Hey @RawthiL thanks again to you and the POKTscan team for all your amazing contributions over the years, and almost every week at this stage.
And this is another genuinely impressive contribution, even if I believe that this proposal isn’t what Pocket needs right now, as it will cause more harm than good if introduced.
In responding here, I am also bringing some of our private conversations to the public sphere.
Unclear Purpose
First off, my main concern is that it’s unclear what the actual objective of this proposal is. If it’s simply to prevent inflation from dropping as low as 4.98% (as per the ARR proposal), then it would be better to argue about this directly rather than introducing so much complexity and governance overhead by way of the introduction of 10 new parameters to govern and update over time. Notwithstanding how thoughtful this proposal is, it will still be way too unwiedly for new contributors to grok.
Further, given that we are about to start a major first principles review of Pocket’s economics as part of the economic R&D workstream for v1, it is unlikely that this newly proposed system will be relevant for v1, or even in a few months. So the cost/benefit is unclear.
Doesn’t fix inflation concerns
Secondly, in addition to the point above, it is highly unlikely that this proposal will achieve our primary aim at PNF (with the ARR proposal) to:
Partly because this proposal has so many parameters, so it will be harder for the message to cut through, but also because MINT allows net inflation to increase again in the future, even though it is expected that such a higher number of relays, meaning more protocol burn and more demand for Pocket’s service would result in a higher price of POKT, which could mean even additional increases in payments to Pocket’s supply side, in terms of both the quantity and value of POKT, without clear justification for doing so.
Node runners are some of the largest holders of POKT; if they don’t care about the network’s success, then we have much bigger problems to worry about. Can you explain why node runners wouldn’t care about the growth in the value of their POKT?
The supply side benefits from capital appreciation from their POKT stakes and revenue growth from servicing relays in the network. So I disagree that the supply side won’t benefit from the network’s growth and success.
This proposal hinders the growth of our demand-side
Thirdly, the attempt to program the protocol fee for gateway operators seems to be an unnecessary distraction prior to v1. In any case, it’s much harder to grow demand than supply. And any attempt to reduce the incentive to grow Pocket’s demand side will cause us all to suffer. We see this in our conversations with new gateway operators who are worried about the cost of each relay they bring to the protocol. The protocol fee is clearly low, but it’s still a barrier to growth when Pocket currently has a tiny fraction of the market.
The fact is that no gateway operator is yet profitable. So this is an attempt to deal with a problem - excess profits of gateway operators - that doesn’t yet exist.
Is POKT money or capital or both? And what should we optimise for right now?
Lastly, I acknowledge that we have fundamentally different views of how Pocket’s economy should be designed and structured and how stakeholders benefit from their role within the ecosystem. For example, you have mentioned several times that you believe that POKT should be analysed in the context of money. This is a much longer conversation, but my main pushback on this is that without designing the Pocket ecosystem so that POKT becomes a true store of value - as opposed to a cryptocapital asset or a cryptocommodity - the velocity problem will make POKT’s value capture potential difficult, to say the least. I view POKT as a combination of a a cryptocapital asset and a cryptocommodity, and I refer you to the work of Placeholder in this regard, as my views largely reflect theirs - Value Capture and Quantification: Cryptocapital vs Cryptocommodities — Placeholder
The question of the sustainability of Pocket’s economics is genuinely holding back new contributors and capital providers from joining the community. Reducing protocol inflation in very clear and explicit terms will give confidence to the outside world that Pocket is on the right path, making it easier to incentivise more talent to join us and raise Pocket’s profile to the world-class level we are all aiming for.
Pocket’s supply side will get paid more and more in direct fees over time for their work and will also benefit from the capital appreciation in their stake. Excess rewards will get competed away by other more efficient networks, and the more we overpay the supply side, the more we risk causing another unsustainable boom and bust cycle, just like last year.