On the Smart DEX Chain, at launch, there will be two ways for holders to generate rewards through their SDX — running masternodes and through staking. There will be a maximum of 1,500 active masternodes that are able to generate rewards. This article will explain how each of these aspects will function and the logic behind how the top 1,500 masternodes will be selected.
Masternode and staking rewards are delivered once every epoch which occurs approximately every 30 minutes after 900 blocks are processed on the SDX chain, providing the masternode mined a block during that epoch. Masternodes get their chance to mine a block sequentially so active masternodes will all mine the same amount during a day (give or take one epoch). This means the distribution of masternode rewards will effectively go to each masternode owner on a pro rata basis against the total active masternodes and the daily masternode reward amount. The total masternode rewards are 161,568 SDX per day in the first year which means if there are the full 1,500 masternodes running, this will amount to 107.7 SDX per day and 3,231.4 SDX per 30 day month per masternode.
To run a masternode, you are required to stake 10,000 SDX, however this SDX staked in the masternode relates solely to the masternode and does not contribute to staking rewards.
More information on the process of setting up a masternode can be found in our masternode guide on our github account.
When staking on the SDX chain, you will stake your SDX on individual masternodes. Each masternode that has SDX staked on it receives an equal share of the total staking reward distribution and where there are multiple holders staked on a node, they receive their distribution of the masternode’s share on a pro rata basis. The total staking rewards are 60,192 SDX per day in the first year which means if there are 1,500 masternodes running with active stakes on each, this will amount to 40.1 SDX per masternode per day and 1,203.8 SDX per masternode per 30 day month.
To illustrate the staking reward distribution mechanism, we’ll simplify things and assume there were only 3 masternodes running on the SDX chain and there was a total staking reward amount of 1,000 SDX to be distributed.
- Masternode 1 has 50,000 SDX staked by 2 holders with 1 staking 40,000 SDX and the other staking 10,000 SDX.
- Masternode 2 has 12,000 SDX staked by 3 holders with 1 staking 6,000 SDX and 2 holders staking 3,000 SDX respectively.
- Masternode 3 does not have any SDX staked.
For the reward distribution, there are only 2 masternodes with SDX staked so they receive an equal share of the total 1,000 reward distribution (500 SDX respectively). This is distributed to the stakers on a pro rata basis:
- Masternode 1 (total 50,000 SDX staked) — the holder with 40,000 SDX staked would receive 400 SDX while the holder with 10,000 SDX staked would receive 100 SDX.
- Masternode 2 (total 12,000 SDX staked) — the holder with 6,000 SDX staked would receive 250 SDX while the holders with 3,000 SDX staked would each receive 125 SDX.
- Masternode 3 (0 SDX staked) — no SDX as they didn’t have any staked.
It is worth noting that after launch, there will also be further options to stake your SDX coins, such as in the lending platform on the SwapDEX platform, giving holders multiple choices on how to make your SDX generate passive income for you.
1,500 Masternode Limit
At launch, there will be a limit of 1,500 active masternodes. We are satisfied with this limit, however it can be changed if required. We will be monitoring masternode uptake, chain performance and community sentiment post-launch to determine whether this limit is appropriate.
Each masternode will be ranked on its capacity. The capacity is calculated by the 10,000 SDX required to run a node plus the total amount of SDX staked in the node. There could be thousands of masternodes registered, but only the masternodes with the top 1,500 capacities will be the active masternodes which obtain rewards. Other than certainty of your position as an active masternode, there is no benefit to being ranked #1 opposed to #1,500 — each masternode that is active is eligible to the same rewards.
What does this mean in practice?
As a general rule, it is worth optimising your staking rewards by staking in masternodes with lower capacity as you will get a bigger portion of the staking rewards. However, the benefit needs to be weighed against the risk of a masternode falling below the top 1,500 in its capacity. If it loses its active masternode status, it automatically stops earning rewards entirely. If it cannot get back into the top 1,500, you will need to unstake and wait approximately 3 days to be able to stake again to ensure holders cannot game the system. During the unstaking process, no rewards will be earned. So though the rewards can be higher when voting for lower-ranked masternodes, monitoring them regularly is highly recommended.
Staking in higher-ranked nodes with more votes on them earn fewer rewards, but can be safer to earn consistent rewards since they are less likely to fall out of the top 1,500.
For owners of masternodes, there is merit to staking in your own nodes to ensure they have sufficient capacity to have a safe spot in the top 1,500. There is also merit to ensuring the device or VPS used to run your masternode(s) is sufficient to ensure there is no downtime and to give others holders peace of mind that your masternode is worthy of being staked in.
Ultimately, stakers should consider voting for masternodes which are fully capable and committed to the overall strength of the SDX ecosystem in the long-run.
The staking mechanism and its tie-in to the deciding the active masternodes is ultimately designed with a twofold impact — to ensure that holders have a mechanism to earn passive returns outside of running a masternode and also to ensure the strongest masternodes are supported. Ultimately, the masternodes are supporting our chain and the strength of our chain will have a significant impact on the strength of the project.