Economics of Incognito Network

I think you have an interesting point on validation options:

  1. Buy a pNODE for $400 and self stake with 1,750 PRV ($2,200+) for a total of $2,600+ investment to get 100% of the rewards of that one pNODE; or
  2. Spend $2,400 and get 6 staked pNODEs and get 210% (6 x 35%) the rewards.

The advantage of going with option 1 is that while your rewards will be less than half of option 2, you will still hold 1,750 PRV.

The advantage of option 2 is that while you won’t own 1,750 PRV, you get more than double the rewards of option 1.

I just want to make sure we don’t forget to value owning the PRV in option 1.

I think reading through this thread in its entirety will help clear some things up: Some in-depth questions

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Hi @sato

@Clint makes a very valid point…

You seem to be driving that decentralization will only happen through monetary value, which may ultimately affect the purchase or funding of nodes. I don’t see this as a problem because your assumptions are based on everything (payouts, team nodes, network utilization) staying exactly the same and the price of PRV going higher. Based on our dev teams dynamic outlook and ability to adapt, to the ever evolving project, I highly doubt this would be the case.

Your thought experiment is fun for thought minded to play through but it can easily lead people to have a negative outlook when it’s not the case.

I would disagree with this. If this development continues at one point there would be only pNodes running the whole network. In this case 65% of all PRV will over time go the Incognito. Thus we are as long decentralized as they want it this way. They could setup easily set up a lot of nodes on their own with all these PRV or even simpler just decide to stop the funding program in order to get rid of all the other nodes. Sure this might not be happen because they are nice guys. But in my opinion the fundamentals of a chain needs to be trustless. Otherwise we could just trust a different third party or incognito as well and let them simply run a database with several severs like Visa, Mastercard etc. No need for a blockchain solution in this case. I want this project to succeed long-term and in this case it does not matter if I trust the team right now. In 30 years or more others will have the control, who knows what they will do with all the PRV?

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@sato, a lot of funded PNode owners save up enough PRV rewards to fully fund the PNode themselves. Validators do the same thing to spin up their own vnodes.

I’ll rather unstake my vNodes then, because pNodes are giving me much more return. So why should I set up another vNode then @Gold ? Just wouldn’t make sense…

Its not about money.Its about so called decenteralized network.We all(most of us) care about it.Money comes after that.

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@Nubex, that’s good your pnodes are earning well. I wasn’t suggesting you should spin up vnodes. I was simply saying that there are ways, despite the cost of PRV, that users can build up to fully funding their own nodes.

Why fully funding own nodes if the return is much higher with a pNode? You didn’t get the point I mentioned. The only reason why I would keep my vNodes is if the price would go up. If this wouldn’t be the case, I’d rather unstake, sell my PRV and buy pNodes from the $ I get.

If you have earned now 1750 PRV with your pNode. You have two options:

  1. Buy more pNodes -> 1750 PRV * 1,30 USD = 2275 USD / 399 USD each Node you will get “5,70” Nodes. If you earn 10 PRV with one node per week you will earn 57 PRV every week then and you get 35% of this so finally 19,95 PRV for you.

  2. You set up your own self funded Node price 1750 PRV = 2275 USD. You are going to earn only 10 PRV as you own one node.

In this case what are you going to do?

Most people will choose the pNode with funded stake then I guess. As this is what gives a better return. But in this case 65% of all distributed PRV will always go to incognito. This is dangerous for further decentralization. In a Proof of Stake Blockchain the one who owns the most coins can control the network, because you need them for staking in order to be able to validate. Thus if the actual change to more funded nodes continue, we might will have decentralized “computers” running in different places but incognito will finally be in charge of them. If we really want this movement to succeed we need to find a solution soon. This is at leas my opinion.

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are you saying that pnodes that are shared are selected more often than vnodes that are not shared? or even fully owned pnodes?

NO! The scenario @sato was explaining, is based on the assumption, that vNodes and pNodes are selected equally.

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ok. Then I must be missing something. What is the issue;

  • the 65% from shared pnodes they take being unfair or unsustainable for vnode owners?
  • Decentralization of the entire incognito network with pnode/vnodes that aren’t run by incognito team?

Those are separate issues being mashed together.

am i missing something?

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@sato, with pnodes, you can start with the funded option, where you earn 35% of what the pnode earns. You then can save up these rewards and use them to change your pnode from funded stake to your own 100% stake. At that point, you earn 100% of the pnode’s earnings. And if you want, you can always unstake, withdraw your 1750, and cash out at whatever the current value of PRV is.

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I like the idea of having community members themselves providing capital for funding the pNodes. I think that’s a neat idea.

However I haven’t crunched the numbers to calculate whether or not that would compete with the current return on the provide tab. I rather have more PRV in the provide tab as it adds liquidity to the network.

The plan is once all the PRV is created, your earning a higher percentage of the transaction fees. The more transactions on the network, the more money your making. I do understand your concern with having the majority of the PRV associated with a specific account or entity though.

If the price could increase, it would make sense. But theres no reason for the price to increase, so therefore it makes no sense getting the 100% node.

For this scenario having 1750 PRV:
I’d rather take the 5,7 pNodes * 35% of earnings = 199%, than only 1 vNode * 100% of earnings = 100%

I hope this was finally clear enough to understand :slight_smile:

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In a proof of stake system, the one who owns the coins does finally control the network, because you need coins to become a validator. Thus we are having a problem when everyone uses only pNodes with funded staking because:

  1. No one owns the PRV instead it is borrowed from Incognito
  2. You get only 35% of the rewards while 65% goes to Incognito again
  3. This 65% PRV could be used to set up their own nodes
  4. Potentially incognito will always control 65% of the network
  5. What if Incognito decides to stop borrowing you the PRV? You can not run your node anymore.

I want to say again I do not think the actual team is evil and planning those things. But I want to see this project to be successful long-term. Google also started saying once don’t be evil… Moreover, the advantage of a blockchain is that it runs trustless aka you do not have to trust a third party at all. Once you have to trust someone else to be honest with the network we do not need a blockchain. In this case, if we trust the actual team they could simply set up a centralized version and act as a privacy crypto bank we just send them our funds and trust them to do the right thing by keeping our privacy up. But this is not what is blockchain about, right?

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so your real question, if you take out the idea that they are hording the coin to control entire network, is: where does the 65% of shared pnode earnings go?

would that help answer your question and either help feed or eliminate your fears?

maybe a throw in question; what percentage of nodes on the network are shared nodes? would that be a helpful stat?

I really honestly cringe each time one of these discussions starts, because its a knee jerk reaction to bad rewards output and the expectation is to drop everything from the roadmap we are all counting on them following to focus on something different, that may or may not be necessary right now in their development plans.

Not that suggestions aren’t good. I just think coming out swinging without OBVIOUS factual information probably does more harm than good.

If the complaint is that there are a LOT more nodes on the network recently and rewards have gone down noticeable, then I agree. I think that has been discussed though, right?

Mike shows a 22 PRV per vnode average over the last 4 weeks: Weekly Earning Statistics for 12 vNodes - Week Ending Aug 29, 2020

It doesn’t matter where the 65% go. Because if they really need so much PRV to run the project we do not have a sustainable economical token system.

If they need more FIAT for financing the project what they would need is a higher PRV price then. But if we continue like this there will be no demand at all for PRV right now, because no one is going to buy it for staking anymore.

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I am not complaining about earnings in general.

Even if we earn 20 or 30 per node there will be more demand for funded nodes instead of self funded nodes. This will only shift once the price for PRV goes further down.

So we get a non decentralized network on the long-term or a really low price like .65 USD / PRV (only if the price is lower than 65 cent it is more profitable to set up a self funded node) which will make the system not sustainable long-term as well.

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