Master what?’ is a common reaction from crypto investors when they first hear about Masternodes. Yet these new crypto assets, which provide a reliable passive income, have experienced tremendous growth and are set to become the underlying infrastructure of the crypto economy.
Last October there were just 30 cryptocurrencies that supported Masternodes, while today there are over 500, some producing returns exceeding 100,000 per cent. With such massive growth, it’s no wonder that Fidelity – one of the world’s largest asset management companies recently entered the Masternode space. Fidelity announced it had taken a 15 per cent stake in Neptune Dash, a publicly listed fund that holds Dash Masternodes.
So what are Masternodes? Simply put, Masternodes are servers that receive a reward for verifying network transactions. Unlike traditional crypto mining, which requires powerful computers that consume enormous amounts of energy to decrypt each block, Masternodes offer the same level of security by requiring the owner to stake a substantial deposit in the native currency.
Masternodes offer further functions to their network and, for that service, they receive block rewards like miners. To simplify from an investment perspective, if you’re a Masternode owner, then you will receive those rewards.
In the cryptocurrency space there aren’t many passive income opportunities like Masternodes, so they represent a unique investment opportunity.
However gaining exposure to Masternodes can be quite difficult, since selecting which Masternode to own is not just about the highest ROI (Return on Investment). One also needs to consider the volatility of the currency that’s staked.
A major issue therefore is data. One needs to ‘spin up’ a Masternode on every crypto network to gather the necessary data in order to understand the ROI and the true value of the Masternode.
Added to this, investors need to have enough technical knowledge to understand the project and then the capability to configure and host their Masternode on a dedicated VPS server, often requiring knowledge of Linux. So, for a lot of people, Masternodes are ‘out-of-reach’.
But this is where it starts to get tricky… Masternode projects with the highest ROI are commonly small cap currencies with high volatility and low liquidity. This often results in Masternodes, which generate impressive ROIs, but the underlying staked currency may crash in value. Worse still, when trying to exit your position, the liquidity levels may be so low that you sell at a significant loss.
There are definite risks and it takes clever planning to mitigate these and some impressive tech to manage it. Although this is achievable, building a portfolio of Masternodes presents even further challenges. The costs of Masternodes can be prohibitive for most investors, with some of the better projects requiring a staked deposit starting at $10,000 and going as high as $250,000.
Investors are therefore presented with a few options to gain exposure to Masternodes. The most obvious is to do your homework, select your Masternode, configure the server and stake the deposit. Pool groups allow investors to stake collateral together, but they need to agree which Masternode to back and trust one person to distribute rewards. Like any asset class, the best way to invest is through a diversified and hedged portfolio that aims to dampen volatility while also achieving an out-performance ROI.
To help investors navigate this complicated landscape, INDX run every Masternode on the market to constantly stream ROI data. This is fed into their proprietary algorithm, which determines an optimum portfolio of Masternodes. INDX then use investors’ funds to stake the Masternode portfolio, collect the rewards and return an Ethereum dividend directly into their investors’ crypto wallets.
Through this kind of investment vehicle there is a very real opportunity for an investor to gain exposure to a consistent and reliable income stream in the crypto space without suffering such high volatility or having to manage the stress from mastering Masternodes.
As the crypto-market matures and regulation and custody become more prevalent, institutional investors are eyeing Masternodes as their entry point. The underlying stake can be insured, they generate exceptional returns, and if chosen selectively present lucrative digital assets.
It’s anticipated there will be in excess of 1000 cryptocurrencies offering Masternodes by the end of 2018 and, as the landscape expands, expect to hear the term ‘Masternodes’ become mainstream, much like its predecessor mining did beforehand. Like mining, those who identify the opportunity early are those who will benefit the most.
Important Information: The views and opinions provided by City A.M.'s CryptO Insider are of those named in the article and should not be taken as investment advice. This communication is marketing material.