Pre-Proposal: Relay Driven Inflation (RDI)

Proposals Pre-Proposals
8

As a co-author of this proposal, I’m obviously in full support of this proposal!

There are some more things that should and will be added before this proposal goes into a final proposal stage, which is making clear what are the exact outcomes of this proposal and reflections on inflation rate in various situations such as the following:

  1. relays go up
  2. relays go down
  3. POKT price goes up in USD
  4. POKT price goes down in USD

Also, it should be crystal clear that this proposal is supposed to be in place as long as POKT has v0 on mainnet and this coin economics stops and should be replaced with a better one the moment when v1 gets activated.

The immediate result of this proposal upon implementation is basically where SER proposal will be at the end of its cycle. The only difference is that this proposal saves POKT investors from months of pain due to the imbalance of current inflation rate (newly minted supply of 700-762k USD per month) compared to paid demand currently being locked in on a monthly basis by a POKT Biz-Dev/Sales team. Imbalance mentioned in proposal has a corrosive effect on a price throughout the entire 1 year period until v1 goes live. This proposal fixes it by instantly reducing the inflation rate to a healthy equilibrium level of freshly minted supply and paid demand. Because of the prevention of excessive coin emission (inflation rate) for a whole upcoming year, this proposal saves the POKT price at levels most likely way higher than levels where SER would lead during the full 1 year of imbalance in place.

Purpose of this proposal is to stabilize the tokenomics, find a new ground price from which POKT can only start going up and be able to survive until v1 gets finished and implemented on mainnet, starting a starting a whole new chapter of Pocket Network.

5 Likes
9

Relay Pricing

Infura pricing is just used as an index since it’s the gold standard. Happy to average the relay pricing out with other reputable providers if you know any. I picked infura only because they are the oldest and they price their relays per quantity (same as us) and not by compute units.

You also misunderstood the relay pricing. 0.0002 is the “monthly price” for an average daily relay.

Infura charges $1000 per month for 5M relay daily. So that’s how that figure is calculated

$1000/5m = 0.0002 per relay

0.0002*1.2B = 240k USD emission monthly

Price per single relay comes out to be $1000/152m = 0.000006578947 per relay as calculated by @shane

This is 12% less expensive than PNI price per single relay.

image

To customers our strength over infura is the variety of chains, especially archival, and more reliability against outages. Data integrity is our weak point.

Bounding minting with relay volume

All the relay growth were free relays, as PNI is shutting down free relays I expect growth of relays to be slow but compensated for. Our highest daily relay was 1.5 billion. Also from the graph, overall relays have not changed much since August of last year. Always going back down after touching 1.3 billion.

Link to Discord Post

image

Btw here is the emission at 1.5b, still not bad

image

A major problem with SER is, we can get to a point where USD emission will not be able to support the existing relays or growth of our relays. This is going to be disastrous for the network. Our bills and sales are in USD so should be our emissions

image
image691×168 60.6 KB

However, it is only slightly better for RDI, we can continue to run our network at least although inflation will go up. Overall, I agree it’s a problem for both, and we should not get to this stage which brings me to the next point.

Inflation Balancing

Nowhere in the proposal I mandated PNI buys off pokt from the market and burns it. I only “hoped” they could. I understand they have other expenses. This proposal only brings the finish line closer. PNI being able to buy/burn 50k-60k USD worth of POKT will make a greater impact than if they did it at 760k USD emission.

Also, the situation of pokt being at $0.01 and 1.2B daily relay needs to be avoided at all cost and we need to think ahead and start burning some from now or reduce the free relays. This applies to both SER and RDI but again that’s for later and it’s not part of this proposal

Network Cost and Node Running

The human cost comes from managing clients (bad staking mechanism) and forcing node operators to run all 15 chains(in three regions). Think of a scenario, let’s say I am running eth validator at my home, maybe I should also provide RPC to make some income from pocket network.

Those are the people we should target. They own their hardware, so they realize the full APR pocket network is providing instead of giving a chunk to ovh/hetzner etc.

Smaller ones who own their hardware will not die.

No node operator will give out 75% of rewards if this proposal goes through.

Regarding geomesh, we will still have that. Large Node operators can maximize their rewards vs. cost if they choose to run top 5 chains in all regions. Since the chains are the same, they will reduce their human cost and running a limited number of chains will reduce hardware cost.

This will leave out bottom chains for small node operators. We should also just let the pocket economy dictate if they want to run another chain in the same region or the same chain in a different region.

I don’t want to help small or large node runners; I want to reduce network costs. If a small node operator can run the chain on their home server for cheaper that’s good. Or if a large node operator owning hardware in colocation data centers can serve for cheap that is also good.

We should not discuss decentralization at this point. Let’s make this network work for customers and investors first!

Overprovisioning

We are overprovisioned by any metric you look at. Whether it is number of tokens staked or nodes. If you disagree with that, I have another metric for you. We currently have 62 distinct domains running ETH chains. 62 Eth chains for 500k daily relays tops? If I add in geo mesh that makes it worst. If you do this for chains having 100k relays and less, it is even worse.

Domains may share chains, but we will never know, but I assume just from experience that not many people are sharing, because with non-custodial staking you could simply delegate your tokens in a safe way. Also, CC is not live yet.

Let me know if I missed anything, or you have some other concern.

2 Likes
10

Unfortunately, this is a hard but necessary step. Node Operators especially big ones have benefited the most from inflation especially by using a version of LeanPokt and Geomesh before they were released to the public. It is time to end the party.

Small Node operators can still survive if they own their hardware and they should be able to run a couple of chains to get decent rewards. Low Inflation means you don’t have to chase the best returns to compensate for devaluation of your tokens.

1 Like
11

See my response to Ramiro

1 Like
12

Hi Shane, the relayPricingIndex represents the cost of roughly 30 relays or 1 relay every day in a month.

It is basically 0.0002 relay per 30 or 30.4 relays so your price of a single relay is correct. Either way it makes very little difference to calculations, and our target emission setting process is also an estimate anyways.

I will make this clear in my proposal,

Thankyou

1 Like
13

I am in support of this proposal while v0 remains the primary gateway in production. I do agree with some of Ramiro’s points and appreciate his well articulated response. I acknowledge that economics is a counterintuitive domain that requires qualified expertise and experience to optimize, as well as agree with the general sentiment that SER, given current market conditions, will lead us all to ruin if something drastic doesn’t change.

I do also believe that we need to optimize the network to favor node runners who put in the time and effort to improve QoS for the network as a whole, as well as the net return for clients who want to invest in our ecosystem. I’m not qualified to fully understand psychological incentives and economics, but I do think we are wasting money inflating all our bags away to pay low quality node runners who act as dead weight to the rest of the ecosystem.

4 Likes
14

A complementary point: the users can hardly consume 100% of 152M, so the actual cost would be higher than the theoretical price. On the other side, PNI’s price is based on the real usage. Considering this, probably the real cost of using Infura is a little bit higher than PNI’s price

2 Likes
15

Yes great observation!

Plus PNI offers 250k free relays vs. infura’s 100k free only non-archival relays.

Using Infura’s pricing to mint pokt for each relay served by our node operators is actually quite generous.

1 Like
16

Thanks for the answer, I will respect the topics:

Relay Pricing

Thanks for the clarification, now the price makes much more sense.
I suggest that you change the initial post to reflect the value of the relay to the correct one. The notion of price per “daily relay” is confusing and should not have the units [u$d/relay].
The actual value of the relay in u$d for the Pocket network client will ultimately be selected by the portal runners (currently only PNI), the price in POKT of the relay is what the DAO should control. Anyway this discussion is not really central to this topic and I think that the price that you chose is a good starting point. Lets assume it is fair and correct.

Bounding Minting with Relay Volume

Its fair to think that growth was from free relays, however I’m a little more optimistic on the sales team. I will explore what happens if we reach 3B relays in a year.

As I understand you are bounding emissions to relays AND the ecosystems revenue which you obtain from PNI sales (I disagree with this, but lets move forward). If sales go up, the minting should go up. You mention that minting 240K u$d worth of $POKT per month will put us in balance. So, if PNI doubles its sales we should mint more? (I’m not clear on this). This seems to unbound the minting from the relays again, as revenue is proportional to relays, you cant have both… I will explore both scenarios (bounding minting to relays and to revenue)…

Now, here are the results from my “unhappy paths” for this proposal. You will find the calculations here, please let me know if you find any errors/miss-interpretations.
All scenarios share:

  • Time frame: 2023-04-01 to 2024-02-01
  • Initial $POKT price: 0.04 u$d
  • Initial relays per day : 1.2 B
  • Initial $POKT supply : 1.58 B
  • Linear interpolations between initial and end values.

Price Down, Relays Up (current scenario, bounded to your projections)

  • Final $POKT price: 0.02 u$d
  • Final relays per day : 1.5 B
  • Bounding minting to relays
    Result: RDI produces more inflation than SER after January.
    imagen
    imagen2320×1602 152 KB

Price Constant, Sales Up (probable scenario)

  • Final $POKT price: 0.04 u$d
  • Final PNI revenue: 720 K u$d/month (3 times higher).
  • Bounding minting to revenue (with more revenue we can mint more)
    Result: RDI produces more inflation than SER after November.
    imagen
    imagen2320×1606 156 KB

Price Down only

  • Final $POKT price: 0.01 u$d
  • Relays and PNI revenue constant
    Result: RDI produces more inflation than SER after November.
    imagen
    imagen2318×1622 158 KB

Price Down, Sales Up

  • Final $POKT price: 0.01 u$d
  • Final PNI revenue: 720 K u$d/month (3 times higher).
  • Bounding minting to revenue (with more revenue we can mint more)
    Result: RDI produces more inflation than SER after August and clearly exponential, pre-WAGMI again…
    imagen
    imagen2288×1594 157 KB

Price Down, Relays Up (limit case)

  • Final $POKT price: 0.01 u$d
  • Final relays per day : 3 B
  • Bounding minting to relays
    Result: RDI produces more inflation than SER after August and also clearly exponential, pre-WAGMI again…
    imagen
    imagen2316×1590 156 KB

Inflation Balancing

According to PNF post (more precisely the document they attach in the post), the current PNI revenue is:

imagen
imagen1254×216 43.9 KB

So, from the 1.2 B they only get paid for 200 M and they are committed to buyback only 60% of their revenue [citation needed]. Their revenue that can actually act as buy pressure for $POKT is actually 27.2 K u$d/month according to my calculations (see gist). If we modify your proposal to match this revenue level and keep everything else constant, we would only mint ~22 K $POKT, this is unbearable (IMHO)…

Network Cost and Node Running

We all agree that using hardware that has no cost, like blockchain nodes primary used for other stuff or independent node runners is the ideal situation, however the Pocket Network current incentives are not aligned with this and this proposal will not help that.
I fear that small node operators who do not care about the scaling or the price of POKT probably do not care also for the QoS or data integrity of their operations. But I fear this is a subject on its own and has little to do with this proposal.

Or they can choose to chew more from their clients and use their size to leverage the reduction in incomes from this proposal. They will feed on the smaller ones that capitulate. This has happened before with some node runners charging up to 99% rev share…

I disagree with this, we should be able to survive while keep the decentralization alive. Otherwise lets just pay CC for all the relays, they can handle them.

Over-provision

Its not the same to count Pocket Nodes than counting Blockchain nodes. If you agree with this (as I seem to understand from what you write), you should make this clear in the proposal and remove all mentions to Pocket Nodes in regard to over-provision to avoid confusion.

Yes, we are over-provisioned and we should try to reduce that, but again this proposal is not the right way to do it for other reasons that I mentioned earlier in this post.

5 Likes
17

RDI is intended to produce just enough inflation at market rate of a relay to keep our system going. Nothing more and nothing less.

I already listed out the reasons why 3B is not possible with v0 in the near term, I will not repeat here, but let’s assume we fixed all our problems.

Assume we are doing 100b relays daily, but the price remains the same, SER will continue to decrease inflation.

Stop and think here for a second about what will happen? Node operators are being asked to do more work for little reward. The result is we won’t be able to support 100b relays and system collapses. Similarly, if token price keeps decreasing and relays stay at 1.2B per day, SER will eventually kill the project.

image
image1206×289 12.5 KB

RDI VS SER: At 126k USD System will fail to support 1.2 Billion daily relays

Flip Side, we have been rewarding node operators a lot more than the work they have been doing and if SER continues, we will continue to do so at this rate of relays.

This is a fatal flaw in SER.

Now let’s go back to the situation where token price remains the same, but we are doing 100b relays daily. Although possible, this imbalance is really a contradiction. We are saying our system is working great, customers are paying, and APR is high to node operators because of RDI but our token price is not increasing? I hope you see that we should not be in this situation for long from an investor’s point of view. The likelihood is high that token price will catch up to bring the APR down.

The buyback you mentioned may help at lower prices of pokt with SER, but as many of my plain tables show, at higher prices they will be a drop in the ocean because if price goes up, SER will cause higher USD inflation than the buyback amount. High USD inflation will put a reverse pressure on the token causing it to go back down. This makes the token unattractive to hold.

Regarding overprovision, it does not matter to me how you come to that conclusion if we agree the system is indeed overprovisioned.

1 Like
18

Thank you @crabman for starting this thread!

I have to give this proposal some more detailed consideration, but here is some top-level thoughts. It looks like @RawthiL has already covered much of this.

While I am very sympathetic to Relay Driven Inflation (“demand-centric emissions” to use @vitaly’s terminology from the days where SER was being debated and shaped), I think it is premature to go down that road. Balancing emissions to demand is something that happens in maturity, not during the bootstrapping phase. We are still in the bootstrap phase.

First, true balance between demand and emissions should only consider paid demand. If relays are offered for free to a set of clients, either the gateway providers or the network providers need to absorb that cost. If the gateway providers absorb that cost, then from the network perspective, those relays are paid relays, not free relays and they can be factored into setting emission levels. However, that value right now is zero (PNI does not pay the DAO for relays). If network providers absorb that cost, that means network providers must service those relays without compensation as sort of a “tax” on their paid-for relays, hence those relays cannot factor into setting emission levels.

Even the 200M paid relays that @RawthiL quotes is too high by a factor of two to three because that number only means “some level of payment” not Infura-level rates. Infura-level rates cannot be used for a benchmark. It represents a retail level rate that POKT institutional clients receive from their clients. To secure a client such as Infura, PNI must offer a rate very competitive to Infura’s internal opex, which may be around 0.000004. So lets suppose ~0.000003 to 4 is a realistic gateway charge, gateways have their own opex and need to be profitable, so maturity means being able to offer service at the protocol level for 0.000002 to 3. By the time all is said and done, if we really want to enter into “maturity” phase now, we are talking cutting emissions by a factor of 30x from current levels, not by a factor of 3x. I don’t see the network surviving a 30x slash to emissions long enough to get to the 3B paid demand level. I understand the proposal is not to slash emission to 1/30th current values but to a value approximately 10x higher than this. That is fine, and the proposal can be considered on its own merit, but any pretext of it balancing supply and demand should be dropped.

Second, right-provisioning of the network happens at the granularity of individual regions and chains. Some chain-region combinations in the network are currently over-provisioned, some are right provisioned and some are under-provisioned and rely heavily on crutches such as altruist to obtain reasonable QoS. In v1, there will be capability to balance emissions to demand on a chain/region granularity, but that capability does not exist in v0.

For better or for worse, Pocket Network has staked its reputation and market differentiation on servicing a great multitude of chains. To slash emissions by a factor of 3x from current levels will surely force a further consolidation down to the “most profitable” chain/region combinations. This can’t possibly be good news for chain/regions that currently are right-provisioned or under-provisioned. The reputation hit from degraded QoS that results may be significant and perhaps not recoverable. It seems advisable therefore to wait to conduct the “experiment” of a drastic cut to emissions until v1 at which time smaller chains/regions can be preferentially propped up while focusing the drastic cuts on the high-volume chains/regions.

2 Likes
19

Qos is already bad, Speed is just one aspect of that.

Please read the proposal on the reasons we need to end this bootstrap phase. We are not really entering a maturity phase with this proposal, just cutting out emissions to sustain us till v1. We will need to potentially bootstrap again if v1 fixes the issues that is preventing the growth of our relays.

Portal currently charges higher than this infura rate on their PAYG model. This is something you have to take up with them and we can revise the benchmark.

1 Like
20

Thanks. Yes I will look into the proposal more. Also Q1 report will come out in about a week. The numbers will give us a good feel for current snapshot of paid demand. PAYG should not factor much, if at all, into those numbers. I will comment further after a more detailed read.

1 Like
21

Another important argument for RDI proposal is an expected delay of V1 release on testnet:

1 Like
22

POKT emissions policies roughly fall into one of the four boxes shown below. The original POKT policy was fixed $POKT per relay (10k uPOKT/relay). The original “tenthing” proposal would have continued this policy albeit at a reduced rate of 1k uPOKT/relay. Instead, the final WAGMI proposal pivoted to a fixed emissions schedule, denominated in $POKT. (FREN and SER chose to continue following the WAGMI construct in progressive manner, and thus are not system pivots.)

denomination
Emission policy POKT USD
fixed emission rate per relay original policy RDI
fixed emissions WAGMI/FREN/SER

RDI proposes a three-fold pivot away from the current status quo. (1) a large step down in emissions level (2) a return to fixed emission rate per relay rather than fixed emissions and (3) an abandonment of denominating the supply-side tokenomics in $POKT in favor of denominating it in USD.

The first two leads to interesting debates. The first balances the positive and negative consequences of forcing out a potentially significant number of nude runners from the network. Namely, potentially reduced token sell pressure to cover infra costs on the one hand versus loss of IP talent, loss of decentralization, loss of competition and QoS hits on the other hand. The second is also a worthy debate. A “necessary evil” of WAGMI/FREN/SER has been the decoupling of rewards from relay count. That decoupling was necessary during the hyper-growth of free relays in order to rein in run-away inflation, but can be reconsidered as we gain in assurance that relay growth going forward will be from paid relays (meaning relays paid for at market or near-market rates, not at heavily subsidized rates).

Setting aside further comment and debate on these first two factors, this post focuses on the third factor - namely the dollarization of the supply side. This has the potential to lead to unintended catastrophic consequences for the project and should be reconsidered.

The POKT token is on precarious grounds, as it is, due to the dollarization of the demand side. The only thing giving value to the token is the promise that in the future there will be a coupling, via app burn, between the demand side, denominated in dollars, and the supply side, denominated in POKT.

This arrangement is somewhat akin to the Bretton-Wood agreement – the US staying on the gold standard being analogous to the supply side maintaining a peg between 1 $POKT and a fixed number of relays. European currencies de-pegging from gold and relying on relations with the US to stabilize their currencies being analogous to the demand-side depegging the price it charges clients for relays from $POKT and relying on its relationship with the supply side to maintain stability.

Now, suppose the supply side is also dollarized (that is, $POKT is depegged from how may relays it represents), the raison d’etre of the POKT token has now completely been eliminated and there is nothing preventing hyperinflation from occurring and for the token price falling to zero, since the token becomes completely irrelevant. This simply cannot take place in the current system, imperfect as it may be.

Let’s illustrate this with an example. Suppose Q1 report shows $120k/mo in $POKT buy pressure from converting demand-side revenue to POKT (probably way over-optimistic), and suppose 15M (and falling) $POKT sell pressure from node providers. This represents the current system. The current price is more or less a projection into the future that investors have made that the days of $600k/mo protocol-level revenue are coming in the next year ago. Now suppose a series of bad news is released that shakes marketplace confidence. Say an 8-month delay to V1 is announced coupled with disappointing Q2 and Q3 sales results. Investor confidence plummets and the token price plummets as well – but never below the balance between $120k/mo buy pressure vs 15M $POKT sell pressure. So no matter what happens to the speculative side of the token price, the token price should not fall below the intrinisic value of $0.008 (and rising). This is paired with the assurance that inflation will never exceed 12% (and falling).

Contrast this to the RDI proposal. Now the $120k/mo in $POKT buy pressure is balanced by ~$200k/mo in node-provider sell pressure (making the same assumption as above that network size will grow or shrink until some 80% of rewards must be sold to cover infra costs). (The initial cutting of emissions by 3x may be beneficial to price compared to the status quo, but that is outside the scope of this post which is strictly on the dollarization of the supply side, not on the initial slashing.) Now suppose the same string of bad news takes place and all speculative demand for the token is lost for a season. We are then left with $120k/mo of buy pressure vs $200k/mo of sell pressure with no mechanism to establish equilibrium. Whether price falls to 0.01 or 0.001 or 0.0001, the sell pressure will remain higher than the buy pressure and the token will become hyperinflationary in a bid to keep up with the dollar-denominated RelayPricingIndex.

The destabilization of $POKT price that happens by decoupling from token from having any intrinsic value cuts both directions. A string of good news (v1 ahead of schedule, sales ahead of schedule) could cause positive price moves to self-reinforce, causing price to move much higher than it would in the current system. While that may be welcome to speculators, prudent risk management would never accept that potential outcome at the risk of allowing a mechanism that could just as easily do the opposite and drive hyperinflation and zero token value.

Bottom line: I suggest whatever the authors wish to propose in terms of cutting emissions, they keep emission levels denominated in $POKT and not in USD.

1 Like
23

RDI increasing inflation because of a price dump is a valid concern also raised by Ramiro. I have responded to him already but will list out my thoughts again.

No Inflation policy is perfect, and pros and cons must be weighed. Your analysis leaves out a very important part of the equation which is the impact on node operators.

There is unfortunately going to be a disaster at lower price whichever inflation policy you come up with.
Like for instance, SER at lower price will not generate enough income to keep node operators interested in
running the nodes because they are not paying their bills in POKT.

This will degrade our ability to support the existing relays let alone expand, which btw we rely on for buy backs. It does not help that SER continues to emit less and less POKT. So how are we going to get out of this situation? This seems like a cycle we will find it very hard if not impossible to escape. Price Dump → Node Operators quit → under provisioned → Relays Decrease → Buybacks Decrease → Price Dump…

If RDI is implemented, and we feel that token price has plummeted due to any reason, we should cut our free relays or increase the price per relay to reach an equilibrium state and avoid hyperinflation.

It comes down to POKT team and all of us to keep increasing the paid relays to support this system. We are not a country, we have no power to tax, take debt or wage war and our inflation should not mimic that model. Increasing income is the only way. Let me be very clear, neither RDI nor SER can become a substitute for that.

1 Like
24

It’s good to see the last sentence above because emissions is just one parameter in a wider system of supply and demand factors. The PNF thesis set out the multiple dimensions on which we need to pursue change to drive sustainable Protocol Revenue and I hope everyone joins the community call tomorrow when the PNF directors talk about the ecosystem thesis.

One thing that feels underdeveloped in RDI is the demand side of the hypothesis. Extrapolating out from infura’s price is a simple heuristic but I’d prefer to actually understand current reality and future forecast from the demand drivers: PNI. My understanding is their updated report with financials is due imminently.

I also see a second order consequence that is not discussed at all which is that cutting emissions proportionally cuts the DAO take. The DAO take is reinvested into many ecosystem participants, not just node runners. So adoption of RDI at the rates described is also a vote for 60% less funds to bootstrap new gateway providers or demand generators or 60% less funds to help out protocol devs if they ask for more support.

How do the proposers think about these two items?

3 Likes
25

Agreed. Hence my overall take-away which is since increasing paid relays is the only thing that is going to help at this point no matter the supply side policy, lets concentrate on that while leaving supply side as is rather than concentrating on increasing paid relays in conjunction with a major overhaul of of supply-side operations.

But back to my argument against de-pegging $POKT from number of relays, why not consider modifying your proposal to the much simpler RTTM=167 (the initial value you are proposing, assuming $POKT price of $0;04 and daily relay count of 1.2B) and be done with it. You still get the drastic upfront cut and you still get the reward growth as relays grow. But it avoids all the pitfalls mentioned in my previous post. Node providers then enjoy the benefit as relays grow and price improves and feel the sting (with potential further cutbacks needed) as price drops, rather than being completely insulated from $POKT price as in your current version of RDI.

1 Like
26

There is no magical way to drive the price up, and it is not a problem of emissions (entirely), so drastically reducing emissions wont fix the price.

You are expecting that after a hard reduction of the emissions many node runners will capitulate and bring the network costs down. Thus reducing sell pressure and drive the price up. That should be true either with RDI or just by reducing the RTTM. The only difference is that if the price goes down (a little), RDI would be able to compensate emissions and a fixed RTTM not. According to you, a fixed RTTM would translate in lower rewards (in u$d), making even more node runners leave the system, taking us to a dangerous situation where the production falls (and the death spiral that you mention begins).

(This death spiral.)

Under RDI, with a low POKT price:

  • Reducing the number of relays due to cutting free relays, will translate into emitting less than 240 K u$d, triggering the death spiral (but no hyperinflation). Our demand side is elastic, not our supply side, reducing relays will not reduce sell pressure. If you argue that the reduction of supply side will only be reducing capacity that we have for free relays, then this argument can also be used in a fixed RTTM scenario.
  • The ability to increase the cost of the relays is limited, if we charge more than others providers we will start to lose paid relays in favor of other services. If POKT falls 25% will we be able to increase the relay costs 25% without loosing paid relays? Also, this mechanism is not outlined in this proposal and can be true for a reduced RTTM scenario too.

RDI is simply too risky:

  1. We bet on rapid reduction of the network cost:
    If we underestimate the treasure of the node runners they could keep a high sell pressure for months before reducing their infrastructure. Without reduced sell pressure, the price will continue to go down.

  2. We bet on small reduction of the POKT price:
    If we tie the relay price to USD and emit POKT accordingly, we can create an hyper inflationary situation if sell pressure does not decreases rapidly (see my previous response). RDI creates a positive feedback loop with price, in a weak economy as POKT big dumps in the system (like node runners capitulating) can modify the POKT price, triggering more emissions and diverging rapidly.

  3. We bet that the network cost is 240K u$d, no more, no less:
    If we the calculated network cost of 240 K u$d wrong we could face the same problems that you point in SER, where low emissions affect the quality of the network and reduces relay count (death spiral). What if the network cost is 400 K u$d and we are low on the relay count to be profitable? This proposal will trigger the death spiral that you mention, but with a bounded emission to u$d, not even the POKT price going up will save the network as the emissions will be reduced as the price goes up.

5 Likes
27

Although I appreciate the effort and sincerity of this proposal, I’m not in favor of the proposed action. I’m largely in agreement with the viewpoints expressed by @RawthiL and @msa6867 and I would like to add a couple of points.

1.) From my point of view, the network is not “over-provisioned”. All sane node operators run what they consider to be the correct amount of infrastructure for their environment. Price changes (downward recently) have changed the definition of what “correct” means, and incentivize further cost cutting and consolidation but providers adjust or fail. That’s how markets work.

2.) From my point of view. The current price reflects the current relationship between buyers and sellers. Any attempt to peg production to price will fail.

If we want to cut inflation more or faster or slower or less, we have much simpler methods already at hand.

4 Likes