SDBS #32: Mainnet StealthNode Price Update
Summary
Today I give a brief update on mainnet pricing for StealthNodes, the block validators for Stealth’s forthcoming consensus protocol, called Junaeth. The Junaeth protocol will go live in about one month. Junaeth features regular five second blocks and feeless transactions. For more information, see the whitepaper and the Stealth development blog.
StealthNodes are purchased from the blockchain (from all holders of XST) by effectively burning the cost of the StealthNode. In other words, the XST spent to buy a StealthNode disappears entirely from the XST money supply. In 2021 blockchain parlance, each StealthNode can be described as a non-fungible token (NFT) that gives the owner block validation (and hence block reward) rights on the blockchain.
The prices reported in today’s post reflect two changes. The first change is that the XST money supply has grown significantly since our original pricing proposal. Second, we want to encourage more decentralization, which means more affordable StealthNodes.
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Inflation
After the Junaeth protocol goes live on mainnet, inflation will be reduced to 1% per year, down from about 8% per year. The current 8% inflation rate is a function of the whopping 20% APY that XST stakeholders have enjoyed by participating in proof-of-stake, which has been live since shortly after launch. The difference between the actual inflation rate and the APY on proof-of-stake is because not all XST holders participate in proof-of-stake.
In the forthcoming Junaeth protocol, block rewards create inflation. Block rewards are divided among all StealthNodes, according to individual performance, meaning block rewards are not divided evenly.
Inflation is key to understanding how StealthNodes are priced because the price/earnings ratio will determine how many StealthNodes ultimately secure the network. Block rewards always yield 1% inflation, so each new staker drives down the APY of all stakers.
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StealthNode Tiered Pricing
StealthNode pricing comes in tiers, giving significant discounts to the earliest purchasers. The tiers can be described qualitatively:
- StealthNodes #1 to #11: Big Discount
- StealthNodes #12 to #43: Discount
- StealthNodes #44 to #107: No Discount
- StealthNodes #108 to #235: Premium
- StealthNodes #236 to #491: Unaffordable
Tiered pricing encourages early onboarding of StealthNode operators, to help ensure a seamless transition from the proof-of-stake protocol to Junaeth.
The following image displays the price in XST versus the number of StealthNodes, beginning with a money supply of 39M XST (the expected supply when Junaeth goes live).
Notice that for every new StealthNode, the price of StealthNodes is always increasing, underscoring the advantage of early purchasers.
A list of estimated prices for StealthNodes #1 to #100 can be found here, and a python program that calculates the price of StealthNodes can be found here.
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StealthNode Price Equilibrium
StealthNode pricing can be described as a “reverse auction”, where each new StealthNode has a lower value, yet higher price than the previous. At the same time, each new StealthNode decreases the value of all previous StealthNodes. This type of sale encourages not only early purchases but also seeks a price equilibrium that takes into account the risk/reward tolerance of the market relative to an expected return on investment over time (ROI). A description of this auction system is found in the whitepaper.
We can’t predict exactly how the market will view StealthNodes as an investment, but we assume that the high volatility of cryptocurrencies increases the risk/reward ratio, and that cryptocurrency investors expect a minimum of 16% APY (annual percentage yield) on cryptocurrency investments, because of the high risk. An estimate of 16% APY corresponds to 109 StealthNodes. For this reason, we expect an equilibrium of about 109 StealthNodes. We also expect this equilibrium to be stabilized by the fact that a new price tier occurs at node 108.
The following image shows the APY versus number of extant StealthNodes.
Note that the ordinate (vertical axis) is on a log scale. The APY falls very sharply, encouraging early purchasers.
A list of estimated APYs can be found here.
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The Stealth Team
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