The objective is to control inflation so that Dash can better compete in the market. The network will complete the reallocation gradually over more than 4 years.
Until now, miners and masternode operators alike have shared Dash’s reward system. However, this situation will gradually change from next September with a ratio of 60/40, whose greatest incentive will be for masternodes.
The Dash Core Group (DCG) Decentralized Governance put the proposal to a vote and, with an overwhelming majority, the new block reward distribution received the approval for its gradual implementation over the next four and a half years. More than half of the reallocation will be complete before the end of next year, and about 90% will have an adjustment by the end of 2023.
The transition process of reward reallocation will be active on the network before superblock 1,345,896, which should take place around September 28th.
According to the DCG team, the main objective of the measure is to reduce the circulating supply. In this way, inflation will have an adjustment, producing a positive impact on the price, as it is possible to read in the description of the proposal.
In 2019, DCG CEO Ryan Taylor noted that the circulating supply of the cryptocurrency was increasing at a rapid rate. That increases the supply and if there is not enough demand, the price decreases. This rapid expansion seems to have contributed to Dash’s decline in the market cap ranking.
At one point, Dash was ranked third for market capitalization on the CoinMarketcap list. However, it has been declining for a while now, so much that it is currently in 22nd place.
After months of research, debate, and surveys, Dash’s team determined that the problem lies in the fact that masternodes greatly influence the capitalization of the cryptocurrency market, both for better and for worse.
After the Dash network deployed masternodes into its architecture in 2014, the cryptocurrency rose comfortably to be ranked in the top 10 on the list by market capitalization for nearly four years, as the Dash ecosystem attracted new node operators.
However, the expected rate of creation of new masternodes began to decline in late 2018, at the same time that the cryptocurrency’s circulating supply began to increase dramatically. “Our analysis shows that the ROI (return on investment) of the masternodes leads to a predictable behavior that influences the circulating supply and the price of Dash,” says Taylor.
According to the executive, when the Dash network had a wide deployment of masternodes, the annual ROI remained above or at least on par with it. However, given that more nodes became inactive and fewer of them received payment, the supply of circulating coins increased more.
The volume of the offer boosted Dash’s inflation rate, which is currently between 7% and 8%. At the same time, a high rate of inflation led active masternodes to experience losses, which ends up discouraging node operators.
Some Miners Are Unhappy
The DCG recognizes the impact that reducing the reward can have on mining. However, they note that miners will receive compensation for the appreciation of the cryptocurrency’s prices for the next five years.
Mining pool Luxor expressed its disagreement with Dash team’s approaches. In a June statement, they said that the approval of the proposal will mean that the Dash network will lose a large percentage of its current miners.
In any case, if the hash power of Dash declines due to the migration of miners to other cryptocurrencies that work with the same algorithm, the resource of the masternodes would remain. These would be able to secure the network based on its ChainLinks technology, a checkpoint system that allows validating the blocks.
Other opinions within the community rejected the proposal, considering that it is a “centralized decree.” Some people also state that the new reward allocation will not have an adjustment in favor of the best interests of the network, but only in favor of a group.
By Alexander Salazar
