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.
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.