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Economics of Incognito Network

#1

I was thinking about the long-term stability of the network and some issues came up to me. What do you think guys, do I miss something?

I can’t imagine that the network can run stable and decentralized in the long-term, within our economical rules.

Right now if you run the numbers it makes economically already more sense to run a physical node that offers a funded stake vs an own full node, where you have to stake 1750 PRV.

Example:
You set up your own node -> You buy 1750 PRV costs today around 2275 USD
Earnings in this case actually around 10 PRV / Node per week so let’s claim you earn
40-50 PRV a month with one node -> Max APY right now 34% (measured in PRV not FIAT)

Example funded stake
Costs only the price for the node, right now 399 USD (306 PRV) but looks like the node tree will bring down these costs. So let us claim on average 349 USD (268 PRV) each node. If I invest now 2275 USD as well I will be able to set up 6,51 Nodes (sure normally only 6 or pay a bit more for 7). Earnings in this case 10 PRV / Node per week x 6,51 = 65,1 PRV so lets claim you earn
260,4 PRV - 325,5 PRV a month with this setup -> Max APY right now 121% (measured in PRV not FIAT). Yes, I know you will get only 35% of the earnings but even then still much more than running an own node.

This brings several problems up for the long term success of our project in my opinion.

If PRV gets more expensive it will get more and more attractive to use the funded stake model instead of running a self-funded independent node.

Thus on the long term, there will be only funded nodes running, all these nodes using funded stake which comes exclusively from the core team -> They accumulate more and more PRV and will have the biggest pockets aka have kind of full control over the network because they get always 65% of the earnings while the people who run the nodes getting only 35%. Once we reached this situation this possibly won’t ever change as the PRV is already distributed then and less and less PRV will be distributed year by year. So the core team can always take over control of the network if they wish.

Another problem in my opinion I believe that someone who has to invest in a full node who has to stake 1750 PRV on his own will be much more committed to the project. As they have high stakes in it.

And another problem, someone who buys a node for 349/399 USD is not creating any demand for PRV at all. Maybe even has no interest in the network at all and wants instead just a machine that creates a return in FIAT. So what could happen is, people, buy a node for USD and instantly take their rewards and sell them again for FIAT and so on. This will bring down the price of PRV until we are close to 0 when everyone will finally shut down their nodes. Game Over.

Moreover, I’m not sure if it is good for the security of the network if it so cheap to run a node? If we should get big it would be a bargain for a whale to buy some nodes and take over the network as they only need to control 1/3 of the nodes in PoS for this.

I hope we can find a long term working solution for this. Because this project has so much potential and is extremely important for the whole blockchain industry. Once blockchain goes full mainstream a great privacy solution is inevitable. So let’s see if we find ideas to make sure that we have economical rules from where privacy can thrive in a decentralized and secure way.

My idea to solve this problem:
Everyone from the community not only the core team can put his PRV in the pool for a funded stake. The split between node owners and funding pool needs to be dynamic not fixed like now at 35/65. This dynamic should try to reach a result where someone who runs a funded node will make up to 25% APY based on his investment of around 399 USD for the node + fictive rental costs for space + network + electricity. To make it easy we could say 500 USD is the base for this calculation. Like mentioned it should be calculated dynamically once a node gets selected how much PRV the node owner will get and how much will go back to the community pool and the DAO. Funded staking should still only be available to physical nodes as people will not shut them down quickly before they have not gotten their initial investment back, thus the network will remain stable and decentralized. If the pool has too much liquidity, the ones who bring the liquidity would by market mechanisms pull out their money if the pool contains too much liquidity and setup own physical nodes or virtual nodes or use it to provide liquidity for the pDEX (this could be done also automatically as well if desired from the same pool we use for the nodes). I think this could be a way that helps the network to grow in a decentralized way where even with a high PRV price everyone can become a validator and on the other side, big investors would have high interest to keep investing and hold PRV and bringing this way liquidity to us. Please let me know what you think guys? I hope we find a proper solution so we really can succeed with our privacy blockchain mission.

@sid @Mike_Despo @fitz_fiat
I just tagged you guys in order to get maybe further insights, because you published sometimes your earnings :slightly_smiling_face:

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Decreasing trend of shielding and trading volume
#2

So many assumptions.

1 Like
#3

I guess you mean the PRV earnings, these are no assumptions. Here you can find actual reports according earnings from several node owners :slight_smile: Weekly Earning Statistics for 12 vNodes - Week Ending Aug 29, 2020

#4

Thats a really logic thought @sato!

In reference to the earnings, I’ve had the same earnings as Mike (Node Earnings Statistics - Weekly Update 9/5/20), just a bit less average earnings and I was also wondering about the impact of pNodes if they might be better than staking the whole amount. If it’s not needed to stake the 1750 PRVs, where will be further demand for the coin? Then my investment would go to 0.

I really believe in the Incognito project and the Team is doing a very good job. This problem really must be solved anyhow, as if not we’re going to hit the scenario you described.
Your proposed solution to this problem, seems to me very logic and well thought!

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#5

Yes I also do believe in this project and want it to succeed, because in order to make the whole blockchain industry a success we really need a good privacy solution. Incognito is so far the best approach to solve this and we really have a great chance to become a huge successful privacy movement. So I hope we find a good way to solve these issues :slight_smile:

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#6

So the entire node structure needs to change because vnode payouts aren’t as good as they were a month or two ago?

What?

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#7

@Clint this is not what @sato said. He described the Szenario what will happen if the earnings change. I’m running some nodes and I wouldn’t do this just for fun. Of course the earnings play a role, but also the infrastucture. If pNodes get rewarded 35%, the rest (65%) goes to the core team, so it will never be possible to get a decentralised network, as 65% always are held by the team resulting they’re having the full control of the network.

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#8

They sell pnodes at an affordable cost to get everyone involved and the opportunity.

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#9

To succeed we need a decentralized network. Right now there is a shift that makes it economically seen more interesting to use a node with a funded stake. Thus if this continues, one day there will be only validators in the network who use a funded stake. Here starts the problem as the node owner gets only 35% of the earnings while the other 65% goes into another wallet. This would mean on the long term that one participant would own 65% of all PRV tokens. In this case, this person would control the network. Because of this, we should find other solutions, to make our network sustainable in the long run.

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#10

They offer them at that cost to make it affordable for those who want to get into privacy project but can’t afford full node.

Believe it or not, for some it’s about privacy and the project first, making profits second.

#11

Yes and they should continue this approach (selling nodes) but it needs to adjusted in terms of the funding pool.

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#12

Thats not the point. The main point is the decentralisation of the project, which is not realizable with 65% from the pNodes going to the core team.

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#13

65% for pnodes has always been there

You just now realize because vnode earnings dropped? Why triggered all the sudden?

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#14

You do understand that decentralized has NOTHING TO DO with who takes the reward profits and has EVERYTHING TO DO with the pnodes not being run by the same people in the same locations on the same ip addresses the same ip blocks in the same counties.

Again, has nothing to do with reward payout.

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#15

One thing that wasn’t factored into your initial post (sorry if I missed it) is the space for the pnode. With one or two nodes, and with the node tree maybe even with 10 or 20 the space doesn’t matter. But if someone has or wants 50, 100, or 500 nodes you probably have to factor the space for the nodes into your costs. If you get a two-bedroom apartment so you have a bedroom just for nodes you can’t ignore the cost of that bedroom in your costs.

This is a plus for vodes for me, and when I do get a pnode it will just be a novelty to have in my house.

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#16

Please do not mix up rewards with decentralization.

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#17

Has changed already in the past Node earnings split changed to 35/65 from 25/75

But this is not the main issue. The problem is that it makes economically now because of the high price for PRV no sense anymore to fund your node. Instead, people will shift over to a funded stake. And in this case most of the earnings will always go in one wallet of a third party. This leads to having them one day so many PRV that they will be able to control the network. So no decentralization. No one claims that they will act evil intentionally but hey blockchain ist about a trustless setup. If I have to trust a third party to not jeopardize the network then the fact it is a blockchain becomes nonsense. I can also decide then to trust a bank or another third party. No blockchain is needed in this case.

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#18

Yes you are right according space. But I just wanted to make a quick example :slight_smile:

Let’s assume PRV goes to 10 USD, if we do the math:

1 Node = 1750 PRV

What are you going to do setup a node for 17500 USD or take the same money and buy around 50 Nodes?

I guess everyone would choose 50 pNodes vs 1 vNode. Which is ok. But the problem is 65% of the earned PRV go to Incognito. As longer this goes the more control they will have over the network.

#19

I made 3 times as much with my vnode’s this week as I would have if it sat in pool.

Speak for yourself.

Vnode earnings are down. It’s been reported. They will go down more when tree is released. So will pnode earnings.

I thought this has been discussed. The hope is price rises as earnings drop and the get close to equaling in total $ made.

This isn’t about decentralization, this is about profits and rewards and greed.

Please don’t mix the two.

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#20

I cant speak for you, maybe you look for the profits. Which is ok as everyone has different interests. I care mainly for the long term success of the project, which is why I came up with this.