I think the initial reward system is indeed very lucrative and does not sound sustainable. That is unless your friend or anyone who holds a contest plans to do it one time and not on a regular basis.

Your suggested prizes still sound lucrative to me maybe because I have small wallet amount. 😊 But I think it will be more practical both on the side of the host and the contestants to start smaller and gradually increase the prizes as the host's account grow. This will be sustainable on the side of the host and a teaser for the contestants to keep coming back for something bigger.

And yes, I agree with your idea of spreading out the prizes so more will be delighted and compensated for their efforts. Though, the host need not compensate everyone. My suggestion is set the number of contestants to be rewarded. For example, main prizes go to the top three entries and consolation prizes go to 50 honorable mentions. Assuming the number of contestants are not met, the host can divide the whole pool prize among all of the contestants.