An Analysis of PAC Versus Other Masternode Coins

Cameron McCloskey
Jun 26, 2019 · 15 min read

Before you continue with this article, I want to ensure that I make it clear that this is not an attempt to bad mouth the PAC project or cause FUD. Quite frankly I do not have the time to write to this extent solely to troll PAC. I have always been a supporter of the vision of the PAC project, however it is now clear to me that this vision will not be achieved unless action is taken quickly. Below are my thoughts regarding the failure of PAC to succeed following the 1000:1 swap in early 2018.

For this analysis, I compared PAC against the top 10 coins by market capitalisation found on masternodes.online as of 25th June 2019. Only non-tiered masternodes greater than one year old were included.

These coins are:

  • DASH
  • Zcoin
  • Blocknet
  • PIVX
  • Lindacoin
  • Dynamic
  • SysCoin
  • Swarm
  • SmartCash
  • Wagerr

The coins were compared across 5 main domains:

1. Price per coin ($)

2. Number of masternodes

3. Cost and Value of masternodes ($)

4. Annual return on investment (ROI) (%)

5. Liquidity ($)

Price Per Coin

The current price of PAC stands at around 4 satoshis yet the coin has touched 3 satoshis many times this past month. To put this into context, PAC is down from an ATH of 161 satoshis which is a 97.5% decrease AGAINST the value of BTC. If PAC had only matched the growth of BTC from March 10th 2018 (the date new PAC began tracking on CoinMarketCap) until now, then it’s current dollar value would be $0.0245, however it is closer to $0.000400. The bear market of 2018/19 combined with PAC’s poor performance in comparison with the rest of the market has resulted in an effective loss of >98% in USD value between March 2018 and now.

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The above chart shows the change in price since 25th July 2018

The main reason such a low satoshi value is bad is because PAC can only be traded in satoshis against Bitcoin as this is the minimum denomination permitted on most exchanges. Therefore, if PAC increases or decreases in value it can only do so by 25% at a time assuming its price is 4 satoshis. Hence, the coin’s volatility increases as the satoshi value falls. This makes the price ambiguous and hard to properly evaluate. This volatility can already be seen daily. Below is a graph of the PAC price over the last week with the red arrows indicating vast and abnormal fluctuations in price due to the unsuitable satoshi trading pairs which are incompatible with the low price of PAC.

This is not an easily solved problem, because PAC can be traded against DOGE pairs for example which have far smaller minimum denominations than BTC. This means that it is currently possible to trade PAC against DOGE in order to acquire PAC at a more accurate price and then sell on a BTC/PAC market in order to make profit from those who are unaware that they are buying/selling on a market that cannot represent the true price of the coin they are trading.

For example, assume the true price of PAC is $0.0001935 which is currently approximately 1.5 satoshis. This price cannot be represented in BTC markets and would be rounded up to 2 satoshis. This means if someone was to purchase $100 worth of PAC using BTC markets it would get them 387,597 PAC, yet if someone was to buy $100 worth of PAC using DOGE markets then they would acquire 516,796 PAC. This example represents a disparity of 25%. Of course, this is just an example, and the current value of PAC is higher than 2 satoshis so the price disparity would be less extreme, however still would represent a considerable difference and be unacceptable nonetheless.

Moreover, it is apparent the PAC team did not plan to, nor want the coin to have such a low satoshi value. Not long ago they took measures, in part to raise the price of the coin, in March 2018 with the 1000:1 swap. However, due to the aforementioned issue with BTC pairings which actually occurred before the swap, many investors lost a lot of money. This is because they bought PAC at 1 satoshi when in fact it was worth far less. This fault in the whole trading system was branded as a scam towards the PAC team and they paid the price. Even now social media channels are tarnished with those bitter to have lost such large amounts in the value of their investment. However the investors accused PAC of fiddling with the 1000:1 swap, but in reality these investors’ money was lost the moment they purchased PAC at 1 satoshi. Anyone looking upon the situation objectively could see that this situation was not entirely the fault of the PAC team, however some have suggested that the team should have halted markets where naïve traders were clearly buying at prices well above market value until after the swap. At the same time, such traders took the risk of trading in a market which they had no knowledge.

Amazingly, after increasing the true value of the coin 1000 fold after the swap, PAC is on the horizon of entering this dangerous trading scenario once again. It is essential something is done before it reoccurs.

Despite already losing a huge percentage of its value following the chaos surrounding the 1000:1 swap bearing in mind Bitcoin had already lost >60% of its ATH value by the end of July 2018, PAC went on to lose an additional 92% of its value in the year leading to now. It would be unfair to blame this entire decrease in price on the actions of the PAC team alone, however it is quite clear that PAC has been one of the most unsuccessful masternode coins over the last year. The reasons for this price decline will be discussed later in the article.

Number of Masternodes

One of PAC’s key strengths is the number of masternodes currently operational. This is good for both the security of the network and also for decentralisation. However, without being pessimistic, every silver lining has a cloud. With the price of PAC decreasing far more than any other comparable masternode coin and the masternode collateral remaining constant, the price of a PAC masternode has become increasingly affordable to the point where each masternode no longer represents an investment of considerable value. In other words, a PAC masternode has far less worth than most of the other masternodes it can be compared against. In fact, if you take the current market value for each coin to which I have compared PAC and multiply it by the number of masternodes for that coin to get the cost of all the masternodes in operation for each coin, PAC comes in 10th place ahead of only Dynamic which has yet to prove itself at all as a successful project. My question to the PAC team is why did they originally think that 500,000 PAC (~$5000) was suitable for a masternode? I expect the answer will mirror what I have explained above and also following this paragraph and if that is the case then the masternodes are currently too cheap at just $200.

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The purpose of masternodes is to ensure those securing the network have enough skin in the game to be persuaded to help secure the network. POS does not require those who stake coins on the network to contribute anything of value and are hence more vulnerable to attack than their POW counterparts. Miners must commit expensive hardware and electricity costs, and therefore they are less likely to bite the hand that feeds them. Masternodes may provide a solution to the relative lack of security which comes with a POS coin, however if masternodes are cheap enough, then there may be an incentive for some to abuse this circumstance.

Masternode Cost and Value

The decline in masternode cost and some of the implications have already been discussed. However, it must be stressed that when compared to other successful masternode coins, PAC is the only coin with a high ROI AND high number of masternodes. The PAC team have overly incentivised people to invest in the coin and it has backfired. Original investors who have been loyal to the project are now left with almost none of their investment value and new investors do not realise the potential trap they are falling into. As long as people can buy masternodes for $200, the coin cannot increase in value. It is essentially an aeroplane with many thousands of bullet holes in its fuel tank. If more fuel isn’t added, and some of the holes patched, then eventually the fuel will run out entirely.

Annual ROI

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It is clear PAC’s ROI is the highest amongst all the coins to which it is compared. Couple this with the fact that PAC has the most masternodes and therefore the most people to reward, then it’s clear we have run into a problem. It is impossible to create value from nothing and by promising, or at the very least leading people to believe they could make up to 130% ROI annually is just wrong.

Anyone with any knowledge in cryptocurrency or those who read deeper into PAC’s material would understand that the reward would reduce as the number of masternodes increased. The PAC team did not lie about this, however they did use figures such as 130% ROI to sell their coin. Regardless, it is apparent that the original reward was too high which has led to the price to tumble consistently for well over a year. The market has been saturated with PAC and by the rules of supply and demand, demand has decreased — a lot. I suggest that potentially, due to the 60% ROI, people generally just take their masternode rewards and instantly sell rather than trade PAC. This would also explain the relatively poor trading volume.

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Brad acknowledges the inflation of the coin, but remains unconcerned about the potential consequences

When questioned about this issue, Brad the CMO of the project correctly suggested that the ROI needs to be lower in order to be more sustainable. Despite this, he does say that less nodes = higher ROI. This is a true fact however PAC has more nodes than any of the other masternode coins, so why is the ROI up to or exceeding 6 times that of other coins with less nodes? He also failed to acknowledge two things. Firstly that the price over the past year had decreased 92% and if PAC is a “baby” what will its price be as an “adult” if the ROI is allowed to decline by itself coupled with uncontrolled inflation as it has currently done? Secondly, he failed to recognise that the inflation will likely remain the same as long as the same amount of coins are released into circulation. 3 masternodes receiving 20% ROI is almost as bad as 1 receiving 60%. He also mentions that he expects PAC to reach 4X the amount of nodes in the coming few years. The problem with this is we don’t know who owns these nodes. Are they sufficiently decentralised or are they owned by the same people dumping PAC to extract FIAT value? After all anyone can purchase a masternode now for $200, maybe even less soon. How can we know that these people have the best interests for the PAC project to succeed? How can we ensure these are “proper” masternodes? The two main things are that inflation has to be controlled and not everyone should be able to afford a masternode and reap the associated rewards.

Unlike DASH, PAC aimed to bring impressive rewards to the masses. This vision did have some merit because if a coin could provide enough people with a decent ROI to incentivise them to invest, then more masternodes would exist and the network security could theoretically be far higher than anything DASH could achieve. The problem is, the incentive was overestimated, and people were being over-rewarded. Why would people hold PAC during a bear market when they could make a lot of guaranteed profit instantly by dumping their sky high masternode rewards? Why wouldn’t they do this? People are not loyal to anything except their best financial interest. It was foolish to think that offering such large rewards to such a large number of people could ever lead to growth of the coin. It is important to manipulate peoples’ own financial interests to align them with those of the project itself. This has not been achieved. The best way for people to make quick money is to damage the PAC project by dumping rewards they didn’t properly earn or even have to put much money on the line to receive.

To make this problem worse, PAC has been one of the most successful coins in offering a shared masternode service. However a shared masternode service really should be paradoxical. What is the point in having a masternode collateral if anyone can access the masternode ROI anyway? This system has unintentionally created far more ‘dumpers’ than otherwise would exist. Since PAC can’t be used to actually buy anything, people running masternodes need to access their rewards in a format they can utilise, hence they sell and this is ok, this is healthy, this is how coins should be released. The problem has arisen however, when almost all of the people who would normally be buying or trading the coin have been artificially promoted to the privileged state of being able to access the masternode ROI.

If less people could access such rewards (if masternodes were less affordable) then there would be more people invested in the coin but with less coins than required to buy a masternode. These individuals would be interested in the growth of the coin as this would be in their financial interest. Without masternode rewards, these investors would be holding the coin and willing its price to rise higher. They would be more vocal on social media and they would have a more positive sentiment towards the project rather than using it solely as a bottomless piggybank.

Liquidity

As can be seen by the above table, PAC is struggling with liquidity. This is no longer a problem of the number of exchanges PAC is listed on, this is due to people choosing not to trade the coin. This makes sense and echoes what has already been said. Why would people try to trade PAC when they could bypass risk and spend a little amount of money to purchase a masternode only to dump all of the rewards for FIAT as soon as they are received? Having a lot of coins locked in masternodes is good, but too much of the ‘wrong’ type is bad. Trading volume allows for the price to develop and for the project to gain attention. Currently neither are happening.

Futhermore, a low liquidity spells bad news if people do want to sell their investments. As liquidity drops it becomes increasingly difficult to sell and prices can drastically fall below market value when sell orders are fulfilled. This deceases investor safety.

Conclusion

In conclusion, PAC is a coin nobody wants but everyone is happy to profit from.

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In the words of Syndrome from the film ‘The Incredibles’: “When everyone’s super, no-one will be”. Despite being a kids’ film, this quote has meaning in the real world, especially for PAC. If everyone has the ability to milk PAC dry by possessing masternodes with a crazy ROI, then PAC ceases to have any real value as inflation takes over. Not everyone can profit, not everyone can succeed, not everyone can be super. This is fact and if PAC continues on its current trajectory, no-one will succeed in their investment and PAC will cease to be.

PAC is on the brink of viability. It is clear that things are being squeezed tight. PacNode, the PAC masternode hosting service recently was forced to raise its fees for hosting masternodes in order to keep the service running. Furthermore, the PACLyfe website development has been halted due to a lack of interest, and potentially also due to a lack of resources to develop it further. It is sad to see a project like PAC with such potential shrinking more and more to this crucial point. To save it, something has to change because the current formula is clearly not working.

Next Steps?

If things are to improve then changes need to be implemented quickly. The first thing that must be accepted by PAC investors is that is not everyone can be rich and not everyone can reap such large rewards from the coin. This cannot continue.

The whole purpose of masternodes is that they are a considerable investment on the investor’s behalf. It has to be this way to incentivise the right people and control the dumping of the coin. Just ask yourself, who’s more likely to dump PAC, an investor who has invested $10k and possesses 2 masternodes or some random guy who has managed to purchase 2 masternodes for a total of $300 by buying them at the correct time? The random guy is going to milk the coin for all it’s worth — he has no skin in the game and little reason to want the project to succeed. He may not even keep his masternodes running.

I propose that the masternode collateral should be alterable with the current price of the coin as compared with its USD value. Whether we like it or not we still live in a world dominated by FIAT and ultimately this is what people want. Therefore, the only way to measure a “considerable investment” for a masternode is to model the cost of such masternode on FIAT. PAC masternodes started out costing in the region of $5000 and this is what they should cost. At least over $2000. The masternode collateral should be raised to at least 5,000,000 PAC and altered as the USD price of PAC changes. It is not fair to expect someone who paid $5000 for a masternode to receive the same rewards as someone who purchased a masternode for $200. The investment is psychological not numerical. 500,000 PAC means nothing, $5000 means something. People who are properly invested are the people who are needed as they have true influence. Without such people the project is merely a fish covered in many leeches.

Secondly, even with the assumption of an alteration in masternode collateral, there still remains the problem that the ROI is far higher than what other coins operate with. Such other coins are tried and tested over many years and have exhibited performance that has been similar or better than BTC over the past year (excluding BTC’s recent uptick). They have proved themselves as sustainable and they ALL have a far lower ROI than PAC. This is not a coincidence. This is controlling inflation. PAC has failed to control inflation, but it can recover by lowering the ROI. The alternative is a slipperly slope whereby high ROI is required as a bribe not to leave the project rather than an incentive to join it.

Finally I think there should be discouragement of anymore shared masternodes. I don’t believe that it is healthy for the project to allow everyone to access a high ROI. The current holders of masternodes should remain and they should be the last people to be able to acquire masternodes for such a low price or take part in shared masternodes. This can be thought of as their reward for being the first movers when it comes to PAC.

With such changes. There will be more serious masternode holders who have properly invested a lot of money in the project and therefore have a definite financial interest in the project’s success. There will also be more people unable to afford masternodes who will strive for the price of the coin to increase. This will foster passion for the project not seen since its early days. It will also improve trading volume for the coin as most people will actually have to buy the coin in order to hold it rather than be given it for free as part of a reward they do not deserve.

PAC must be desirable on its own, not solely as a tool to get free FIAT. Currently PAC is merely a route to BTC or FIAT. These changes will give PAC true value and independence over other assets.

Source Material

All source material has been taken from masternodes.online and from CoinMarketCap. The utilised data can be viewed in the table below.

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