...and on establishing a protocol that delivers margin parity between masternodes & miners so that the masternode network can grow without becoming an increasing deadweight holding the marketcap down.

Always remember certain hard facts:

1. Masternode revenues are revenues

2. You can't have a revenue without a cost. It's double entry bookkeeping.

3. It's incumbent upon Dash investors to do the due diligence to determine what the "cost side" of their revenue equation is. Where is it, how much is it and who bears it (Clue: It is NOT the collateral cost)

4. Masternode R.O.I. is expressed in the wrong units on Dash websites. The "true" ROI should not be expressed as (reward/collateral) but (reward/collateral)+(capital gain or loss)

5. Following from point 3. it turns out that the "cost side" manifests itself in this extra term for ROI: i.e. excess (uncompetitive) masternode margins are paid for by a capital loss

That is why - as the masternode network grows - it becomes increasingly difficult to raise the marketcap. Setting MN margins at approximate parity to mining margins would solve this and remove the glass ceiling from growth. MN margins would also grow (by the real equation above, not the fake one denominated in Dash)

Thankyou for taking the time to write that most excellently articulated and instructive account of the protocol policy. Very useful.

I can see the logic behind it given certain assumptions, but it's those assumptions that I feel are totally unsound. In particular the delineation of "circulating supply". I see this as arbitrary because masternode collateral is "circulating supply" just as non-masternode cold wallet supply is. Masternodes change hands and get churned and are tradeable assets just as any other part of the supply is.

I don't think supply growth is the problem - or at least not the fundamental one. We've got it whatever the level of nodecount there is and node collateral only mitigates this while it is growing. As soon as it stops growing we've got the problem again. And the nodecount ceiling isn't even determined by the reward ratio but the fragmentation of the supply which is probably exponential in nature so we'll just hit it again very quickly.

It's this equilibriium condition that should be addressed and that's where the margin parity approach would be much more successful because it optimally minimises the gross fiat budget we require to collect from markets to sustain the coin IMO.

Look - only this morning. 18 masternodes bought and 16 masternodes sold on the same exchange. That's "circulating supply" !  



The answer shines with clarity
It's margin parity
Never be so bold
To say nodes are never sold

Profit-takes enthrall
But not in the protocol
A smaller fiat call
Is sure to buoy us all

You have nothing but supporting evidence in front of you. I was careful to distinguish between saying that Masternode Subsidized Mining WAS going on and that it was supported and incentivized by the protocol economics.

More broadly, you know what worries me about this whole strategy ? It's that it looks like an exit plan. I'm not saying it IS one, I'm just saying it looks like one and that is worrying because I'd quite like to stay invested in this asset, at least to a significant extent long term and don't want to be forced out of it by yet another humungous pump & dump.

Against that background lets look at the what's been proposed (and supported by voting):

1. DCH presentation acknowledged that the reward disparity had been both positive and negative for Dash, but that one of the negative effects was instability - we got a huge pump and huge dump. So what to they propose ? INCREASING IT EVEN MORE !  

2. The declared forecast effect of that is that another 1000 or so masternodes get sucked up which will trigger another masternode gold rush pump

But what happens when we hit the next ceiling ? Lets say at 5500 or 6000 nodes ? Why can we not expect exactly the same result ? A massive dump back to the dark ages. At that point the supply shock will be phenomenal because we'll have the dual effect of drainage for MN collateral hitting a brick wall PLUS most of the new supply hitting the market from a huge number of masternodes generating 100% profit rewards.

That is just insane. It's clearly not a sustainable policy and the only reason I can see for promoting it is to invoke an exit pump in time for the next crypto bull run. The way to "stabilise" Dash's store of value would have been to set the margins at parity.

Like I say, I'm not saying this IS the plan, I'm just saying it LOOKS like it. It's an incentive to dump before the MN count hits that next ceiling - at least I'm interpreting it that way and if I am the chances that many others are too.

Don't do the gatekeeping strawman thing now qwizzie.

You know that Binance remark wasn't the essence of his point. It was the broader issue that MSM (Masternode Subsidized Mining) is now a thing - or more significantly is both supported and increasingly encouraged by the Dash protocol.

You now have 2 examples of the principle that the market acts independently of the protocol to resolve margin disparities. One is that it can devalue the capital value of the coin to effect this (which it has done to a greater extent with Dash than it did with competing 100% mined assets as thunderjet's post describes) and now we can add MSM to that.

At a rough guess, miners generate the equivalent of 12-13 masternodes per week. Masternode subsidized mining is a scenario supported by this coin's protocol. It isn't possible in any other mined coin so to whatever extent it occurs in practice it's a valid point because it recovers the lost mining reward and changes the economic incentives for miners.

It's just yet another example of the flawed assumptions behind the current reward split policy - that masternodes and miners are a mutually exclusive group. (Though maybe that's the whole idea, if undeclared. I remember Evan wanted to implement a system where you had to hold Dash to mine in the first place. I can't remember what it was called).

It's also another example of how where policy of margin parity would be effective since it would mitigate this behaviour.

Why don't you take a break from your gatekeeper role and actually discuss some of these issues. It would be healthier all round. thunderjet has just made a very significant point...


You don't need evidence for this. The fact that there's economic incentive is enough. It explains a great deal.

Also look at the market movement this morning - 18k or more in a single trade out of nowhere on just 1 exchange that I looked at. So don't say that masternodes don't churn either. They do, potentially as much as the rest of the supply.

So miners are using masternodes to subsidize uneconomic mining ? I hadn't thought about that scenario but now it starts to make sense.

How is that consistent with the "we don't need all this hashrate" policy ?

Surely that is yet another indication that the "sweet spot" in reward ratio has been wrongly identified and ineffectual since the market is simply correcting for it. (At the cost of unhealthy concentration of supply).

Very interesting post.

I'm sure there's a growing market in retirement packages for people with this view.

BTC accepted.

That's very constructive of you.

How about simply addressing the material of the issue at hand. For example you could have said:

"...but Tok, your point about the "cost" of MN reward being additional to mining cost is flawed because the superblock and blocks containing MN reward are automatically generated and their cost is not borne by miners" (Because I'm not actually sure if they are or not and I could have been wrong about the granular mechanism by which the reward split is invoked which would at least mitigate the adverse impact that MN rewards have on our marketcap) And that could have lead to an illuminating exchange about the granular economics of the protocol

or...

"...but Tok, you know that we're still in the speculative "pricing in" phase. When Dash platform arrives there will be service demand that leads to the need for costly service provision. This will bring MN and mining margins into parity and create demand for utility at the same time. We are seeing this now being priced in"...which would have lead to an illuminating discussion about the type, quantity and value of services that "platform" could potentially attract

or...

"...but Tok, your theory about supernormal profits is misplaced. It applies to competing businesses in a common commercial sector and cannot be similarly applied to mining margin vs masternode margin"...in which case an instructive debate about whether MN and miner economic priorities interact in a complimentary or adverse way to support the capital value of the coin

or...

"...but Tok, that's all very well, but none of us give a sh* about optimally tuning the fundamental mechanics of this coin's economics, nor understanding it. We just want the thing to pump to kingdom come so we can get out of here and retire, so stfu"

But instead it's down to a question of whether I'm "wrong or right". Well there's nothing to be wrong or right about - the numbers are there staring us in the face. Likeways the results of 6 years of trading. I personally like to understand the mechanics of these things even if others can't be bothered and prefer to just sit on their hides with their thumbs in their mouths while waiting for a pump to turn up & save their *sses.

There's likely to be a Miner/MN ratio "sweet spot" and the danger of not identifying it categorically is that anywhere outside it will simply stall the growth of the coin entirely (relative to competing 100% mined offerings). I gave my opinion on where I think that "sweet spot" is in the previous post: margin parity. Ryan has given his based on optimising masternode incentives. My problem with that approach is that he's using the wrong units to identify key parameters like supply to markets & ROI since they don't take into account capital gains/losses. That and the fact it has not demonstrated success in 5 years of trading so we're too far over to the right IMO and now we're moving even further to the right that places us potentially in chronic negative growth territory (relative to competing 100% mined assets).

I wouldn't object to that at all. The reward ratio could be disastrously wrong and we could still spike up in spite of it. The Russian's used to put cast iron into Space and I'm sure the market could lift 5000 nodes, passively leaching millions of dollars of value per week out of the ecosystem.

The question is, for how long ?

Well that's good then, because it won't !  

(It is however the basis of the protocol revision being made to improve "store of value").


Well it's like this: If your protocol dictates that you require to draw up to twice as much fiat from markets to keep your coin alive compared to competitors then maybe that explains why it only has a quarter to half the value that they do. So you're right it's only my opinion, but only in the same sense that if I look out the window and see a wet road, I assume it's been raining = "only my opinion" but the leading logical candidate all the same.

Trading Cycles do not remotely account for this. They operate in channels and you're being generous in even including us in the same channel as them as we long since dropped out of it.

You make a great job of defending against a line of argument I'm not making.

How does any of that support the idea that a REDUCTION in the proportion of mined supply is going to improve our store of value (Given that we already have only half of what other coins do) ?

I really don't agree with your reasoning which I think is simply technical hand waving over cycles. There's no "cycle" by which our "real" ranking is somehow arguably higher than what our current markcetcap says it is.

Not if it's a flash in the pan. Chainlink is this years "Dash 2017" so I wouldn't hold my breath for one of those. We've had 6 years of track record to measure. I think that's a fair amount of time to judge whether diluting the proportion of the supply that's competitively mined favourably impacts our store of value performance compared to similar generation coins.

It clearly doesn't.

So why dilute it even more ?

As long as there isn't broad parity of margin between mining and masternode hosting, the market will simply trash that (empty) margin until there is, taking the capital value of the whole chain with it. That's how you know where to optimally set the masternode margin. If the nodes have a lot to do such that they require to be heavily funded - sure set the reward ratio appropriately. If they don't then set it at parity with mining (or some notional approximation) so we're not having to draw fiat from markets that doesn't go directly into the coin value. That excess is pure overhead that acts to decapitalise Dash as an asset relative to our fully mined competitors. This is exactly what we've seen happening during Dash's lifetime. The massive pump we had wasn't sustainable and we sailed straight back to a nearer equilibrium position after it.

I don't really subscribe to the "...but all other coins lost value too" argument either. I think that is a poor excuse against the background of the split reward ratio being held up as the "answer" to Dash's store of value problems IMO.

I don't think that's very fair. You're taking a snapshot of growth over an arbitrary (and I stress arbitrary) 6 month period which is meaningless (because growth is not the same thing as market cap. One is a velocity, the other is a quantity).

The more appropriate comparison is taking the relative marketcaps. Those represent the relative values of the entire coin supply since birth, which for most of those coins is 4-5 years. The theory behind the split reward is that it should make Dash more valuable in relative terms (ie. have a larger marketcap than those competitors).

Instead it has made Dash LESS valuable.

We have to ask why the split reward has not worked in our favour and come up with some reasonable answer instead of doubling down on an already failed protocol policy. My answer is not that it isn't effective, but that it's been pushed way beyond the point of diminishing returns. i.e. masternodes are receiving more of the mining reward than investors, but the adverse impact on capital growth offsets this so the net effect is a "negative" reward long term since we have to pay for the reward with a capital loss.

Doesn't mean there won't be periods when, due to the pumping of the entire crypto market, that doesn't hold true, but I'm talking:

A: long term aggregate effect
B: store of value performance relative to 100% mined coins

"B" is clearly not working. The way to fix it is to restore the mining reward by a massive margin. It isn't as if we have much to lose. We're not even in the top 20 anymore and are struggling to even attain $100 per coin valuation. The ratio against bitcoin has collapsed completely. It's not even a third of the ATH from 2014 - Dash's year of birth. So maybe people should stop resting on their laurels, believing in "pumps will save us" economic theory and start putting 2+2 together to reverse the trend.

Adoption for what ?

Most people that have adopted Dash, including most of those holders posting in this thread, have done so for store of value. The objective behind the recent protocol proposals and the split reward is to enhance Dash's store of value performance. That was categorically stated by the DCG announcement and original presentation back in December.


Believe this at your own risk I'd say.

For a start, this argument is completely disproved by market observations. I don't know why anybody even tries to promote it anymore. If you really think that investors are buying network security rather than token scarcity then the most cheaply secured mined blockchains would rise to the top of the rankings. But they don't, the ones with the biggest hashrates do - not because they expend the most energy but because they're demonstrably the most scarce.

Scarcity is not a numerical concept (i.e. you can't create scarcity simply by issuing a small number of anything), it's a reflection of the amount of effort required to acquire the thing. In blockchains, the cost of that effort puts an initial price on the next block. It is not a "speculative" value, it's real, based on the level of prevailing competition in effect at the point of mining the block.

A masternode reward coin is obtained at zero effort and zero cost. I can then theoretically pass that on to another holder for free without incurring a loss, and that user can and so on.

On the other hand, the next block reward in a mined coin cannot be obtained by ANYBODY for less than mining cost (dictated by the prevailing level of competition). Even if I held a million bitcoin like the Winklevosses I couldn't. It's therefore far more scarce by definition and a higher valuation follows. This is what we see in markets. It's what differentiates a supply that's 100% competitively mined and one that's inflated on a purely numerical basis since, in the latter case, we're talking ICO premine or fiat type monetary models which are a whole different ball game.

I don't know how this idea that securing the network cheaply leads lead to a high coin value took hold. It is such a bogus concept and embody's such a mis-understanding of how the market values mined digital assets that I didn't really think it would have legs but some people seem to buy it. Even Ryan didn't explain any mechanism by which a reduction in hashrate feeds through to a higher or more stable coin value. "Saving on hashrate" to boost store of value has about as much logic to it as making diamonds out of glass because they're cheaper to produce and thinking there's a market for them IMO.


That is not a measure of competitiveness. By that measure you could demonstrate that a coin ranked at 200 position is "more competitive" than Bitcoin or Ethereum. The point to address is Dash's valuation against competing mined assets that do not have split reward ratios.

There's a very simple reason we're less competitive than them: we have to collect far more fiat from markets than they do, proportionally for each block mined. We need to collect the mining cost PLUS whatever proportion of the masternode reward is sold. As the masternode network gets larger, that overhead gets larger. Our competitors only have to collect the mining cost.

That isn't in dispute.

The question is what value the market puts on that role. Because, since we are not a stablecoin, the market gets to decide what the "pay" is going to be, not Dash. If the market isn't receiving any added value for that "role" (because none of the masternode revenue isn't invested in any service provision activity) then expect it to react accordingly. Capital flows into Bitcoin, Litecoin, Bitcoin Cash, Monero, Ethereum instead since at least with those blockchains the market gets more mined coin for its investment. (In fact it gets the entire supply).

******************************************************
Here's where you're all missing the point.

Monetary reserves don't pay dividends on a "de-facto" basis. If you buy property, it won't earn any revenue unless you actively DO something with it that the market values to the extent that it pays you additional for the service. Just owning the property doesn't give you a return or doesn't "entitle" you to an ROI. Same with bank deposits (at least back in the days when there was something of an interest rate). The bank can't afford to pay you interest just because you've got you money in there, it has to actually PUT your money to work to earn it. Same with real estate - you buy  it and leave it empty, no revenue will accrue. If no revenue accrues, no capital value will accrue either (in a business sense). Buy equity - you don't get a "return" unless the company is actually doing something in terms of revenue generation.

So owning 1000 Dash and setting up a masternode doesn't entitle anyone to an ROI. Sure, we can program the protocol to add more Dash to our balance. You know what the market's gonna do then ?Trash the price of Dash to make sure there's no REAL ROI, because thats what free markets do unless you give them something for their money.

Mining gives markets something for their money - a share of the blockchain more or less in proportion the market's share in the cost of mining it. So mining is not a problem in this respect, 2+2=4 and revenue flows are accounted for without recourse to revaluation of marketcap. Mining supply "hitting the market" is not a problem because the demand is there (endorsed by competitive mining levels) and the market is just being charged for something it already asked for.

Masternode revenues on the other hand ARE a problem in this respect. (If we want them to be worth anything that is). The idea of the masternode revenue is to ENHANCE the capital value of the coin, not erode it. It was envisaged that the masternode network would provide for a higher performance and more mobile MINED asset than bitcoin's. It was also envisaged that that would come at a cost. Fair enough so it was justified to divert an appropriate portion of the mining supply to masternodes to fund this. EVEN to the extent that masternodes might make a little bit of a profit after costs (like miners often do).

But 60% of the entire mined supply Mostly at near 100% margin ?

We are in fairytale land if we think this is going to make us competitive. It is a massive cost to pass on to the market beyond mining and that's why, far from catapaulting us ahead of our 100% mined competitors, it's catapulted THEM ahead of US and this problem is only going to get more chronic and acute the larger the masternode network gets unless we address it appropriately.

The "thoughtful reply" is one that I've laboured add nauseum and that you regularly complain about being over-expressed.

That is that the capital value of your node is not a countable "cost" when it comes to measuring margin over cost of the masternode reward. Also, your remark on "return on investment" is moot because Dash is not a stable coin. The market (not Dash protocol) therefore has the last say on what the ROI is because it depends on the capital value (a.k.a. marketcap) of Dash. So if the market marks us down in that respect - your ROI is zip or negative.

So it all comes back to marketcap, even for Masternode ROI.

Furthermore, as far as our "store of value" performance goes it comes back to competitiveness (of our marketcap) with other mined crypto. If we're not competitive then it follows that our store of value performance is deficient in relative terms. The market will prefer a fully mined coin. So marketcap and ranking DO matter, even by the standards Dash sets itself in terms of ROI, efficiency etc.

You should get a job with a central bank. With your propensity for double accounting you're eminently qualified.