Wed Jul 31, 2019 4:51 pm
How does Tiered model of Telos work and affect things
Samuli Holopainen
Samuli Holopainen
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Jul 12 · 7 min read
Telos is about to change into Tiered model.
As there have been many questions regarding this on the Discord channel, I decided to write an article about it in hopes of clearing some things regarding this and stop the repeated questions.
How do 1k, 3k, 10k , 30k, 100k Masternodes get rewards?
When you had a 1k master node, it was like having 1 sweepstake in a lottery.
By having a 3k master node, it will be like you would be having 3 x 1k master nodes, which means, it will be like having 3 sweepstakes in that same lottery.
With 100k master node, it will be like you would be having 100 x 1k master nodes, and therefore it is like having 100 sweepstakes in that same lottery.
And that Lottery happens once a minute, just like before.
Reward amounts will stay same as with 1k master node, you will just be receiving them 100 times more likely in case of a 100k master node, which in practice should make you get in TOTAL about 100 times the rewards you would get with a 1k master node.
So if you would get 90 Telos with a 1k master node, then you are likely to get 100 x 90 Telos rewards with a 100k master node, totaling 9 000 telos.
With 100k master node, you won’t see in your wallet one 9 000 Telos income, but you will see 100 small, 90 Telos incomes, that in total are 9 000 Telos.
Reward Cut
You maybe noticed that in the above example I said 90 Telos instead of 180 Telos. This is because, at the same time as Tiered system comes, there also comes a Reward Cut.
It was voted that block reward is dropped from its current 200 Telos to 100 Telos.
This means, that once a minute there will come 100 new Telos, just like before there came 200 new Telos each minute.
The reason why master node owners are getting only 90 Telos from this 100, is because 10 is reserved for those staking their wallet, just like before from 200, 20 was reserved for those staking their wallet. By other words, 10 percent of reward is reserved for those staking their wallet, making it a 90/10 split. 90 percent for master nodes, 10 percent for those staking their wallet.
The difference with running 1k or 100k master node
In practice, there is very little difference with running 1k or 100k master node.
There are only two differences.
with 1k, you need to lock only 1 000 Telos. with 100k, you need to lock 100 000 Telos.
with 100k you get rewards more often than with 1k, since 100k is like running hundred 1k master nodes.
By other words, if you have 100 000 Telos, it just makes no sense running hundred 1k master nodes, but instead, you should always just run one 100k master node as the end result is exactly the same, except, with 100k you only need to take care of one master node instead of hundred master nodes.
How will this new Tiered system affect the price of Telos and the profitability of running Masternodes?
There are some possibilities.
One bad thing that can happen is that 1k nodes become unprofitable to run anymore.
When there were only 1k nodes, either all nodes made a profit, or none did.
This in some sense made sure that 1k nodes would be profitable, since if the price dropped too much, that running a node wasn’t profitable, people would either stop running some of them, or they wouldn’t sell their Telos for cheaper than profitable price, therefore keeping the price above profitable.
However, now with the possibility to run even up to 100k nodes, the situation changes.
Let’s suppose you would make 500 Telos a month with a 1k master node. And let’s suppose the price of Telos is 0.2 Cents each, which means you are making 1 Euro worth of Telos coins each month with your 1k master node.
Supposing running one master node costs you 1 Euro, then that means that you are making the exact amount that you are getting. Go below that, and it is not worth it anymore and you would shut down your master node.
And it is neither worth it to sell those coins for any less than 0.2 cents each, or you will be losing money running your master node.
But let’s take the next lowest tier, a 3k master node now as an example.
Running cost of one master node still stays in that 1 euro. But now, suddenly, this 3k master node keeps making you 1 500 Telos a month, making it 3 Euros worth of coins a month. This is 2 Euros of profit actually after you reduce the 1 Euro running cost from your income.
This also means that you could sell those coins for cheaper price, since even if you sell them for 0.13 cents per Telos, you would still be getting about 2 Euros a month from them, and hence getting about 1 Euro of profit a month after reducing the running cost again.
However, at the same time, if someone is running this 1k master node and getting 500 Telos only, then he would be losing money since he would get only 65 cents from his Telos coins, and he still has that 1 Euro running cost to pay, making it into -35 cents.
For this reason, it might well happen that running lower tier master nodes might become unprofitable since it is worth it to keep running higher tier master nodes even with less valuable Telos price.
The situation can well be that while running a lower tier master node costs you more than the income is, running a higher tier master node can still be very profitable, and this also means there is no mechanism helping to pull the lower tier nodes back to profitable again since higher tiers might rather be pulling the price down rather than up.
More positive possibilities
More positive sights, on the other hand, include some high price rising.
First of all is that most likely one big reason why the price of Telos is low is because there are lots of people who are running their master nodes with the idea that right when they get their coins they sell them, with no long term holding or expectations.
With reward cut cutting the new coin supply to half, it also means that these so-called dumpers will basically have less new coins to dump, and therefore the balance of buyers vs sellers might go more towards there being more buyers than sellers, which results in a price increase.
Another possibility has to do with the higher tiers. While there might be the negative side effect of 1k master nodes becoming unprofitable, on the other hand, it might also become a very lucrative option to put up those 100k master nodes.
For let’s go back to the previous example. In the previous example, it cost you 1 Euro to run a master node for a month, and a 1k node was making you only 1 Euro worth of coins a month, making the situation to be zero — no profit, no loss.
Take a 100k master node now, and situation changes. Running a 100k master node will still cost that same 1 Euro, but now it is making you 100 Euros worth of coins a month. That’s 99 Euros of profit!
It might be a bit costly to put one up, but with 0.2 cents example, you pay 200 Euros to set up a master node that makes you 99 Euros a month.
That is a pretty lucrative option and many might grab to it when they realize this.
And this is when things get interesting. For current total supply of Telos coins is roughly 100 million. With 100 million Telos coins you can only set up a thousand 100k master nodes and you are out of coins to set up more master nodes until there is more.
What I am after with this is the following:
there are roughly 4 million new coins coming as rewards to master node owners each month.
If all 100 million coins would be locked to 100k master nodes, then that would mean a total of thousand 100k master nodes would exist.
With thousand 100k master nodes, each node is still getting 4 000 coins a month.
And with a 0.2 cent Telos price, that still makes 8 Euros worth of coins.
Still for a running cost of only 1 Euro a month, meaning 7 Euros of profit each month.
Of course, in practice at least 10 percent of coins would be at wallet staking, since that would be equally profitable in this situation, making the number of master nodes less than thousand, and therefore the income to be even more than 4000 Telos a month.
As long as you are able to pay for those 100 000 Telos, it is a pretty lucrative option to set yourself one 100k master node, and it might well be that we will soon be running out of supply and hence the price of Telos coin might go up a bit, which actually makes these 100k nodes even more profitable and hence even more appealing.
This, of course, supposing people do try to buy more coins to set them up, instead of people who already have 100k coins just setting them up, in which case it wouldn’t affect pricing.
Excel sheet to try out different master node situations
If you like to play around a bit with numbers, you could use Transcendence Teams excel file which calculates how many coins each node gets in different situations:
You could, for example, check how much each node gets if there are hundred 100k nodes in the network, which is about 80 Euros a month with a 0.02 cent price.
