Economics - How Should Dash Stay Competitive ?

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toknormal

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Hello folks

Hardware & Hedging

As a masternode operator, I've recently become alarmed at how much margin over cost the masternode revenue is. While this is great for taking your family our for 3-figure restaurant meals, it's also concerning for anyone who's ever studied economic theory for it's only a matter of time until this margin is shared out amongst other financial instruments in one way or another.

For background see: http://www.economicshelp.org/blog/3181/economics/supernormal-profits/

IMO, Dash needs to have a strategy for the trajectory back to "perfect competition" conditions to make sure that its advantage isn't lost to competitors. My suggestion for this strategy is to compensate investors for the loss of the "supernormal" portion of the masternode revenue by delivering a long term capital gain that offsets the loss. Do do that, Dash needs to establish business priorities which "spend" the supernormal part of the ROI appropriately so that it loses the excess revenue but gains a capital advantage.

In other words, the cost of masternode ownership needs to get much higher for revenues to be sustainable but that expense must be retained by the Dash network and turned into a competitive advantage before our competitors do it for us.

I see 2 obvious routes: one on the crypto side and one on the fiat side.

• crypto: establish aggressive minimum hardware thresholds that allow the network to guarantee minimum service levels. This is an investible metric on the crypto side

• fiat: establish a hedging derivative (possibly an Ethereum token) than can offset losses of (Evolution) Dash balance holders due to adverse events. (i.e. insured balances)

I realise that the second one of those is pretty challenging. But it happens to be the one area where fiat is way stronger that crypto. It's a kind of elephant in the room/trump card that the banks hold - if your account gets hacked or you lose your debit card or somebody steals it, the bank simply replaces your balance.

It's the compliment to your "gran" being able to use a wallet. Making a wallet as useable as Paypal is not much use if you suddenly have to take on all this new "un hedged" responsibility that you never had before. Crypto=loose your keys and your screwed.

The beauty of these two approaches is:

1. it gets the ROI down from 12% to around 3-4% which pre-empts the impending competitive erosion of ROI in Dash's favour
2. it addresses the ONE aspect in which crypto simply cannot compete with fiat bank accounts at the moment
3. it sets a competitive precedent in the crypto space also be guaranteeing minimum performance thresholds

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Overlooking the validity/invalidity of your premiss...

Option 1 is the logical equivalent of adding weight to cars so that they burn more gas.
Option 2 is just silly.

But... (if your primess is valid) a third option, which does directly address it, is to reduce the MN reward and increese the treasury budget.
 
IronVape said:
.. is to reduce the MN reward and increese the treasury budget.
Click to expand...
...or rather increase miners' reward because treasury has a leftover all of the time already.

I'm not sure about the original issue however - if reward/ROI is waaay too high then why there is no huge number of new masternodes each day? It's probably because high reward/ROI is balanced out by still relatively high risk and you can get similar or higher ROI with similar or lower risk using other instruments like trading, investing in other cryptos, participating in ICOs etc. Or at least because many people think that it's the case :)
 
There is already a self-regulating mechanism in place. As the number of masternodes grows, the reward per masternode gets smaller. So the system reaches a sort of steady state where masternode owners consider the reward just large enough to be worthwhile running a masternode. No other mechanism should be needed.
 
Well despite all the "disagrees" I got, I feel kinda vindicated - at least on one of the points - by Evan's latest roadmap. Sure enough, masternode revenue is going to be getting spent on hardware.

Bigly ;)

The other point was a bit more challenging but, give it time :)

Appreciate the replies whether you agreed with me or not.
 
I think your analysis is based on a blue chip investment asset.
As much as we like it, Dash is still extremely experimental and risky.
With risk comes reward, hence the "supernormal" profits.

As others mentioned, there is a thing in economics called "supply and demand" which self-regulates the rewards.
With @moocowmoo you can go in on a MN share so you don't need hundreds of thousand of dollars to be rewarded.

With regards to cost of MNs, Evan is anticipating the increased rewards in fiat (due to higher price/DASH) will more than compensate for the higher costs of operating the high performance MN hardware.
It's a "build it and they will come" investment strategy.
Shows leadership and vision.
Now if we could just have the same clarity of vision with the unspent Treasury Funds...I say invest it in ATMs.
Vote in my "Open Letter..." thread if you agree, or offer an alternative!
 
The premise upon which you conclude there is a problem in search of a need is where this should have stopped. I don't need options to fix a "problem" which is actually working as intended.

Masternodes, as they are, leverage external market forces to avoid the mining vertical market fiasco. If you want VPS and cohost providers to charge more, they'll lose all their other customers.

This is not a problem.

The far-future sections of the roadmap which include dedicated MN hardware do concern me a bit for a similar reason, though.
 
Interesting points. In addition to the comments already made here, I'll make another. I think the basic premise is that "excess returns" are being made by MNOs. While this may be true (debatable since more MNs can be created to extract the excess returns) I think a bit of this is OK, given their utility to serve what will hopefully become a new world reserve currency.

Consider this - if DASH gains wide acceptance the world over it will be attacked by state level actors whose fiat currencies are circling the drain. MNs will be hacked, DDoS'd, outlawed, physically destroyed, you name it! The "excess profits" will be useful at that time to help secure and defend the network.
 
As you know, MNOs will have to manage hardware. And when you think about it, this means dash will be literally providing an end to end solution; from physical servers to Point Of Sale terminals. Now no one can tell us how weak dash is for bundling / depending on VPSs. Though the haters will hate...

Regardless, I am super happy that MNOs are gradually being given more real world responsibilities.
 
DashDude said:
Interesting points. In addition to the comments already made here, I'll make another. I think the basic premise is that "excess returns" are being made by MNOs. While this may be true (debatable since more MNs can be created to extract the excess returns) I think a bit of this is OK, given their utility to serve what will hopefully become a new world reserve currency.

Consider this - if DASH gains wide acceptance the world over it will be attacked by state level actors whose fiat currencies are circling the drain. MNs will be hacked, DDoS'd, outlawed, physically destroyed, you name it! The "excess profits" will be useful at that time to help secure and defend the network.
Click to expand...

Yes you are right , MNs will be susceptible to all those attacks along with miners , govt will not give up easy on their vaporware currency .. MNs need the excess returns to provide incentive to invest ..come on guys

Back in the gold old days people were getting 10-12% annual return if you remember so dash return is not too high to be honest .

Now imagine this .. without strong returns the newbies won't be incentivized to pick Vis a vis bitcoin or other cryptos ... So these returns are very attractive and important
 
I personally am seeing a lot of "it's the risk vs reward" post on this thread.

It's not about the risk vs reward. It's about service vs payment for the service provided. Masternodes should be looked at as a service that is provided for Dash, rather than a source to gain investments into Dash.

From a business perspective, would you feel it's reasonable to pay $6.3 million for a $45,000 service? Because that is the profit masternodes take vs the cost of service.

4500 masternodes
7 Dash per month = about $1400
$1400 x 4500 = $6.3 million
Cost to run a masternode = $10
4500 x $10 = $45,000

That's a huge cost for such little service. Those funds could possibly be way better used in the treasury, getting put to use to better the network. Masternodes are not constantly improving our network like the treasury and miners have been.

it's definitely something that needs improvement. I was thinking we could create (if possible) constantly changing difficulty rates for nodes that correlates with price movements. or create a free market for nodes with no collateral needed and only hardware requirements. more nodes less income, less nodes more income. Open market for all, with a self regulating market like miners.
 
MizzyMax said:
I personally am seeing a lot of "it's the risk vs reward" post on this thread.

It's not about the risk vs reward. It's about service vs payment for the service provided. Masternodes should be looked at as a service that is provided for Dash, rather than a source to gain investments into Dash.

From a business perspective, would you feel it's reasonable to pay $6.3 million for a $45,000 service? Because that is the profit masternodes take vs the cost of service.

4500 masternodes
7 Dash per month = about $1400
$1400 x 4500 = $6.3 million
Cost to run a masternode = $10
4500 x $10 = $45,000

That's a huge cost for such little service. Those funds could possibly be way better used in the treasury, getting put to use to better the network. Masternodes are not constantly improving our network like the treasury and miners have been.

it's definitely something that needs improvement. I was thinking we could create (if possible) constantly changing difficulty rates for nodes that correlates with price movements. or create a free market for nodes with no collateral needed and only hardware requirements. more nodes less income, less nodes more income. Open market for all, with a self regulating market like miners.
Click to expand...

Don't forget the another role of masternode network is regulating coin supply. With this role, masternode network keeps Dash price less volatile, by that we have an efficiency funding mechanism for technology improvements.
 
MizzyMax said:
I personally am seeing a lot of "it's the risk vs reward" post on this thread.

It's not about the risk vs reward. It's about service vs payment for the service provided. Masternodes should be looked at as a service that is provided for Dash, rather than a source to gain investments into Dash.

From a business perspective, would you feel it's reasonable to pay $6.3 million for a $45,000 service? Because that is the profit masternodes take vs the cost of service.

4500 masternodes
7 Dash per month = about $1400
$1400 x 4500 = $6.3 million
Cost to run a masternode = $10
4500 x $10 = $45,000

That's a huge cost for such little service. Those funds could possibly be way better used in the treasury, getting put to use to better the network. Masternodes are not constantly improving our network like the treasury and miners have been.

it's definitely something that needs improvement. I was thinking we could create (if possible) constantly changing difficulty rates for nodes that correlates with price movements. or create a free market for nodes with no collateral needed and only hardware requirements. more nodes less income, less nodes more income. Open market for all, with a self regulating market like miners.
Click to expand...

I am inclined to agree that Masternodes are overpaid, at least currently. What to do about it is another matter. The costs associated with running a MN are going to change in the future. Spending it on more budget doesn't make sense when we are not even at capacity currently. And messing with the block reward is not something that comes easily. I am not yet convinced that attempting to change it would be beneficial and not harmful.
 
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