If properly vetted and executed, masternode investments can be extremely lucrative. It is a great way to provide passive income and can even act as a hedge against the traditional market volatility.
Masternodes are full nodes (similar to the full nodes that Bitcoin miners have) with an entire copy of the blockchain that processes, validates and relays transactions onto the network. Operating under a Proof of Stake Consensus Model, owners hold their coins as collateral in a staking wallet and receive a proportional amount of rewards to the amount they stake. This is unlike a traditional Proof of Work Model, which provides block rewards proportional to the amount of computing power you control in the native currency’s network. By holding collateral, or a “stake,” you prove to the network that you are economically incentivized to follow the network’s protocol. While staking, your staking wallet verifies transactions and mines blocks. When you successfully mine a block, you are rewarded with transaction fees in the native currency (sort of like Visa making a certain percentage on all credit card transactions).
Where to Look
We highly recommend the masternode listing website masternodes.online. They are an investment comparison tool that provides accurate and detailed stats along with a free anonymous monitoring tool to track your own masternodes. They show Daily/Monthly/Yearly Income estimate, ROI%, Coins supply, Informational Graphs, and all available links to masternode projects.
Another great listing website is https://masternodes.pro/statistics. They provide similar information/statistics on masternodes.
How to Evaluate Masternodes & Their Legitimacy
Just like the traditional cryptocurrency market, the vast majority of masternode and proof of stake-based projects are either straight-up scams or set up for failure. There are a number of projects who pop up for a few weeks time, boast a high ROI (return on investment), make a bit of money, and leave without notice. Not to worry — there is a way to sift through this nonsense. There are spectacular teams and projects out there who are moving and shaking the crypto space on a daily basis, you’ve just got to find them.
For starters, and probably the most important point we can drive home — DO NOT BUY SOLELY BASED ON THE ROI %. It is your hard-earned money, and it deserves due diligence. Based on our research and a few case studies, the following is a list of questions you need to ask yourself and metrics you need to investigate when looking for your next profitable masternode investment:
- Utility & Use case of the token — Many masternode-based projects have been created with the sole-purpose of taking advantage of the masternode business and eager buyers. Stay away from these projects. You want to know what use cases the currency has and evaluate the importance of it now and long term. “Will this coin still be around in 2, 3, 5 years?” You’ll also want to look at their competition. If there are competitors, figure out how they are doing. Normally they are a good indicator of how a similar project will perform.
- Feedback from existing masternode owners — one of the first things you should do when looking into a masternode-based project is join the token’s social groups (Discord, Telegram, etc). Chances are, existing masternode owners for that particular cryptocurrency are in those groups and most are very open about their experiences. Ask them all the questions you have, like: Have your rewards been consistent? Is the development team responsive and involved? Are wallet/masternode/token issues quick to be resolved? Is legitimate progress being made on the project? So on and so forth.
- Team Involvement — Legitimate projects providing masternode services usually have Discord, Telegram and/or Slack groups with direct connection to admins/members of the team who are there to assist users through it all (setup, announcements, bug fixes, etc). Normally these communities are rather small and often times the development team is willing to have conversations with you about the project. Hop on conference calls with them if possible to get your questions answered. You want to look for projects whose teams are fully transparent, responsive, and involved with the community. Projects that don’t have a team section on their website are normally a red flag.
- Clear/Realistic Roadmap — Find out if the project has a planned future. Things like getting listed on bigger exchanges, listing websites like coinmarketcap, and planned updates and improvements are all good signs. However, make sure their plans are reasonable. For example, if a project is shilling the idea that they are going to list on Binance soon (an extremely high volume and popular exchange), and their market cap is less than $5 million, they are providing unrealistic expectations for investors. These are signs that the project’s team may be trying to build as much hype as possible in order to pump the price, dump, and leave. You want to assess if the project has reasonable plans for growth and development.
- Block rewards schedule — How will the block reward structure change over time as the block height increases and more masternodes are added to the network? Will there be room for profitability a year or two from now? All projects incorporate different block schedules, rarely is one the same as another. Some will have masternode rewards that diminish over time, while others will outline the opposite. For the most part, realistic projects will have block reward schedules that diminish over time in order to properly disburse rewards to the growing network. The best masternode-based projects are characterized by a continual 200%+ annual ROI after 500 or more nodes have been added to the network. Projects touting 10,000%+ ROI are usually red flags. However, in order to spark initial interest and investment in the project, some legitimate projects will incorporate high yields initially, that quickly diminish after a certain block number. Some view this as the equivalent of ICOs in the masternode realm. There are ways to take advantage of this high initial ROI, but more often than not, you will get rekt.
- Coin holding — How many tokens of that cryptocurrency is the team holding? Was there a pre-mine or an ICO with team’s tokens vested for a certain period? A high pre-mine percentage of the total supply is usually a red flag because the team can dump the tokens at any point in time, which will negatively affect the price of the coin and thus considerably reduce your ROI. Based on our research, a reasonable cutoff is around 2–3%. If a team has pre-mined more than 2–3% of the total coins, you can consider it a red flag.
- Product Presentation/Masternode Setup Guide — How well-presented is the project? Websites, social media and community are crucial to a project’s success in this space. If they have an un-appealing website, a poorly put together white paper, an overly-complicated masternode setu-up guide, or an un-responsive and inactive team, you’ll want to avoid investing. Ask yourself: Are their set-up instructions clear, informative and straight-forward? How much effort was put into presenting this new cryptocurrency and masternode? Is the website friendly and inviting? Is there a whitepaper? Is there a clear roadmap? Are there links to social channels and how to get in contact with the team?
- Volume/Liquidity — Is there enough daily volume and liquidity on the exchanges listing this cryptocurrency for you to flip your rewards over time? No one wants to get into a project that they can’t reap the rewards from. There is no point in accumulating reward tokens of this crypto if there is no easy way for you to turn that into other main currencies such as Ethereum or Bitcoin. We normally don’t invest in a project unless the 24-hr volume has been $70k+ for a few days or more and we have reason to believe it will stay that way.
- Rewards vs ROI% vs Number of MNs — A graph plot we have found useful on masternodes.online is the Monthly Rewards vs ROI% Vs Number of Masternodes overtime. This is useful for MNs that have been around for a decent amount of time, as it tells you how the rewards and ROI% have been holding up as more masternodes were added to the ecosystem. Below is a plot of Escrow’s Monthly Rewards and ROI% since it launched as more Masternodes got added. You can see that the Rewards and ROI have remained somewhat consistent in the last 23 days. The longer this pattern holds overtime, the more convincing this Escrow masternode is in terms of investment depending on when you bought. However, the USD price value of the coin can also affect your ROI when turning your rewards into fiat.
If properly vetted and executed, masternode investments can be extremely lucrative. It is a great way to provide passive income and can even act as a hedge against the traditional market volatility. Please note, however, that answers to the aforementioned questions do not guarantee your investment to be profitable, as with any investment, especially in such a new industry, comes risk. That being said, we believe these valuations/metrics can put you in a more comfortable position when deciding which masternode to invest in and set up.