Executive summary

Dash gambling sites can make a profit by offering 0% house edge gambling by using part of the players’ deposits as masternode collateral. The sites would break even on the betting and make a profit from the masternode rewards. This can be done with little additional effort and no risk.

This is a chance for Dash to leverage the rewards in the masternode system to offer a unique and attractive service that would give a lot of people a compelling reason to acquire and hold Dash. Therefore driving Dash’s price and adoption.

0% house edge gambling is a big deal

A good 0% house edge gambling product is the most sought-after, elusive and mythical creature in the gambling industry. Betfair tried and failed, years ago I wrote about cryptocurrency making it inevitable, and most recently Edgeless is giving it a go with Ethereum smart contracts and an ICO.

A fun, easy-to-use, reliable and trustworthy 0% house edge gambling option would get a huge market share. It would revolutionize the gambling industry, disrupt all existing stakeholders and improve gambling’s place in society.

On average everyone would break even, with just as many winners as losers. This would cause gambling to be considered less of a social ill than it is now and loosen government regulations. Gambling, currently one of the most popular and universal pastimes on earth, would become a lot more popular!

How Dash can do this

Betting sites are generally account based. Players create accounts, deposit funds, and then play with those funds. This results in the sites holding a large number of player funds on deposit.

Dash masternode collateralization offers a way to invest part of these funds for ~6% per year return with no additional risk and little effort.

Most government currency gambling sites do safely invest part of player balances in interest-bearing bank accounts of the same currency as the deposits. This typically returns ~2% of the amount invested.

Most cryptocurrency gambling sites separate funds into a hot wallet and cold storage. The funds in the hot wallet are readily available to payout player withdrawals. The cold storage is kept more securely.

I propose this same system be implemented on 0% house edge Dash gambling sites. The only difference is that cold storage is used to collateralize masternodes.

I asked a few cryptocurrency gambling operators what % of player funds need to be in the hot wallet and what % could be in cold storage collateralizing masternodes. The rough consensus is to start with a 50/50 split to make sure you will always have enough funds on hand to offer instant withdrawals.

As the site grows larger and has the data to support doing so, the site should be able to increase the % kept in cold storage collateralizing masternodes.

If ~50% of player deposits are used to collateralize masternodes which return ~6%, the main revenue of the site would be ~3% return of customer deposits.

The site could have additional revenue from sub-optimal play and monetising the user base outside of the betting, such as advertising and cross-selling.

This is enough to turn a profit if the site gets enough players, which it will if it offers a good 0% house edge gambling product.

Notes on masternode collateralization

  • Dash used to collateralize masternodes is at no additional risk to Dash stored in the same way that is not used to collateralize masternodes.
  • Masternodes can be collateralized with funds kept in cold storage and on hardware wallets like Trezors.
  • The funds are not locked in any way, they can be moved to the hot wallet to pay out player withdrawals at any time.
  • Collateralizing a masternode is not technically demanding. There are many tools to make it easy from open source scripts to fully managed masternode hosting. The most popular managed hosting service charges $12 USD a month per masternodes which receives about $401 USD per month in rewards. The collateralization funds are not sent to the service.

Challenges and threats

There are several challenges for any crypto gambling site and they all apply to this idea as much as any other. These include

  • Legal issues.
  • How to gain trust from the community.
  • How to attract enough users in such a small ecosystem?
  • Attacks from hackers, scammers and blackmailers.
  • Some new technology or innovation could disrupt your business model.

There are 2 things that specifically threaten this proposal.

No-deposit betting

An active area of development in cryptocurrency gambling is allowing users to play without needing an account and without having to deposit funds and maintain a balance with the site.

The most notable examples have been the original Satoshi Dice and Directbet. In those cases, every bet was a transaction on the blockchain.

The advantage of no-deposit betting is that the player keeps control of their funds and does not have to trust the site. However, up to now, there have been convenience and usability disadvantages because making a bet via a crypto transaction is more work than making a bet from your balance on a site.

For most players, the attraction of 0% house edge betting would greatly outweigh the advantages of no-deposit betting.

Dash masternodes becoming less profitable

Right now Dash masternodes are overpaid. However, this is a temporary self-correcting situation. As time goes by more masternodes are coming online meaning every individual masternode receives rewards less frequently and is less profitable.

Also, the Dash coin emission decreases by 7% every year further decreasing masternode rewards and profitability.

Dash has an aggressive on-chain scaling roadmap that includes requiring a lot more from masternodes including specialized hardware. This would make running a masternode more expensive and less profitable.

Exchanges can offer free Dash trading

A similar concept could be applied to any site that holds customer balances. For example, exchanges also hold customer deposits separated into a hot wallet and cold storage. Exchanges could offer free Dash trading and use the Dash cold storage to collateralize masternodes.

Dash is the only cryptocurrency that can allow this with no additional risk. This should be used when selling exchanges with the idea of adding Dash trading pairs.

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