How and why this 'pressure' on the investors is manifested? Should the investor be interested in how much the distribution of the block rewards is skewed from an 'optimal|ideal|equilibrium'? He cares about the emission schedule and what not, but not about the 'inner' distribution of rewards and who bears the cost of producing the block
Of course an average "investor doesn't care" about the inner distribution. The question is rather, how does reducing the mining reward reduce the aggregate mining cost passed on to the market ? That's the aim of the DCG proposal. (Although it's stated in terms of miners supplying less Dash to the market but actually, to be consistent with their premise that miners sell to cover costs, it should be restated as "drawing less fiat from the market").
Mining costs are denominated in fiat (because electricity companies). Therefore it's the fiat cost that's passed to the market to pay. To achieve the objective of "drawing less fiat" therefore the mining costs would have to be less (in relative terms). For the mining costs to reduce, competition for the next block would have to also reduce. That only happens when demand for the coin overall reduces, not necessarily by changing the reward ratio. (As quizzie has most helpfully
pointed out above).
In my observations, a reduction in reward ratio
does not manifest in reduced aggregate mining costs. Instead it manifests in reduced marketcap share and reduced capital influx relative to 100% mining reward coins. In other words less competitive as an investment.
Since the market (miners or investors) covers the mining cost but only receives partial supply, it reacts by devaluing the balance of the supply it doesn't receive, since this represents the supposed "value added tax" to pay for the masternode network. It can do this happily without masternode revenues becoming unprofitable (they're at near 100% margin). Even miners can stay viable via difficulty adjustments if necessary. The only aspect that loses out is the capital value of our holdings. That decreases
relative to competing 100% mining ratio assets.
When I say "devalue" I don't necessarily mean devalue in absolute terms but relative to competing mined chains. That's why ranking IS important. Not per se, but because it shows up the opportunity cost of our protocol decisions such as reward splits.
Why it is the market that intervenes to massacre high margins?
There's some commentary about this
back here. See from "consider why bear markets happen".
Also here on the problem of distinct groups of holders at different cost bases and chronic "profit taking".
But shouldn't in theory reducing the mining reward reduce the aggregate mining cost passed on to the market?
mining rewards reduced => some miners shut down (buy masternodes instead or exit altogether) => more rewards for other miners, aggregate mining cost reduced
The equilibrium would be restored with less hashrate, but there is plenty of it to secure the network left.
What you are saying is that in practice the miners don't shut down, but continue to mine at a reduced profit? So aggregate mining cost stays the same, but there are more masternode rewards to be sold.
That would explain it. What is the evidence for it? Is there a miner here that can confirm or add some info?
I understand the second part now, thank you.