I'm trying to see for myself what the correct analysis is of our economics as I agree with at least one point in regards to our economics design. There is a disparity in profit ratio between miners and masternodes. This disparity becomes larger when price rises as masternodes have an invariable cost. This has always been clear to me. I consider it to be fact.

Proof of work / masternode economics

What follows is theory that could be wrong, could be right. It should be further analyzed.

Miners push price upwards due to the cost of mining (theory). There is an economic cost involved to mine coins and therefore they will not want to sell at low prices or at any price. Miners create the supply at great expense and therefore determine or at least have a strong influence on the base price level of a coin. It creates limited liquidity at low prices, because miners need higher prices for their coins to break even or make a profit. Market liquidity is created by miners at higher prices.

45% of the minted coins (in Dash) are however moved to the masternode entity. Masternode returns lead to a downward pressure on the price, because they receive coins whose value far exceeds their economic cost to have them minted. The problem becomes very significant when price rises. Masternodes have the ability to sell their return at low prices or at any price. Market liquidity is created by masternode owners at any price, even at low prices. MNOs are making a profit with their MN returns, but the entire MNO entity has the potential to push the price downward (continuously). Price probably finds an equilibrium again, when the price is in a certain range that doesn't hurt their overall capital value anymore. When masternodes sell their return it effectively results in an overall high network cost, which may indeed not be directly reflected in transaction costs, but that cost is indeed indirectly present and should be taken into account.

Price is determined by demand. Demand is determined by many factors. Demand pushes price upwards, but in Dash this upward pressure is countered by the pressure of masternode owners selling their returns, which they received at low cost. I tend to agree that it doesn't matter whether they sell or not. The fact that they can, will lead to this downward pressure at some point. This doesn't happen with miners. Price goes up, leads to more mining hashrate and increases the difficulty accordingly. It effectively balances out their returns (measured in fiat). This is why toknormal refers to masternodes as zero difficulty miners.

I am leaving out the fact that masternodes need to purchase 1000 coins, which causes upward pressure on the price. Likewise miners need to invest in expensive mining equipment, but this has no upward pressure on the price. Dash likely has both an upward pressure mechanism (high return for MN creates demand) and a downward pressure mechanism (high return for MN creates sell pressure at any price) in its economics design.

In the end it really comes down to the theory whether mining (hash rate) determines a base price level or not. It seems this is a concept which is getting lost as time goes on. It is the oldskool way of thinking present in the crypto world, before proof of stake and other designs became a thing, which are driven by demand only. Is this economics theory for PoW mined coins correct or not? This is what should have been discussed more, as it determines the direction we should take when it comes to our block reward split.

The Dash DCG/MNO community seems a little bit too confident in my opinion that we have an abundance of hash rate and therefore the block reward share for miners can be decreased. The decision is oriented around the assumption that masternode owners are better holders than miners, but this is indeed irrelevant. It is the fact that masternodes get coins at low to no expense which dampens price appreciation. If all masternode owners would sell their return on a weekly or monthly basis, the problem would probably be more visible. Because a share of the masternode owners do not, the effect is probably not that visible or the effect is delayed (spread out over time).

Any reasoning in terms of environmental impact is largely irrelevant in regards to our economics.

Any mentioning of capital gains tax or otherwise should be considered irrelevant as it is external to our ecosystem. There may be a point here, but it is outside our core economics design. This is simply out of our hands and there is nothing we can do about that. It pollutes the discussion in my opinion.

This seems to be a bit of a clash in (ideological) thinking when it comes to our economics. Ignoring this potential flaw in our economics will not make it go away.


Spork 21 - 60% block reward share for MNs

I never wanted the Dash MN return to go beyond 20% (first design). I think 45% (second design) is far too much. 60% (third design) seems a little outrageous to me. I know the intention is absolutely positive. It is intended to make our store of value better. It has nothing to do with making masternode owners richer. It is intended to beneficial for everyone. The line of reasoning is that masternode owners are better holders (irrelevant argument) and it increases demand for masternodes (correct, but perhaps a simplistic analysis) which leads to a better (perceived) store of value.

The problem is, if DCG's analysis is flawed and I always suspected it is, it has effectively made our economics even worse. That's why I wouldn't have touched it, until the matter was better understood. DCG should be fully focused on Dash Platform & Dashpay and nothing else to be honest.

Additionally, the fact that MNOs voted for the change, doesn't mean anything. It's just basic psychology, follow the leader who may have (unintentionally) gaslighted most of the community with potentially entirely incorrect assumptions. Additionally, MNOs may simply have decided to give themselves more out of self interest, unaware of the full effect it may have on our price or even the attack (troll) vector it creates for our adversaries. It looks bad, even if the intention is good. The fact that miners accepted it, also doesn't mean it is the right decision.

If the basic theory described above is indeed correct, masternodes would need to take a counter intuitive decision and lower their return, which should result in a much higher price for Dash. This should then give them a much higher profit in terms of increased capital value for their overall Dash holding. Even though their return in Dash for running an MN is much lower, it would still be profitable in terms of USD. In that case it should not affect our masternode count, as it would still make sense to operate a masternode.


PS: I'm aware that (yet) another block reward split is going to be proposed.