As you might have noticed, there is now a Voting going on in Transcendence/Telos Coin community that is ending about a month later about wether some of the fundamentals of Telos coin should be changed or not.
Actual voting can be found from here:
Question however is, how does all these optional changes affect things?
Change in Collateral decreasing amount of masternodes
As one of the options in voting that have gained some votes already, is increasing collateral to 10 000,I will use this as an example to explain what the collateral change can mean in practice.
First of all there is the criticism against collateral increase about it having no effect in long term.
False assumption is that if there are now 10k Masternodes with 1k collateral each, then by increasing collateral to 10k it would make amount of masternodes become only 1k.
Idea being that people are only using certain amount of coins for collateral, and if I for example have decided to use 20k coins for collateral, then with current 1k collateral i can run 20 Masternodes, while with 10k collateral i could only run 2 Masternodes.
This is however partially faulty thinking. For mainly people think in terms of ROI = Return of Investment.
Lets suppose setting up a masternode costs me in collateral 4 USD and running that masternode costs me 1 USD a month.
Then lets assume it makes me 3 USD a month.
That means I am making 2 USD a month of profit (income minus running cost).
In this case initial cost was basically 4 USD and it would take me 2 months to get that money back, but after that, every month is a 2 USD a month on plus side.
But if collateral cost instead is 40 USD (from 1k to 10k collateral), then it will take me 20 months to get my investment back.
What is true is, that people will not be so eager to invest when ROI happens not in 2 months, but 20 months later. But if I am sure that situation doesnt change to worse, then I will surely be willing to invest even the 40 USD if I am going to get 2 USD a month forever. In that sense the matter is not really so much about price of collateral, but rather about the expected profit.
For lets look at 10 year perspective. If I am sure I will be getting 2 USD a month for next ten years, then that would be a total of 240 USD of profit.
Wether I pay 4 USD or 40 USD from that, doesnt really make much of a difference since it is still something between 200 to 236 USD of total profit.
And of course, in practice people expect price of coin and hence the masternode profit to go up in time, and therefore the 20 month ROI isnt quite to what people are counting on.
But it is true this higher price might prevent me from putting more of those Masternodes up at once. That putting up 100 masternodes would cost me only 400 USD, is quite doable, but if cost is 4 000 USD, then even if I wanted them all 100, I might not have enough to put the initial cost.
But that does not mean someone else does not have another 400 USD, which means that those 100 Masternodes will come up eventually, it will just be that instead of you having all those 100 masternodes, you will have only 10 masternodes, and rest 90 will be run by others. Which is actually a good thing from decentralization point of view.
There is also another thing that some miss. For I already pointed out, paying 4 USD or 40 USD for expected 200 USD does not make much difference, but it is actually even worse. For right now we assumed income was 2 USD a month in long run. But when collateral changes and Masternodes drop to amount of 10 percent from what they used to be, then that also means the income will increase ten fold as well.
2 USD x 10 = 20 USD a month of profit. Although there is one problem with this calculation, since it is missing that original calculation was actually 3 USD a profit, from which 1 USD goes to running costs, so actually after collateral change from 1k to 10k, masternode would be getting 29 USD of profit a month (30 USD minus 1 USD of running cost).
If initial cost is 40 USD, and expected income is 29 USD a month, you can be sure people are going to be setting up those masternodes, and a lot of them.
More Nodes there comes, the less Nodes there will be of course, but once again, as i pointed out, 2 USD a month for 10 years is very lucrative, whether the initial cost is 4 or 40 USD. And while it might well be that some people are not interested in putting masternodes at 40 USD for 2 USD profit, many will still be interested for example at 40 USD for 4 USD profit.
Hence, the idea that there will be less nodes thanks to collateral increase, is not as effective as you might at quick think.
Collateral increase will probably affect amount of masternodes, but not as much as people think, and basically, if Telos becomes stable priced, that people trust it will turn same or more profit for next 10 years, then collateral of 1k or 10k wont necessarily affect the amount of masternodes in long run, it will mainly just affect that masternodes will be run by more people.
However, there is a practical issue regarding Telos coins and 10k collateral currently that will affect the end result.
For when voting ends, we will be having roughly 70 million Telos coins.
There are currently 10k masternodes, and if all these are to be updated to 10k collateral, that means that there would need to be a total of 100 million Telos Coins to be able to upgrade them all. hence the max amount of masternodes we will have right after voting if collateral is changed to 10k, will be only 7 000 masternodes.
Change in Collateral Decreases amount of free Telos and hence increases the price of Telos.
Another thing that might be wished from Collateral change would be that since more Telos coins would be attached to Masternodes, it would decrease the amount of Telos being traded in exchanges, making telos more scarce and hence increasing the price.
This is once again partially true. For it would do this in short term.
As pointed out in previous 7 000 max nodes example, it could well result in there being only very few Telos for , and hence price going up very much. This would however be basically only a temporary situation, since New Telos coins would still be coming at same speed, 288k a day.
So if we assume 1k to 10k collateral change would result in total of 10k masternodes at end, then indeed, there would be 30 million Telos coins too few, and this would mean that those new coins would be fought for and you could sell them for pretty high prices.
But, after three months this 30 million coins would have been made, and after that, all new coins would be going to be free coins again. And fast forward 5 months, and we be in same situation again where same amount of coins would be sold in exchanges and price would be back to what it is.
Of course this is not entirely true since there would likely be new people interested in Telos etc. but simplified, this is basically what happens.
by other words, collateral increase also increases Telos price, but by default it is only temporary and things will eventually go back to normal.
Or to put it in numbers:
At end of vote we have roughly 10 million coins locked to masternodes, and 60 million coins free.
With 10k collateral, we will roughly 10 months later have a situation where 100 million coins would be locked to masternodes and there would be 60 million coins free.
However, since the free coins are basically the ones that determine what is the price, that means that 10 months later we would be back to same situation as we are now. Then we would need to increase the collateral again.
Change in Reward
To understand how this will affect things, I would recommend reading my previous article regarding Telos coins infinite supply of coins that you can find from here:
In addition to of course to the question of, are there too many coins coming each day, making there come too much inflation?
There is also the interesting aspect of time traveling.
Basically if there comes 200 telos coins each day for 10 years, then by beginning of year 11, we are basically fighting against 10 percent inflation.
But, say at beginning of year 10 we decide to change rewards to only 20 coins instead of 200, then we are fighting only against 1 percent inflation anymore, which otherwise would not be the situation until year 100.
By other words, we can sort of do time warp to our coin, that instead of waiting until year 10 to get to 10 percent inflation, by cutting down the rewards, we can get the situation be same as in year 10 already at end of voting, making coin more stable from inflation point of view.
Increasing Transfer fee
Which is not mentioned in voting options currently, is increasing transfer fee.
To understand this better, you should read my part 2 of Telos coins infinite Supply of Coins and my explanation of Telos maximum coin amount gap mechanism in here:
as explained in linked article, Telos transfer fees are actually destroyed and due this infinite supply + transaction fees destroyed, it creates this thing i call Point of Balance mechanism.
Right now Telos fee is quite small, and I think this is unfortunate since one of the best things that can happen to Telos in my opinion is if Point of Balance is reached. I would imagine Transfer fees should be much higher than they currently are. Maybe 0.1 to 0.01 percent transfer fee. For even with 0.1 transfer fee, there needs to be 288 Million telos being transferred daily to get 288k coins destroyed to balance the 288k new coins coming. Of course if rewards are limited to only 20 each block, then 28.8 Million Telos would be needed anymore to get enough coins daily destroyed with 0.1 percent fee.
To reach the point of balance would be an excellent thing, since then Telos would not need to fight against the inflation caused by new coins anymore, and every time you get a new reward either from staking or running masternodes, they would actually be real rewards and not just coins that are increasing inflation.
Notice also that Use cases use masternodes
There is one more not so obvious thing to take into consideration.
To really get Telos price to rocket, we need use cases where people want to use their Telos coins to buy things.
Transcendence Team have some clever products planned that are based on Telos coins, but many of them are based upon actually running Masternodes.
If collateral is 1000, or 10 000, makes a big difference here. For lets say that telos coins value become 10 times what it is now. That would make one Masternodes initial cost be about 30 USD. If collateral however is 10k, then initial cost is 300 USD.
If you have a 200 USD device, then wether the price is 200 USD, or 230 USD, it is still acceptable amount of a difference usually, but have it 200 USD, or 500 USD, now that is a killer difference.
What I am after here is that making masternodes 10 times more expensive to set up, might at some point kill some planned Telos use cases, simply because they will be too expensive to sell anymore.
And if these use cases do not come, then telos price might not rocket either.
Of course in practice this is basically the case anyway, that even with 1000 telos collateral, if Telos becomes succesful, this problem is there anyway. For lets say thanks to these use cases Telos skyrockets to 1 USD price, well, even 1000 collateral is already 1000 USD then.
But at least we can delay this a bit, since price increasing even just 5 times higher is not that unlikely to happen, but to 50 times increase there is likely still some way to go, although, personally i hope I am wrong on this one.
What would I do?
You might be wondering what is my opinion in all this.
Well, that is bit difficult actually. Basically I would like to increase rewards by hundred times and then year later put them back to where they were to get to point of balance.
But that would probably pretty much kill Telos because while as second best option i would very much like not to touch rewards at all, there have been difficulty in price staying even in its current level, hence it would seem like reducing rewards might be necessary to do.
There is of course the question of how well will those use-cases perform, for possiblity is that use cases will do so well that we have even too few coins in the end if part of use cases is having masternodes in them and they start selling like cakes.
Unfortunately there is only very little time to see anymore how use cases will affect things. I hope Kryptobay comes soon so that we can have at least some indication whether that be succesful or not. While it is not going to be using masternodes, it will anyway give indication to the movement of free Telos.
This is also reason why I will be voting probably no earlier than in last week to hopefully get a better picture of where Telos is at.
Only thing that I am sure is that I would like Transfer cost to be increased. I would otherwise like even 1 percent transfer fee, except that would make people look Telos as too expensive, since even FIAT money can be transferred cheaper if you have right deals. But I would think increase transfer rate to 0.1 percent could still be fine. That would still be cheaper than FIAT, and it would really push Telos forward towards the point of balance.
I also suppose that increasing transfer cost alone wont be enough to get us to Point of Balance, but at some point we need to decrease the amount of rewards as well. Basically I guess rewards would be needed to drop to maybe 20 Coins at some point, but first of all, from point of balance point of view, that moment is not yet, since even with that, we would still need 28.8 Million Telos worth of transactions daily for point of balance to be there, and we have only 70 million coins after the vote, so it is unlikely that third of the coins would be used daily.
Another problem is that to truly drop it to something small, like say 2 coins rewards, which actually could be close to point of balance right now, it could also scare some of the current masternode owners, hence the drops need to be done in small steps, unless we really want to get rid of some which i do not think is a good idea at this point.
I would say a maximum drop to 50 coins, more likely to 100 or 150, that way it is soft drop for current masternode owners, and they will themselves notice how price of Telos would increase due to dumpers having less coins available.
I am not completely throwing collateral increase out of my mind either. It would give short term price increase to Coins, which could attract outsiders. It would also be a way to keep the rewards same, or even increase the rewards at same time, hence helping getting to the point of balance, as long as at later point both collateral and rewards would be reduced again.
However, I see this as a short term solution and I rather play with long term solutions. I also dislike that the coin would in the end show up as unstable, since it would do a roller coaster effect to price. It would first sour high and possibly get peoples interest, but then in couple of months as amount of coins catches up the amount of masternodes again, it would start dropping to its normal level. And this could result in people thinking Telos is going to fail and die, or even think exit scam just happened, when in reality it was expected progress. Hence while i see it could be good short term solution, I am worried of the long term effects. Also, it is so short term solution that basically half a year later we would need to make another vote already, which is not good either.
Do vote
With these in mind, do vote what you think is best solution:
If you want to read some of my previous Telos articles:
Or if you just want to come and rant about your opinion of what people should vote, you could even join the Transcendence/Telos Discord channel:
Published at Thu, 24 Jan 2019 11:18:25 +0000
