Apr 1, 2021
The dual earning potential of Sentinel’s $DVPN
This article examines a. staking & compounding $DVPN as well as b. $DVPN as a Work Token — Income from fees accrued from dVPN services.
INTRODUCTION
Please Note: The below do not constitute or intend to serve as financial advice and represent the author’s views and understanding only. Please DYOR at all times. Cryptocurrencies are extremely volatile assets.
This guide aims to examine the earning potential of Sentinel Network’s native token $DVPN. Before we proceed with an examination of the token’s potential it is worthy making an introduction to the Network as well as the ecosystem within which it will be growing over the coming months/years.
What is Decentralised VPN (dVPN)?
Decentralised VPN is different from normal VPN companies in the architecture of the network. Decentralised VPN is a peer-to-peer Network where anyone can offer their excess bandwidth to the network. On Sentinel dVPN in exchange for their bandwidth contributed, dVPN nodes will earn DVPN tokens. Others that want to get access to VPN can plug into the different decentralised VPN nodes that are offering bandwidth. They can route their traffic through those bandwidth providers. In centralised VPN companies they can be shut down because they are running on centralised servers. However, the Sentinel decentralised VPN protocol is far more robust with a global set of nodes that are all running independently offering excess bandwidth to the network.
The Sentinel Economy
The Sentinel economy consists of:
1) A network of Independent dVPN applications monetizing through fiat and crypto
2) Community node hosts receiving payments in crypto
3) End-users paying in fiat or crypto
4) Sentinel token stakers accruing a % of the fees paid to node hosts
Sentinel is not a single dVPN, but a network of autonomous and independent dVPNs that are each responsible for their own customer acquisition and branding strategies.
$DVPN & Interoperability: Cosmos & Beyond
After several years of being an ERC-20 token on the ethereum network, Sentinel’s $SENT has now transitioned to the Cosmos Network as a sovereign token. To mark and celebrate this milestone the Sentinel team has changed the token’s ticker to $DVPN.
Sentinel Network’s token $DVPN is now running on Cosmos SDK/Tendermint Core and now is a delegated Proof-of-Stake (dPoS) token.
A 50 strong validator set currently secures the Sentinel Network.
Sentinel’s token ($DVPN) going live on Cosmos coincides with the implementation of the Inter Blockchain Communication Protocol (IBC) which means that the exchange of value and data has been enabled.
For an introduction to IBC please see this article which — albeit basic — offers an abundance of resources at the footer:
DeXs/AMMs
Sooner, rather than later, $DVPN will be traded on DeXs within the Cosmos ecosystem because of IBC.
The most important and notable DeXs include
- Gravity AMM/DeX
- Sifchain DeX
- Osmosis
- Kira
This means that you will be able to exchange homogeneous Cosmos tokens between one another or exchange for stable coins.
Bridges
With the development of bridges the aforementioned AMMs will support the exchange with pegged assets from heterogeneous chains (e.g. $ETH).
Furthermore, the development of bridges to heterogeneous chains including ethereum, $BTC, Polkadot, BSC and more, will allow either:
a. trading pegged tokens of the above ecosystems on Cosmos DeXs or
b. bridging native Cosmos assets over to the above ecosystems.
This means that $DVPN will be traded on Uniswap, Sushiswap, BSC etc.
On top of this, users of the dVPN services of Sentinel Network will be able to purchase dVPN services using the above assets.
IBC is anticipated to enable an unprecedented exchange of value and data.
2021 is the year that the Cosmos ecosystem will shine.
In the following two sections we will examine the earning potential of $DVPN which is dual, namely it will be generated from:
a. Staking/Delegating $DVPN & Compounding Rewards
b. $DVPN as a Work Token — Income from fees accrued from dVPN services
A. STAKING/DELEGATING $DVPN & COMPOUNDING REWARDS
Introduction To the Token Economics of the Sentinel Network
A few days back, just as Sentinel was transitioning to Cosmos, the token economics were released to the public.
According to the Token Economics, the inflation of the Sentinel token ($DVPN) will be divided into epochs of 6 months. After each epoch, the inflation rate decreases by 6% in halving-like fashion. The initial inflation rate will be 49% on genesis (a monthly rate of 4.0833% in the first epoch). This model will be adopted until the blockchain validation rewards reach a 13% annualised inflation. From that point onwards, inflation will proceed in a constant decay model (on a per-block basis) approaching 0, until the Sentinel chain maximum hard cap of 48 billion tokens.
There is a provision for a tiered inflation rate where delegators will be incentivised to lock their tokens fro prolonged periods of time but we will more closely examine the default rewards for the purposes of this article. For more info on the token economics see the article above.
49% annual inflation for the first 6 months — how is my ROI determined?
It appears that for the first 6 months, stakers/delegators on Sentinel Network will share the 49% inflation being generated for this period of time. This means that unless all tokens are staked, rewards (ROI) will be more than 49% as they are shared by only those tokens that are staked.
Currently 78% of the tokens in the Network are staked. This translates to roughly 61% ROI for delegators/stakers. This is before validators’ commission (between 1–10%) or compounding which is a very powerful feature as we will see below.
Staking Example
So for example, if you stake 100,000 $DVPN ($3,600), at current inflation rates and bonded tokens ratio (ratio being 78%) you will get 5,000 $DVPN per month which translates to approximately to 180 USD per month (2170 USD per year) at current $DVPN value. That translates to 61% ROI!
Currently Ian from Secret Nodes, a validator in the network has set up a rewards calculator which can be found here:
Staking Rewards also offers a staking calculator below:
Compounding Example
Compounding is a very powerful feature on PoS Networks such as Sentinel as it can sky-rocket the already enticing rewards further.
If you compound your rewards, i.e. stake the rewards you receive every 1–3 days then on the above staking example of 100,000 $DVPN (currently valued at 3,600 USD), you will get 7,000 $DVPN per month which translates to approximately to 250 USD per month (3000 USD per year) at current $DVPN value. That translates to 84% ROI!
This is a 70 USD per month increase per 100k $DVPN over staking without compounding your rewards for the said amount of tokens!
You can use the below calculator so that you calculate compounded interest over the current one offered:
For a guide on how to delegate/stake $DVPN and which wallets to use please see the following article:
B. $DVPN AS A WORK TOKEN
What is meant by Work Token?
According to the White Paper of Sentinel Network, $DVPN acts as a work token, thus allowing token holders staking the token to earn rewards. These rewards are generated by the node hosts who provide the bandwidth to dVPN applications built on the Sentinel framework.
The strength of the decentralisation of Sentinel’s blockchain consensus is primarily dependent on the staking participation in the validator governance of the Sentinel hub. Token holders stake their tokens to credible validators to earn staking rewards while increasing the security of the network by effectively increasing the ‘cost to attack’ for a malicious entity. As the transaction for dVPN services in exchange for digital assets (cryptocurrencies and stablecoins) happens on the Sentinel hub, stakers of the Sentinel token will receive rewards from revenue generated by node hosts on the Sentinel network in exchange for contributing towards the transactional security in the ecosystem.
A percentage of the earnings generated by node hosts will accumulate in a pool before being periodically paid out to token stakers. The value accrual by token stakers from the revenue sharing will be in direct correlation to the aggregate demand for dVPN services from applications built on the Sentinel framework. An increase in the overall number of users and subscription revenue generated from dVPN applications built on Sentinel will result in an increase in the number of required dVPN nodes to service the growing user bandwidth requirements.
A similar notion, Take income is not unknown to the Cosmos ecosystem as Akash Network offers similar incentives to stakers.
$DVPN Work Token Rewards: Scenario 1
So let us make a scenario on how $DVPN acting as a work token would look like in practice.
- By 2022, VPN services have been projected to amount to almost $36 billion.
2. Let us assume that Sentinel Network achieves a 10% market penetration by that time, then this would translate to 3.6 billion USD.
3. Since the proposed Work Token Rate is 20%, this means that 20% of this amount i.e. 0.72 billion USD would be shared between token stakers.
4. If we assume that 10 billion tokens will be staked by 2022 this would translate to 0.072 USD per $DVPN token.
This means that on top of staking rewards, token holders who delegate their tokens would earn income from the dVPN services provided within Sentinel Network and that income (on top of the staking rewards) would amount to 0.072 USD per token for that year according to our scenario above.
Important to repeat that this amount would be on top of staking rewards.
Although the above is a scenario, it is indicative of the potential of the $DVPN token.
It follows that a fair valuation of the token should be multiple times over that projected income if all the above conditions were met (market penetration, VPN services forecasts etc).
$DVPN Work Token Rewards: Scenario 2
An even more bullish scenario can be made following Block49's research paper on $DVPN entitled “Sentinel dVPN: A Blockchain Framework for building Decentralized VPN applications”
- According to their forecast by 2027 the VPN market would have a $107 billion market size.
2. According to the forecast, $DVPN could be valued at $23 billion based on its performance between 2019–2021.
3. Since the proposed Work Token Rate is 20%, this means that 20% of the $23 billion amounting to $4.6 billion would be shared between token stakers.
4. If we assume that 20 billion tokens will be staked by 2027 this would translate to $0.23 per $DVPN token.
Again, although the above is a scenario & by no means financial advice, it is indicative of the potential of the $DVPN token.
It follows — again — that a fair valuation of the token should be multiple times over that projected income if all the above conditions were met (market penetration, VPN services forecasts etc).
Challenges
Adoption will be one of the biggest challenges for Sentinel Network but one cannot ignore the potential here.
Below follows the Appendix with some resources that readers may find useful for their research on the Token.
