Burn And 🥩 Harnessing (BASH) Deflation Economic Model

[Dermot (Dermot O'Riordan)]

@shane

ARR’s minimum servicer allotment of $250k get exponentially eroded by the time we hit 10B relays a day.

ARR doesn’t include a minimum servicer component of $250k. ARR is solely about reducing the RTTM to target 220k of POKT per day in daily issuance as per the following extract:

@JackALaing

Calculations for Annual Emission Rate:

• Approximate Target Daily Emission Annualized = 220k*365.256366 = 80,356,400.52
• Current Total Supply = 1,612,712,238.346057
• Annual Emission Rate = Daily Emission Annualized / Total Supply * 100 = ~5%

@shane

In the case of POKT hitting 10B relays a day with a POKT price of $15c, ARR would crush the Servicer economy and produce significant overburn (Annual Emmisions Rate of -7.73%). BASH on the other hand, is able to maintain the Annual Emissions Rate goal of 0% (making POKT deflationary) but still maintaining a realistic node economy.

I think there is a misunderstanding in the quote above.

-7.7% deflation is a good thing for all of Pocket’s stakeholders. And is much better than 0% inflation/deflation. Deflation reduces our supply and naturally means that protocol revenue is high. A deflationary scenario where Pocket’s economy is burning more POKT than it is minting - in a manner that sufficiently incentivises all stakeholders, and accounts for the growth needs of the network - means that Pocket’s economy is healthy and sustainable. Provided these conditions for sustainability and growth are met, there should be no such thing as an “overburn”.

Furthermore, capping protocol revenue at a number that matches minting would actually mean our protocol revenue nets out to $0. As per:

@JackALaing

A more traditional way of expressing Token Terminal’s equation might be

net protocol revenue = gross protocol revenue (POKT burned from apps) – protocol COGS (POKT minted to nodes)

The POKT minted to nodes can be thought of as a Cost of Goods Sold (COGS) for the protocol, since it is a cost that is incurred by the protocol in the process of performing the RPC relay service (the POKT is minted to nodes in proportion to the number of RPCs they relay).

All holders of POKT will benefit from a reduced supply, including node runners, as it is likely that their node rewards will go up as each unit of POKT they receive for the work will be more valuable (unless there is a USD cap, which is a separate conversation, and explicitly not part of the ARR proposal).

@shane

If the price of POKT hits 15C then the servicer budget is only $86k with ARR, which is 1/3 ARR’s advertised servicer budget. BASH stays at $219k even with the price drop.

I’m not sure where you’re getting these numbers from in the quote above? If the price of POKT goes up to 15c, then daily node rewards will be 220k POKT * $0.15 = $33k per day / $990k per month / $12m per year

This will likely be too high unless we’re talking about many more relays than 10B, but at those price levels, it’s a good problem to have. And when we make such decision - hopefully proactively, as opposed to reactively - we will be armed with much more data and consensus from the community.

@shane

Look at what ARR would produce if POKT hits 2C… only $114k for servicers

As mentioned in my previous comment, we have much bigger problems if POKT falls to 2c. And neither BASH, ARR or MINT can fix such problems alone.

@shane

However, as you can also see on the left, BASH keeps the ecosystem as balanced as possible. Instead of having a -4.55% Emissions (which is far more than what we need in the short term)

I largely agree that even the reduced inflation rate proposed by ARR is likely more than we need at this point in time in Pocket’s growth journey, but I am very wary of attempting to lock in a floor for node rewards right now.

What we do know is that inflation needs to be cut. How much we should cap node rewards to is more uncertain, and the decision was made when drafting ARR to push this decision further down the line. We are also not sure how much consensus there is around a USD cap on node rewards yet. And it will be hard to push for one without the results from the node runners survey and deeper market analysis, which will likely take at least another month to get all the data, analyse it and publish it.

@shane

While BASH has more algorithms, I would not say it adds any additional complexity (especially with the staking turned off for a later date). I would argue ARR is much more complex, not because of static 255k POKT per day it mints, but because it creates an unbalanced ecosystem that is dramatically effected by sways in price. Price drops exponentially hurt other ecosystem participants in an uncontrolled manner.

I disagree mainly because ARR shouldn’t be seen as a holistic solution to every problem in Pocket’s economics.

It sounds like you agree with the need to reduce inflation. So I think we should start there, as it feels like there is consensus around it. Voting for ARR doesn’t mean voting against the additional parameters proposed by BASH, or MINT. It’s simply a vote to reduce inflation. And to continue the conversation about everything else, such as:

• whether or not a USD cap on node rewards is desirable, and if so, what that cap should be
• the gateway fee, and how that should rise with relays, as well as the quality of Pocket’s overall service, along with the need to incentivise new gateways to join the network and drive demand
• experimenting with a staking component for gateways (as will be the case for v1)
• increasing minimum node stakes
• any other bright ideas!

@shane

ARR will require many more proposals in the future to create balance. Once relays hit over 10B, and POKT becomes deflationary, ARR is designed to just keep feeding deflation without providing any balance for other ecosystem participants. BASH provides balance that scales to infant relays past 10B.

I agree that ARR will require more proposals in the future. Still, I actually believe that doing things in a step-wise fashion that everyone understands is much more preferable than trying to design the perfect complex system upfront when there are still so many unknown variables to work through, such as gateway incentives, the USD cap, staking, and so on.

And I will be much more comfortable agreeing to more complex changes if 1) they will contribute to our understanding of the economics for v1 and 2) we have sufficient data and analysis to justify them, including from the third party expert that is to start work soon on helping to define the minimum viable parameters for Pocket’s economic design in v1. (this last part is something that I hope that you @shane and @RawthiL, amongst other notable community economists, will play a significant role in)

In closing, ARR is simply a vote from the community on whether or not we should bring inflation down to c.4.98%. We are leaving the door open for all of the other interesting mechanisms and parameters proposed by BASH and/or MINT, and simply ask that we do this in a step-wise fashion. Cut inflation now, and buy more time for everything else.