Although blockchain networks like Dash pioneered the masternode concept, there were rapid improvements to the sector, including a transition toward tiered masternode structures rather than a single masternode type. Under a tiered model, masternodes are divided into different tiers based on the required collateral amounts. Each masternode tier is given proportional voting rights and economic incentives.
For projects adopting this model, tiered masternodes provide several key advantages over a uniform masternode structure. In this article, I explore why introducing tiers matters for decentralization, accessibility, and incentive alignment.
A core motivation of tiered masternodes is improving decentralization among node operators. Requiring the same high collateral amount for all nodes heavily favors wealthier holders. This leads to centralization over time as smaller holders get priced out of running nodes.
With tiered masternodes, there is more diversity in the barriers to entry across nodes. Lower-tier nodes have smaller collateral requirements, allowing smaller holders to participate. This prevents whale investors from dominating the system.
For example, the DIVI masternode structure contains five tiers. The lowest Copper tier requires roughly $320 worth of tokens to operate a masternode, while the highest Diamond tier requires $31,000. This allows users with moderate holdings to run Copper nodes and still earn rewards.
Related to decentralization, tiered nodes also improve accessibility and inclusiveness within a project’s community. High single-tier collateral requirements like 1,000 DASH coins price out most everyday crypto holders. Tiered models create opportunities to get involved at lower levels through micro-masternodes.
With multiple masternode classes, users can choose the level of participation that matches their capital. Those unable to afford the highest nodes can still operate smaller nodes and contribute to the ecosystem.
Tiered structures also allow better alignment of economic incentives based on masternode size. Under a single-tier system, large and small masternodes earn the same rewards, which is suboptimal. With tiers, rewards can be made proportional to staked collateral.
Larger nodes taking on greater risk and resource usage can earn higher returns per coin staked. For example, DASH introduced evonodes with higher collateral requirements and higher reward shares versus regular nodes in 2019. This rewards operators proportionally based on resources committed.
Preventing Sybil Attacks
For crypto networks, tiered collateral minimums help mitigate Sybil attacks by making it expensive to spin up numerous nodes. Requiring 100,000 coins or more for upper-tier nodes prevents these from being compromised. This preserves security for the most influential nodes while still offering micro-nodes.
Masternode coins adopting tiered models include Horizen, Telos, DIVI, and others. These all utilize multi-class masternodes with varied collateral requirements per tier. Rewards are distributed proportionally across tiers which incentivizes larger stakes while still allowing micronodes.
Tier structures enable projects to optimize decentralization, security, and accessibility. While single-tier collateral minimums help secure small networks, tiered masternodes become ideal as ecosystems grow especially now that many networks have added DAOs. By providing options for participation, they allow secure and inclusive masternode networks to develop.
A Progressive Masternode Collateral System
Speaking of tiered masternodes, Decenomy, a company pioneering a revolutionary economic model, has proposed what it describes as a “progressive masternode collateral system.” Under its model, masternode payments will be split into 16 slots. Using a sequential reward algorithm that allocates slots based on levels, a masternode’s tier will determine the number of slots it gets. Tier 1 masternodes will receive one slot, Tier 2 two slots, and so on, up to Tier 5, culminating in a total of 16 slots.
One notable advantage of splitting payments into multiple slots is the diversification of risk. Rather than a single slot encountering issues and affecting the entire masternode operation, this feature mitigates risk by spreading payments across various slots.
For cryptocurrencies relying on masternodes, introducing tiered structures helps overcome problems around centralization, access, and Sybil resistance. Tiered masternodes more closely align economic incentives to risks taken on by node operators of different sizes. This is critical for governance systems relying on broad participation across community members. As more projects discover the benefits of tiered models, we’re likely to see further adoption of multi-tiered masternode architectures.