The Dash Evolution conference concluded on December 7th with some big announcements and presentations about the future of Dash. The Dash network has been innovative since its inception, being at the forefront of concepts such as masternodes, crypto-governance, and a network based proposal system.
The Dash Platform
The Dash development community will be rolling out the “Dash Platform” which is described as a technology stack for applications built on the Dash network. The platform includes an API, storage called Drive, a software development kit (SDK), and the Dash Platform Name Service (DPNS).
The Dash API (DAPI) will ease access to resources on the Dash network. Many developers are unfamiliar with blockchains and this tool will abstract away some of the complexities of interacting with the Dash blockchain. Drive, the storage component of the platform, is necessary to attach metadata to transactions. This metadata is especially important for e-commerce sites who rely on this data to demonstrate their relevance to search engines and save pertinent information for their own records. The SDK helps developers get started on the platform by streamlining their use of DAPI and Drive.
The first application of the platform is a naming service known as the Dash Platform Name Service (DPNS). The naming service is the first use case of the Dash platform that takes advantage of the capabilities of DAPI, Drive, and the SDK. This service is similar to the Foundation for Interwallet Operability (FIO), the Ethereum Name Service (ENS) and Unstoppable Domains, for those who are familiar. The Dash name service transforms addresses, which are usually a bunch of random numbers and letters, into a human readable username that assets can be sent to and from. And not only can the username be applied to DASH, but users can attach other cryptocurrencies to the username as well.
The DASH platform is expected to be released for public use by the end of December but the platform will not be available on mainnet until substantial testing has been completed.
The Quest for a Better Store of Value
The Dash Core Group (DCG) has been exploring ways to ameliorate the incredible price volatility Dash has experienced over the last few years. DCG, the broader development community, and Dash users are satisfied with Dash payments which are fast, cheap, and reliable, but massive volatility of the asset itself has been a draw back to its adoption and negatively impacts Dash’s use as a medium of exchange.
The CEO of DCG, Ryan Taylor, believes the economics of Dash contributes to the destabilization of its price and wants to work with the community to make the price more “buoyant” through a thorough reworking of its economics. Ryan pointed primarily to the realities of ASIC based proof of work mining, the incentives of master nodes, and their interplay as the culprits in the wild swings in price.
During times of increased demand for Dash, miners are able to save a lot of their mining rewards because a small portion of the rewards are able to cover their costs and the rest of the reward is pure profit. This is done at a time of high demand, exactly the time the market needs more circulating supply to soak up that demand, exacerbating upward price movements. Extreme upward price movements are attractive to short term speculators, but can hinder the Dash network’s attractiveness as a medium of exchange, especially when the explosive move up reverses and prices start to fall precipitously.
Alternatively, during times of decreased demand, after the last marginal buyer has entered the top of the market, mining rewards may not cover a miner’s operational costs. This means that not only are the rewards all sold into the market immediately, but some miners may have to dip into their savings to cover their operational costs. At a time of decreasing demand there is a corresponding increase in supply from miners hitting markets, which exacerbates downward price movements. This dynamic isn’t unique to Dash and can be found in all proof of work networks.
These mining based feedback loops are further compounded by the presence of Master Nodes, according to Ryan. Master Nodes serve a number of special functions and are at the center of what makes Dash unique. Master Nodes have a hand in governance of the network and provide services to users such as Instant Send (faster confirmation times) and Private Send.
To operate a Master Node, would be operators need to own and lock up at least 1,000 DASH. The Dash protocol currently doles out about 45% of the block reward to the Master Node network. Ryan and DCG, site the the locking up of coins and the high block reward going to Master Node operators keeps a lot of DASH out of circulating supply, making the booms and busts of demand much more intense. Master Nodes can save even more supply than miners during price booms because their operating costs are much lower. The thinking here is if a large amount of supply isn’t in the market and is in the possession of Master Nodes, small amounts of inflows and outflows of capital can make the price of DASH extremely volatile.
Ryan also mentioned that the projected Return on Investment (ROI) on mining and operating Master Nodes tends to increase on the way up in a bull run and tends to decrease on the way down during bear market. These incentives are also sighted as factors that exacerbate the bull and bear markets.
You can watch the full explanation here.
The Dash Core Group probably knows their network as well as anyone, but there could be some holes in their thesis. DCG is assuming the fungibility of behavior between miners and the behavior between master nodes. There may be evidence for this but it wasn’t made clear or obvious in the presentation. It’s also not clear that changes to network incentives, even if correct, would make a material difference to price volatility.
ASIC mining does tend to consolidate, but there is a fair amount of different entities that mine on an ASIC based network. It would be hard to know if they all behaved the same during price increases and price decreases. Each of them have different cost basis’, different entry points, different outlooks on the future, and different decision making processes. Ryan’s case for forced selling on the way down seems strong because more of the reward has to be sold to meet operational costs. This isn’t very negotiable for the miners. However, the claim that miners hoard supply during price spikes is harder to make. Do all miners hoard as much DASH as possible when they are profitable? Some may save significant DASH when the price goes up but others might not keep much at all. Miner behavior during price spikes seems more negotiable and could be highly variable. Given the volatility of cryptocurrencies, and DASH in particular, there is incentive to convert a lot of the rewards in fiat to lock in some of the gains made. There seems to be pressure in both directions. He could be right, but more granular evidence from specific miners may be needed to prove that miners hoard in unison such that prices move farther up than they should.
For Master Nodes, the opposite case could be made. Since Master Nodes lock up so much value this seems to create a floor on selling pressure. Master Node operators have to keep 1000 DASH locked up at all times. If they sold part of that 1000 DASH, operators would lose out on their privileges as Master Nodes. This creates a floor on selling which presumably decreases its potential volatility. On the way up Master Nodes would have more discretion, giving DCG’s argument more weight, but as argued before with miners: how sure could we be that all Master Nodes hoard DASH or act in unison? Some may, but others may not.
While miner and Master Node incentives may indeed add to the volatility in certain ways, they seem to do so in different directions. One might be able to make the case that they cancel each other out, at least on the way down. Miners may be forced to sell a lot of supply in price declines while Master Nodes hold on to supply they could sell to retain their privileges as Master Nodes; thus creating a supply floor.
The proximate and overwhelming cause may be that cryptocurrencies like DASH are small, speculative pools of capital that are lightly traded with very few agreed upon fundamentals. Small inflows and outflows of capital based on speculation can have wild impacts on price, irrespective of the incentives of the operators of the network. The incentives on the network undoubtedly play a role but changing them might not make as much as a difference as those in the DASH community hope.
Nonetheless, the breakdown by Ryan and DCG definitely provided food for thought and could be shown to be exactly the right move. These discussions are another example of how crypto-currencies are speculating, innovating, and experimenting with economics and technology in ways that weren’t possible before.
Ryan and the DCG group will be submitting proposals to the network related to reward allocation, changes in the consensus algorithm, and even changes to the proposal system itself, all in an effort to make the market price of DASH more buoyant instead of its current behavior of boom and bust. DCG hopes whatever the accepted proposal ends up being it will create more buoyancy in DASH’s price and improve DASH’s store of value property which will elevate its usefulness as a payment network.
Ryan floated the idea of reducing rewards going to miners even more or possibly scraping proof of work altogether. DASH could be moving towards a proof of stake consensus system or one in which Master Nodes have more of a role to play in security. Whatever the chosen course, Ryan and DCG want to design an economic system that limits the incentive to sell when demand is down and limit the incentive to accumulate when the price is way up.
It’ll be interesting to watch the Dash community work through these proposals and may serve as an impressive example of a Decentralized Autonomous Organization’s ability to coordinate complex and radical changes in an effort to improve itself.
We’re proud to support DASH and have high hopes for its continued progress.