I think the collateral for Masternodes should come down

[Efietskop]

No this is not to make being a Masternode more accessible but because I think Masternodes will be too profitable locking up too much Dash which may put huge deflationary pressure on Dash. This may discourage people from spending it. And that would be bad since we aspire to be a payment network.

So how is this: the current block reward is 4 Dash, 1.8 Dash of that goes to the Masternodes. Over the year this will accumulate to 630,000 Dash for Masternodes per year. At 4500 Masternodes this is roughly 140 Dash per Masternode per year. That's a good return of investment of 14% per year, of course they will have expenses for running the Masternode but I that will still leave a significant part of that 140 Dash as profit.

Now that profitability in itself is not a problem, it only starts to be a problem once you start considering what happens if all Dash were to be collateral in Masternodes. Even if there were 7800 Masternodes, the yearly reward would still be 80 Dash. Which is still a good return and probably more than the cost of running it.

The problem I see in this is that, I never see any significant incentive for someone to liquidate a Masternode, at any point in time. Which means that over time more and more Dash will be collateral in Masternodes. This can put significant deflationary pressure on Dash because the amount in circulation is always decreasing. Which will discourage people from spending their Dash dropping its circulation velocity, putting even more deflationary pressure on it. This is bad because we want people to spend their Dash, not hold it.

I think that decreasing the collateral for Masternodes to something like 200 Dash, increasing the number of possible Masternodes and thus reducing the reward per Masternode, will already largely alleviate this problem. Though I think in the long run the collateral of Masternodes should be tied to some formula with the running average of the Block Reward (to take into account both that Tx fees at some may point be a significant part of the Block Reward and also that the cost of running Masternodes will be related in some way to the number of transactions on the network.)

Am I missing something in my line of thought? Or is there anyone who can put my mind at ease that this will not be a problem to Dash?

 

[Raptor73]

http://178.254.23.111/~pub/Dash/Dash_Info.html

Check the ROI page. it's not more than 8.33% per anno, not 14%.

The Dash network doesn't care about the Masternode ROI, as long as we need no more nodes to run the network, there's no reason to reduce the collateral. I can remember times when monero-fluffy talks to his youtube viewers saying 4000 Dollars for a masternode is way too high for the average user. There are allways people who can afford a masternode, even if dash hits 10 or 100k per coin.

 

[Efietskop]

http://178.254.23.111/~pub/Dash/Dash_Info.html

Check the ROI page. it's not more than 8.33% per anno, not 14%.

The Dash network doesn't care about the Masternode ROI, as long as we need no more nodes to run the network, there's no reason to reduce the collateral. I can remember times when monero-fluffy talks to his youtube viewers saying 4000 Dollars for a masternode is way too high for the average user. There are allways people who can afford a masternode, even if dash hits 10 or 100k per coin.

Thank you for the link! Running a Masternode appears to be about twice as expensive as I sort of guessed. That means that a Masternode collateral of 200 Dash would indeed be too low and that, at least at this moment, when there are 7800 Masternodes they will not be profitable.

I'm not arguing about the price of a Masternode, nor the number of Masternodes the Dash network requires. I just have a concern that there exists a forcing function that a higher Dash price makes Masternodes more profitable which means more Masternodes will be created which decreases the Dash in circulation thus increasing the price starting this all over again.

But I now have some numbers, so I'll see if I have some time over the coming weekend to whip up some formula and run a couple of scenarios to see whether I think this likely to happen.

 

[Dandy]

You could take a look at Smartcash in the next few months, as they just started their masternode system (they call them Smart Nodes) and as their coin supply is much higher (circulating supply is at the moment 577,000,000 and maximum coin supply is 5,000,000,000), with 10,000 coins per Smart Node, they could easily hit 30,000 Smart Nodes soon.
Then we could actually see in action if that kind of masternode numbers is sustainable.

 

[bhkien]

No this is not to make being a Masternode more accessible but because I think Masternodes will be too profitable locking up too much Dash which may put huge deflationary pressure on Dash. This may discourage people from spending it. And that would be bad since we aspire to be a payment network.

So how is this: the current block reward is 4 Dash, 1.8 Dash of that goes to the Masternodes. Over the year this will accumulate to 630,000 Dash for Masternodes per year. At 4500 Masternodes this is roughly 140 Dash per Masternode per year. That's a good return of investment of 14% per year, of course they will have expenses for running the Masternode but I that will still leave a significant part of that 140 Dash as profit.

Now that profitability in itself is not a problem, it only starts to be a problem once you start considering what happens if all Dash were to be collateral in Masternodes. Even if there were 7800 Masternodes, the yearly reward would still be 80 Dash. Which is still a good return and probably more than the cost of running it.

The problem I see in this is that, I never see any significant incentive for someone to liquidate a Masternode, at any point in time. Which means that over time more and more Dash will be collateral in Masternodes. This can put significant deflationary pressure on Dash because the amount in circulation is always decreasing. Which will discourage people from spending their Dash dropping its circulation velocity, putting even more deflationary pressure on it. This is bad because we want people to spend their Dash, not hold it.

I think that decreasing the collateral for Masternodes to something like 200 Dash, increasing the number of possible Masternodes and thus reducing the reward per Masternode, will already largely alleviate this problem. Though I think in the long run the collateral of Masternodes should be tied to some formula with the running average of the Block Reward (to take into account both that Tx fees at some may point be a significant part of the Block Reward and also that the cost of running Masternodes will be related in some way to the number of transactions on the network.)

Am I missing something in my line of thought? Or is there anyone who can put my mind at ease that this will not be a problem to Dash?

You said that more Dash be collateral in masternodes make deflation. But, lower barrier to make masternode could lead to more people can setup masternode. Therefore it can make more deflation.

Lower barrier mean more people are eligible to make masternode. When they make more masternode mean Dash becoming scarcer and the Dash price will go up.

I think the current condition is good. When we have enough good people investing in Dash (in time, talent, efforts, and money), lower condition for masternode will make Dash becoming more and more expensive and people who invest in Dash at this time will have very big profit.

 

[yocko]

I don't believe a change is a good idea, lower entree level means more masternodes so more DASH locked away.
The benefit of the masternodes getting paid is this money is likely to be spent and put into circulation.
We also have a roadmap leading to specialized hardware in order to run a masternode. By the looks of things its looking like it will eventually be a small data center for a single node.
Plus voting research DASH masternode owners will be full time.

 

[strophy]

Masternodes do not exist to enrich the owners, they are there to provide services to the network. As long as the network does not need more masternodes to provide reliable service to dash users, there is no reason to reduce the collateral in my opinion...

 

[Efietskop]

I did some calculations and I was wrong. A collateral of a 1000 Dash for a Masternode is more or less right on the money where ROI is concerned. It would be around 4% with all Dash turned into Masternodes, which is pretty OK, but I don't think it's enough to prevent people from spending their Dash. And this will get better every year as more Dash is created and the block reward decreases.

But it got my mind to consider other things. Nowadays running a MN is not very expensive, though this may not be the case in the future. When the Dash network facilitates a significant number of transactions the costs of operating a MN could become quite significant. Additionally, the subsidizing of the block reward by newly minted Dash or Dash inflation, will decrease every year. This made me wonder whether the operating costs of a Masternode would be feasible running on transaction fees of $0.01 alone.

Somewhat to my surprise, I think it can. According to some swift calculations the hardware requirements for Visa level # of transactions are large, but not problematic (<10 TB of Blockchain a year, 20-30 MB/s writing and < 1Gb/s of traffic at peak.) To make sure though I wondered if someone had a good source for the pricing, operating costs and depreciation of High level server equipment Masternodes would require?

I’m mostly doing these calculations for my own piece of mind however, intend to write down my findings once I’m confident and checked everything. It’ll take me some time though. It somewhat surprises me that it is sort of common wisdom in the Crypto community that scaling is such an issue. Because I don’t think it’s true, Visa levels of transactions are demanding, but still at a level that can be solved using existing hardware like SSDs and GPUs, just like Evan says in his Medium paper.