Divi 3.0: Impact on Rate of Return

August 23, 2023

The reward distribution is different, do you get more Divi?

As we have seen in the previous article about the impact of Divi 3.0 on rewards distribution, starting August 23rd, Stakers will receive the entire block reward. This will have a major impact on the reward calculation, but also on the rate of return. This article will go over the income we can expect in this new scenario.

Let’s go back to an earlier article to review how the masternode-staker network works. As you may recall, there are really two networks. The masternode network and the staking network. One of the issues with having the two networks is that they may not find consensus together and cause instabilities. Thus, since we have developed Staking Vault technology, unique only to Divi, that protects your funds as well as any cold wallet, the last reason to have the masternode network fell out.

The important part here is that prior to the Divi 3.0 fork, Masternodes sent 405 Divi to the wallets that have funds allocated to them. Whereas, hot stakers (those who have their funds colocated with the validating node) have their own node send 342 divi to the local wallet. Validator Vaults have a manager that sends 342 Divi to the funding wallet. For the rest of this article, we will conflate hot nodes and validator vaults as “validators”, and will use a dislocated node and funding wallet (a la, vaults) model for the funding flow. We will refer to wallets holding coins, but are not validating as “holders”.

The important part to understand is that only the nodes doing work are getting rewarded. These are the validators. You can run a node and keep divi in the wallet, but if it is not active staking, it is not doing work, and it wont get rewarded. Owners of these wallets are the “holders”. There may be many nodes that hold Divi but do not stake. These may be on exchanges, or in tipbot, or other places. Not all Divi are being used to perform work.

Further, only coins eligible for work count towards the staking weight. Thus newly moved coins, including those that just received a reward, may lower the wallet’s overall staking weight due to their coin age, it’s ability to get rewarded for work. It is important to understand that holders are giving their earning potential to the validators.

Hypothetical rewards before Divi 3.0

So let’s explore the ramifications of what happens when Masternodes, and their rewards, are removed. In order to make the math easier, let’s look at only one tier of masternodes: copper. Let’s also pretend there are 1000 of these masternodes and 1000 stakers all of whom have equal staking weight similar to the tier of masternodes. This, in no way represents reality, but it sure makes the math easier.

One final caveat, let’s assume only 80% of the nodes are validating (this is actually a pretty good guess), whereas by definition, all the masternodes were active.

Note: the numbers presented here do not represent the Divi ecosystem now, in the past, or any time in the future. They are hypothetical so you can understand how rewards may be altered. Repeat this to yourself three times before continuing.

A Divi standard period is 10080 blocks. That is how long between superblocks, other than that it has no special significance. However, over that time, there are 405*10080=4,082,400 Divi given to all of the masternodes of all tiers. Another 342*10080=3,447,360 Divi is given out to validators. How does all this get distributed over the week? Well, there are a variety of influences that affect this.

The income from a masternode is dependent upon the tier of the masternode as well as the number of masternodes in each of the other tiers. So the amount of Divi that gets to just 1000 copper nodes in this hypothetical Divi economy, could be around 750K (the rest of the Divi goes to the other masternodes in other tiers). The yellow arrow is pointing to an extrapolation that is beyond the scope of this document. Thus, for 1000 copper masternodes, each node would get, on average, 750 Divi over this cycle.

At the same time, the validators have other influences that affect how much Divi is awarded to them. As mentioned, these are coin age, the number of active nodes, and how many nodes are at the different staking weights (for validation, virtually every other node has different staking weight). With a similar approximate calculation (it is also impossible to know the magnitude of these effects at any time), we estimate 625K Divi going to validators even though these rewards are available to the holders also if they were to validate. Thus, each of these 800 validators (80% of possible validators) are getting 781 Divi over the period on average.

Masternode income: 750 Divi

Validator income: 781 Divi

This matches the 4% or so improvement validators have historically enjoyed over masternodes, despite masternodes having a larger reward each block.

But what happens after the Divi 3.0 fork?

Hypothetical rewards in Divi 3.0

Since the overall inflation does not change, validators are now rewarded with 405 more divi (until the inflation drop in October). Thus Validators now get 405+342=747 Divi for supporting the network. Nothing changes about how they get those rewards. The number of your fully aged coins affects your staking weight as it always has. So, the

entire financial economy around rewards is drastically simplified.

Now there is way more divi to be shared. But there are more nodes. But let’s keep the 80% assumption, because the former masternode owners will probably behave like current validators and holders.

So, again using the same out of scope extrapolation pointed at by the yellow arrow, there would be 1.37M Divi available for the potential 2000 validator nodes, but assuming that only 80% are actually doing the work, then each of those nodes would receive 865 Divi each week on average, a dramatic 10% increase!

So while this is just an example, you can better understand how the rewards are split between all the nodes, and what the effects of the sunset of the masternodes might have on your staking income!

Happy Staking!

This article is part of a series of articles regarding the migration to Divi 3.0. It will be executed in steps over several weeks, allowing for a seamless and efficient transition process. We urge you to pay close attention to the forthcoming updates, as they will contain vital instructions for the migration. There will be a gamification element incorporated, so we encourage you all to stay engaged! This should make the process more engaging and a rewarding experience for all node owners and the Divi family. You can find the introduction article as well as the list of articles of the series on this link.