The Economics of Masternodes...Does it really work?

BolehVPN

Active Member
Nov 24, 2014
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I understand this has been brought up before but thought I'll put it up here again for discussion.

As I create this thread there are 1303 masternodes. This means 1,303,000 million dark coins locked up out of 4,911,421 drk available. This means more than 26% of darkcoin's economy is locked into coins that are effectively locked out of circulation. With the increase of the masternode reward, this percentage will increase again.

Now I understand that yes, there is the possibility that when masternode hosting is no longer feasible whereby the MN rewards no longer cover hosting (either due to too many MNs or the price of dark coin dropping), logically, people would release the darkcoins out of the master nodes back into the market and try to sell the drk.

But would this really happen?

I host a masternode and in a way it's a sunk cost. I've put in the money, locked it up in a masternode and if drk coin prices falls, I would just keep it running anyway in the hope that drk's price will recover. If masternode rewards drop too, I would most likely still keep it as a masternode as there seems to be little else I can do with drk atm except to generate more drk (with the drk's marketplace now being limited).

To add more pain to this, DRK is NOT easy to acquire and only a handful of exchanges have a decent volume. In fact getting enough for a masternode is not so easy as it is. Mining is also out of the question in generating meaningful amounts of drk. Why people mine drk when it doesn't cover hardware or electricity cost just shows that people are often illogical in the hope that 'one day this will pay off just like BitCoin'. The same goes with master nodes.

My concern is that with the creation of too many masternodes combined with the scarcity of DRK and people mainly acquiring drk to make more masternodes, DRK's value as a currency diminishes especially when we're still in early stages with a limited marketplace and merchant ecosystem and most coins are being hoarded as master nodes. In a way the MN system rewards hoarding even worse than Proof of Stake since with PoS you are not required to hold an arbitrary number of coins to 'mint'.

Just wanting to hear everyone's thoughts on this.
 

oblox

Well-known Member
Aug 6, 2014
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It's supply and demand. As more supply is sucked off the market, the price per Darkcoin increases. The increased price per coin reflects in higher "value" to miners as well as those running masternodes. Some masternode operators will sell some of their coins, be it the generated coins from operating a masternode or the 1k block that secures the operation of that masternode, but it's a balancing system. On the other side of the coin, there will be investors running the numbers and seeing that operating a masternode can generate pretty healthy returns annually. Those are the people that will be buying up the supply that hits the market. It's hard to really say anything when the coin isn't even a year old but the feedback system should allow an equilibrium to be made for those willing to hold and run masternodes.

The liquidity certainly isn't on the exchanges right now making it very difficult to accumulate multiple masternodes at any given time (occasionally you will see large multi-mn blocks available) without moving the price. This is what Evan is working towards. As the reward per masternode increases monthly, there is more incentive to run a masternode which means buying coins on the open market. I'd wager most of the masternode owners, especially the ones holding multiple masternodes, are keeping their generated coins in hopes of compounding them into more masternodes. This continues to take supply off the market. Seems highly improbable assuming Darkcoin continues pressing forward that there won't be demand for Darkcoins when the block reward is 60/40 to the masternode owners.

The argument about DRK's value as a currency diminishing when so many coins are tied up off the market is absurd. Maybe in a world where each coin is treated as a whole coin but you have DRK able to be divisible down to 0.00000001. This means every coin that is available could realistically serve as 100,000,000 units. It would make the price per WHOLE Darkcoin incredibly high when people start transacting in fractional units but doesn't change the utility of acting as a viable currency being that there are plenty of outstanding units to serve usage.
 

UdjinM6

Official Dash Dev
Dash Core Team
Moderator
May 20, 2014
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Few thoughts from me too ;)
- As for the price/liquidity on the market - I don't see anything unique to DRK here. Try to acquire or sell 30K BTC for example... It was easy in early time of Bitcoin though - remember 30K pizza guy? ;)
- The difference between PoService and PoStake as I see it is that MNs do not secure the basis of the network (blockchain) - miners do, so you still have all that nice PoW features and MNs "only" provide some applications above it.
 

Miner237

Well-known Member
Foundation Member
May 28, 2014
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i am by no means a coin analyst or mathematician but that is a lot of duffs 100,000,000x 22mil.. and also

the fact that its hard to acquire should drive price higher as we reach equilibrium between the masternode owners, bag holders and sellers of the coin from mining pools. We need more merchants to accept digital currency and people to use it to pay each other for personal debts and hired help.The time of tapping your smart phone at the register and transferring your fiat is here that is one step from instantx. The bigger problem is for exchanges and the tax man to track when you exchange it back to currency in your country.
 
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thelonecrouton

Well-known Member
Foundation Member
Apr 15, 2014
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I host a masternode and in a way it's a sunk cost. I've put in the money, locked it up in a masternode and if drk coin prices falls, I would just keep it running anyway in the hope that drk's price will recover. If masternode rewards drop too, I would most likely still keep it as a masternode as there seems to be little else I can do with drk atm except to generate more drk (with the drk's marketplace now being limited).
Little you can do with DRK? Among other things, I just bought 10 1oz silver crocs via www.bitgild.com, with Darkcoin, with my last month's MN earnings, no fiat involved anywhere. I buy plenty of stuff direct with DRK, or with DRK via BTC.

And if someone wants me to work for them, I accept DRK, silver, gold and lead. :D

Shiny:


The 'liquidity' argument is bogus. x-amount of DRK costs whatever it costs on the market, it is what it is, the spot price is just that, whatever price the last trade was at, it doesn't mean you can buy as much as you like at that price. Same as any other market.