Validator Compensation
How do Pilier validators get paid? This guide explains operational cost coverage, PIL-to-EUR conversion, and infrastructure grants.
Reading time: 7 minutes
Philosophy: Cost Coverage, Not Profit
Key principle: Pilier validators are non-commercial entities. Compensation covers operational costs, not profit generation.
Target: €500/month per validator (covers server hosting, monitoring, staff time)
Sources:
- Transaction fees (95% to validators, 5% burned)
- Inflation subsidy (temporary, during bootstrap phase)
How Validators Earn PIL
Transaction Fees
Every on-chain operation pays a fee:
| Operation | Approximate Fee |
|---|---|
| Balance transfer | 0.001 PIL |
| Register document | 0.0025 PIL |
| Create DPP | 0.004 PIL |
| Update DPP state | 0.0015 PIL |
| Trigger agent | 0.005+ PIL |
Fee distribution:
Example: User creates DPP (0.004 PIL fee)
Fee split:
├─ 5% burned: 0.0002 PIL (permanently removed)
└─ 95% to validators: 0.0038 PIL
If 5 validators:
└─ Each receives: 0.00076 PIL
Rewards accumulate per era (~24 hours) and can be claimed when convenient.
Inflation Subsidy (Bootstrap Phase)
Problem: During early phase (Year 1-2), transaction volume is low → fees don't cover validator costs.
Solution: Protocol mints new PIL (2.5% annual inflation) to bridge the gap.
How it works:
Target validator income: €500/month
Example (5 validators, Year 1):
├─ Monthly transaction fees: €200 total
├─ Per validator from fees: €40/month
├─ Gap to target: €460/month
└─ Inflation subsidy: €460/month per validator
──────────────────────────────────────────
Total income: €500/month per validator ✅
Phase-out timeline:
Year 1-2: High subsidy (low tx volume)
├─ Transaction fees: €40/validator/month
├─ Subsidy: €460/validator/month
└─ Total: €500/month
Year 3-4: Declining subsidy (adoption growing)
├─ Transaction fees: €300/validator/month
├─ Subsidy: €200/validator/month
└─ Total: €500/month
Year 5+: Zero subsidy (self-sustainable)
├─ Transaction fees: €500+/validator/month
├─ Subsidy: €0
└─ Network fully self-sustainable ✅
Governance control: Inflation rate adjustable via governance vote (max 5% annual cap).
Claiming Rewards
Rewards accumulate per era (~24 hours).
Recommended approach: Claim monthly (aligns with EUR exchange cycle).
How to claim:
Option 1: Manual (CLI) - Monthly
# Claim all pending rewards from last ~30 eras
pilier-cli staking payout-stakers \
--validator validator-lyon-01 \
--last-n-eras 30
Option 2: Governance Portal
1. Visit governance.pilier.net
2. Navigate to "Staking" → "Payouts"
3. Click "Claim All" for last month
Expiry: Rewards expire after 84 eras (~84 days) if unclaimed.
Converting PIL to EUR
Why You Need This
Validators earn PIL but pay expenses in EUR:
- Server hosting: €200-300/month (OVH, Hetzner, etc.)
- Monitoring tools: €50/month (Prometheus, Grafana)
- Staff time: €100-200/month (sysadmin hours)
- Insurance: €150-400/month (cyber liability, professional indemnity)
Solution: Exchange PIL with Pilier Treasury at fixed 1:1 rate.
Recommended frequency: Monthly (aligns with typical expense cycles).
Monthly Exchange Process
Step 1: Claim Monthly Rewards
# First week of month: Claim last month's rewards
pilier-cli staking payout-stakers \
--validator validator-lyon-01 \
--last-n-eras 30
Step 2: Email Treasury (Monthly Exchange Request)
To: treasury@pilier.org
Subject: Monthly PIL to EUR Exchange - [Month/Year]
Body:
Entity: University of Lyon
Validator: validator-lyon-01
Amount: 500 PIL (last month's rewards)
Period: January 2027
IBAN: FR76 XXXX XXXX XXXX XXXX XXXX XXX
BIC: XXXXXXXX
Step 3: Treasury Confirms
Treasury replies within 24 hours:
├─ Confirms amount (500 PIL)
├─ Confirms exchange rate (1 PIL = €1.00)
├─ Provides transaction reference number
└─ Expected transfer date (within 7 business days)
Step 4: Send PIL to Treasury
# Transfer PIL to Treasury account
pilier-cli transfer \
--from validator-lyon-01 \
--to treasury-pool-account \
--amount 500
Step 5: Receive EUR
Within 7 business days:
├─ SEPA transfer: €500
├─ Reference: "PIL Exchange - validator-lyon-01 - January 2027"
└─ Funds arrive in your bank account ✅
Exchange Limits
To prevent abuse:
| Limit | Value | Reason |
|---|---|---|
| Recommended frequency | Monthly | Aligns with typical expense cycles, reduces admin overhead |
| Maximum | 1,000 PIL/month | Anti-dumping (prevents validators from extracting excess) |
| Minimum | 100 PIL per transaction | Avoid micro-transactions (admin overhead) |
Exception: Emergency expenses (e.g., hardware replacement) can request off-cycle exchange with justification.
Exchange Rate
Fixed: 1 PIL = €1.00
Why fixed?
- Predictable budgeting for validators
- No exchange rate risk (unlike volatile cryptocurrencies)
- Operational policy (not market-driven)
What if PIL's "real" value diverges from €1?
- PIL is not traded on external exchanges → no market price
- Internal policy maintains 1:1 ratio
- If operational costs change significantly, governance can adjust fee structure (not exchange rate)
Alternative: Convert PIL to tPIL
Instead of cashing out, validators can lock PIL for governance power.
Quick Overview
tPIL (PIL Trust) = vote-escrowed PIL, used for governance voting.
Lock duration multipliers:
| Duration | Multiplier | Example (1,000 PIL) |
|---|---|---|
| 12 months | 2.0× | 2,000 tPIL |
| 24 months | 3.5× | 3,500 tPIL |
| 48 months | 5.0× | 5,000 tPIL |
Why lock?
- Vote on protocol changes (fees, free tx policy, validator set)
- Validators with high tPIL have stronger governance voice
- Long-term alignment with protocol success
Recommended split strategy:
- Exchange 80-90% PIL for EUR (cover operational costs)
- Lock 10-20% for tPIL (build governance influence)
👉 Full details: Governance Participation|
Infrastructure Grants
Who is Eligible?
Grants available for entities with tight budgets:
- NGOs with limited IT funding
- Universities in underfunded departments
- Public bodies with strict budget constraints
Not available for:
- Entities with healthy IT budgets
- Validators already covering costs comfortably
Grant Types
Hardware Subsidy
Grant: Up to €1,000 (one-time)
Covers:
├─ Server purchase (bare-metal or initial cloud setup)
├─ Networking equipment (router, firewall)
└─ Backup hardware (redundant drives)
Application:
└─ Submit budget breakdown + justification
Hosting Subsidy
Grant: Up to €200/month for 12 months
Covers:
├─ Cloud hosting (OVH, Hetzner, Scaleway)
├─ Bandwidth costs
└─ Backup storage
Application:
└─ Provide monthly invoices (reimbursed quarterly)
Training Budget
Grant: €500/year
Covers:
├─ Conference attendance (DevCon, Polkadot events)
├─ Technical training (Substrate bootcamp)
└─ Certifications (security, sysadmin)
Application:
└─ Submit training plan + receipts for reimbursement
How to Apply
Step 1: Submit Proposal
To: validators@pilier.org
Subject: Infrastructure Grant Application
Body:
Entity: [Your entity name]
Validator: [Your validator ID]
Grant type: [Hardware / Hosting / Training]
Amount requested: [€X]
Justification: [Why you need this grant]
Budget breakdown: [Itemized expenses]
Impact: [How this enables your participation]
Step 2: Governance Review
Core team reviews:
├─ Entity financial situation (annual report, budget docs)
├─ Grant necessity (can't afford otherwise?)
└─ Recommendation: Approve / Deny / Request more info
Step 3: Governance Vote
Proposal submitted to governance:
├─ Title: "Grant €1,000 to validator-lyon-01 for hardware"
├─ Voting period: 14 days
├─ Threshold: 55% approval + 10% quorum (lower bar for grants)
└─ If approved: Treasury allocates funds
Step 4: Receive Funds
If approved:
├─ Hardware grants: Paid upfront (SEPA transfer)
├─ Hosting grants: Reimbursed quarterly (submit invoices)
└─ Training grants: Reimbursed after training (submit receipts)
Tax Considerations
Important: Pilier does not provide tax advice. Consult your local accountant.
General guidance:
For Universities & Public Bodies
Typically tax-exempt (public sector entities)
└─ Compensation treated as operational reimbursement, not income
For NGOs
Depends on jurisdiction:
├─ France: Non-profit associations (loi 1901) often tax-exempt
├─ Germany: Gemeinnützige Organisationen tax-exempt if public benefit
└─ Consult local tax advisor for specifics
Reporting Requirements
Entity should document:
├─ PIL received (on-chain records)
├─ PIL exchanged for EUR (Treasury receipts)
├─ EUR expenses (hosting invoices, salaries)
└─ Provide to accountant for annual filing
Pilier's role: Provide transaction records (on-chain + Treasury transfers) upon request.
Example Monthly Budget
Typical validator expenses (€500/month):
| Category | Cost | Notes |
|---|---|---|
| Server hosting | €200-300 | Dedicated server (OVH, Hetzner) or cloud (AWS, GCP) |
| Monitoring | €0-50 | Prometheus (self-hosted = free) or SaaS (Datadog = €50) |
| Backup storage | €10-20 | Off-site backups (S3, Backblaze) |
| Staff time | €100-200 | Sysadmin hours (oncall, maintenance) |
| Insurance | €150-400 | Cyber liability + professional indemnity (amortized) |
| Contingency | €50 | Unexpected expenses (disk replacement, etc.) |
| Total | €510-1,020 | Average: €500-600 |
Pilier compensation: €500/month target → covers typical expenses.
If expenses higher: Apply for infrastructure grant or optimize costs.
Frequently Asked Questions
Q: Should I exchange all PIL for EUR or lock some for tPIL?
Recommended: Split approach
- Exchange enough PIL to cover monthly operational costs (€300-500)
- Lock 10-20% for tPIL (governance participation)
- Build governance influence over time while maintaining liquidity
Q: Can I claim rewards daily instead of monthly?
Yes, but not recommended:
- Administrative overhead (too many small claims)
- Treasury prefers monthly exchange requests
- Monthly cycle aligns with typical expense cycles
Q: What if I forget to claim rewards for 2-3 months?
Still claimable:
- Rewards expire after 84 eras (~84 days)
- As long as within expiry window, you can claim anytime
- But monthly claiming recommended for cash flow management
Q: Can we keep excess PIL (earn more than €500/month)?
Yes, and encouraged:
- Lock excess PIL for tPIL (governance power)
- Exchange limit: 1,000 PIL/month maximum
- Building tPIL balance strengthens your governance voice
Q: What if operational costs exceed €500/month?
Options:
- Apply for infrastructure grant (hosting subsidy)
- Optimize costs (cheaper hosting, self-hosted monitoring)
- Request governance vote to increase validator target (rare)
Q: Do we pay taxes on PIL rewards?
Depends on jurisdiction. Consult local accountant.
General principle:
- PIL = operational reimbursement (not profit)
- Most non-profit entities tax-exempt
- But rules vary by country
Summary: Validator Economics
Income sources:
- ✅ Transaction fees (95% to validators)
- ✅ Inflation subsidy (temporary, 2.5% annual during bootstrap)
Target income:
- ✅ €500/month per validator (covers operational costs)
Recommended monthly cycle:
- ✅ First week of month: Claim last month's PIL rewards
- ✅ Split allocation: Exchange 80-90% for EUR, lock 10-20% for tPIL
- ✅ Exchange PIL via Treasury (1 PIL = €1.00, within 7 business days)
- ✅ Build governance influence over time (tPIL accumulation)
Why lock PIL for tPIL?
- ✅ Vote on free transaction policy (which tx types are sponsored)
- ✅ Vote on fee adjustments (operational cost implications)
- ✅ Validators' votes carry weight (infrastructure operators' perspective)
- ✅ Long-term protocol alignment
Support available:
- ✅ Infrastructure grants (hardware €1k, hosting €200/mo, training €500/yr)
- ✅ For eligible entities with tight budgets
Next Steps
Understand compensation model?
- ✅ Read Governance Participation (how to use tPIL effectively)
- ✅ Review Legal & Compliance (understand legal framework)
- ✅ Check Security Procedures (incident response)
- 📧 Ready to apply? See Onboarding Guide
Support
📧 Treasury: treasury@pilier.org (monthly PIL-to-EUR exchange)
📧 Grants: validators@pilier.org (infrastructure grants)
💬 Telegram: @pilier_validators
🌐 Forum: forum.pilier.net/validators