CPU, RAM, or storage)
- Well-balanced nodes can sell more slices
- Bottlenecks reduce effective slice count

**Your influence**:
- Choose balanced hardware configurations
- Consider upgrading bottlenecks (e.g., add RAM)
- Understand which resource constrains your node

---

## ROI Sensitivities

### Utilization Impact

For a **Mini 3** node ($1,000 investment):

| Utilization | Monthly Net Profit | Annual Profit | ROI Years |
|-------------|-------------------|---------------|-----------|
| 20% | -8 CC | -96 CC | Never (loss) |
| 30% | 9 CC | 108 CC | 74 years |
| 40% | 45 CC | 540 CC | 14.8 years |
| 50% | 73 CC | 876 CC | 9.1 years |
| 60% | 109 CC | 1,308 CC | 6.1 years |
| 80% | 181 CC | 2,172 CC | 3.7 years |
| 100% | 253 CC | 3,036 CC | 2.6 years |

*Assumes mid-point pricing at all utilization levels*

### Pricing Impact

For a **Large TFGrid Node** ($2,000 investment) at **50% utilization**:

| Price Point | Monthly Net Profit | Annual Profit | ROI Years |
|-------------|-------------------|---------------|-----------|
| Minimum | 99 CC | 1,188 CC | 13.4 years |
| 25th percentile | 420 CC | 5,040 CC | 3.2 years |
| Midpoint | 287 CC | 3,444 CC | 4.6 years |
| 75th percentile | 756 CC | 9,072 CC | 1.8 years |
| Maximum | 1,186 CC | 14,232 CC | 1.1 years |

---

## Comparative Cloud Pricing

To validate our pricing model, here's how TFGrid compares to major cloud providers:

### Standard Compute Instance

**TFGrid Standard Slice**:
- 2 cores, 4 GB RAM, ~140 GB SSD
- Price: 1.2 - 12.0 CC/month ($0.15 - $1.54/month)
- Hourly: $0.005 - $0.05/hour

**AWS t3.medium**:
- 2 vCPUs, 4 GB RAM
- Price: ~$30/month (~$0.042/hour)

**GCP e2-medium**:
- 2 vCPUs, 4 GB RAM  
- Price: ~$24/month (~$0.033/hour)

**TFGrid Advantage**: 50-95% cheaper than major clouds at similar specs

### AI/GPU Instance

**TFGrid AI Slice (Nvidia 6000)**:
- 24 cores, 124 GB RAM, 96 GB GPU
- Price: 300 - 3,000 CC/month ($38 - $384/month)
- Hourly: $0.053 - $0.53/hour

**AWS p3.2xlarge** (V100 16GB):
- 8 vCPUs, 61 GB RAM, 16 GB GPU
- Price: ~$3.06/hour (~$2,200/month for full-time)

**GCP a2-highgpu-1g** (A100 40GB):
- 12 vCPUs, 85 GB RAM, 40 GB GPU
- Price: ~$3.67/hour (~$2,640/month for full-time)

**TFGrid Advantage**: 80-95% cheaper with larger GPU memory (96 GB vs 16-40 GB)

:::tip Competitive Positioning
Even at maximum pricing, TFGrid undercuts major cloud providers significantly. At minimum pricing, it's dramatically cheaper while providing more resources.
:::

---

## Risk Factors & Considerations

### Market Risks

- **Network adoption rate**: Slower than expected growth delays profitability
- **Competition**: Other decentralized cloud platforms
- **Pricing pressure**: Race to the bottom if oversupply occurs
- **Technology shifts**: New hardware makes existing nodes obsolete faster

### Operational Risks

- **Electricity costs**: Not included in hardware cost calculations
- **Internet costs**: Bandwidth charges in some regions
- **Maintenance**: Hardware failures, replacements
- **Obsolescence**: 5-year amortization assumes hardware remains competitive

### Mitigation Strategies

- **Start small**: Test with lower-cost nodes before scaling
- **Diversify**: Mix node types (standard + AI)
- **Stay informed**: Active participation in community
- **Plan for upgrades**: Budget for hardware refresh cycles

---

## Total Capacity & Market Size

Based on ThreeFold's current bid commitments (see [TF Bid Packages](/node-economics/tf-bid-packages)):

**Total Potential Market**:
- ~24,150 slices across all bid types
- ~$253,800/month at minimum pricing
- ~$3,965,625/month at maximum pricing
- ~$507 million annual market at maximum pricing

**This represents committed ThreeFold demand**, not total market potential. Additional demand will come from:
- End-user applications
- Enterprise offtakers
- Individual developers and projects
- Partner ecosystems

---

## Next Steps

### For Potential Farmers

1. **Review [Node Specifications](/node-economics/node-specifications)** - Choose hardware based on budget
2. **Run your own calculations** - Use your local electricity/internet costs
3. **Start conservative** - Plan for 30-40% utilization initially
4. **Monitor and adjust** - Track real performance and optimize

### For Current Farmers

1. **Evaluate upgrade paths** - Consider certified nodes Q4 2025
2. **Optimize pricing** - Balance competitiveness with profitability
3. **Improve uptime** - Maximize income from existing hardware
4. **Plan for AI** - GPU nodes represent significant growth opportunity

---

:::info Living Document
As the network matures and real utilization data becomes available, these projections will be refined. Join the community to stay updated on actual farmer income reports.
:::

:::tip Questions?
Discuss pricing strategies and share experiences in the [ThreeFold Forum](https://forum.threefold.io) and [Telegram community](https://t.me/threefoldfarmers).
:::