EV of speculative traders
Relay growth
Price per POKT
Acceptable profitability of “sufficiently decentralized” node runner population
“sufficiently decentralized” node runner population
Acceptable entry point for “sufficiently decentralized” new node runners
What we can get an idea of is
Relative cost increase to maintain current profitability of node runners to match volume
Worst-ish case scenerio
Cascading effect of liquidity channels opening up, new node runners entering, relays drop.
Position
In general I am for the spirit of WAGMI because it aligns the correct behavior, grow the relay count with a sufficiently decentralized armada of node runners.
But I do not know what a “sufficiently decentralized” node runner population deems as “acceptable profitability”.
Other things like the risks associated with settling new chains may factor in here.
If we can not model that in advance, then we should air on the side of caution, monitor and change it where necessary.
Degen traders are f’in nuts so best to be clear up front by making inflation more predictable.
yeah, seems like a worthwhile investment to make - a crypto econ guy. this proposal could be in 2 steps: set up WAGMI so it can be deployed when ready, then workshop the numbers until it’s ready. and i’m sure it’ll be a constant tweaking kind of thing even after we’ve put it in place…
I am not appose to the idea of carving inflation, but I have a few questions/thoughts:
Is WAGMI considered a temporary solution, or a long-term solution?
In our model, the mint rate decreases by 10x from .01 to .001 and .0001 when total supply reaches 1B POKT and 2B POKT respectively.
This quote above is from Pocket’s Economic Brief which brings 2 questions:
A. Wasn’t there a natural curve in rewards with Pocket original economic model?
B. Is this model currently in place?
My hangup is having an economic model that is controlled by a few (the Foundation Directors). I do not feel this is a common mechanic for decentralized projects, and I would be concerned about the optics if this is our long-term solution.
I do think Pocket’s economic model should be dependable and changes should be gradual and predictable. Carving inflation does sound like a good idea, but I would want the change to be eased in with a plan. WAGMI goals (or whatever other inflation curve we have) should be eased in-- but this proposal seems to lean toward abrupt changes, depending on the Foundation Directors goals. Is there a way to keep changes gradual with WAGMI?
I feel it would be best to have a timelock on this delegation to the Directors. Basically this proposal would need to be renewed every X amount of months.
Should the DAO take lead on finding a long-term economic plan or is there another inititve in process?
Current model from the perspective of a dApp: say the dollar cost of starting has moved from $5’000 to $15’000 (to keep it simplistic)
So, we would already need an adjustment of the base to keep it competitive vs. centralized solutions.
→ That will free up POKT staked by dApps (= sell pressure)
→ the price will fluctuate up and down, but not trend, and we could even expect a falling price from validator inflation
Proposal:
Make the cost to dApps in a stable currency (USD) - use the proceeds to buy and burn POKT
As the price of POKT increases, you will burn less POKT per user joining, but bigger adoption will burn more POKT.
Validator side: reduce rewards as planned after 1BN, 2BN, etc…
Reward nodes based on the time the POKT has been staked (or time locks, for up to 5 years); the longer the higher the rewards. If this is not technically possible; then create a mechanism to burn some of the rewards for new nodes, descending with time, until you reach full rewards.
Further offsetting deflationary mechanism: take and burn a transaction tax of 1%; same for a bridge tax of 1%.
LP fees: once and if the DAO owns its liquidity, use fees to buy and burn POKT
I agree that an economic model controlled by a few appears off but I support delegating that authority to trusted members of the community and project. There is a difference between the community delegating authority to those members and those members simply giving themselves such authority.
Adam’s proposal is dependable as is by the community determining a target inflation.
The economic model you describe is not in place. It was a theoretical model that $POKT could adopt. However, it’s important to note that the POKT documents do consider that inflation would need be tamed over time. Adam’s proposal is consistent with that premise. The protocol is issuing 2 million tokens per day as a result of exponential growth. Adam’s proposal is not a radical deviation from POKT’s initial plan, rather it is exactly what was in mind.
Further, the POKT documents define the Maturity Phase of its Monetary Phases as “the point in which Pocket Network has crossed equilibrium and the growth in inflation begins outpacing growth in the total staked supply of POKT.” The Maturity Phase is when the economic model shifts to a burn phase. I think we can all agree that we are far from that phase but high inflation as a result of exponential growth may artificially bring this Maturity Phase closer than it needs to be. Limiting inflation now balances out this formula to permit an elongated growth phase with persistent incentives via inflation. In other words, pushing the Maturity Phase out allows node incentives to continue and for new participants to participate in the upside of $POKT.
Again, the ask here is to limit APR per node from well over 200% per node to under 100% and change nothing else. Given (i) my prior posts re $POKTs product market fit, (ii) POKT’s publicity, (iii) POKT’s node growth during stages when APR was closer to my proposal instead of 200% and (iv) our aligned belief that the Maturity phase should not be close, this seems like something the community can get behind.
Pocket’s original plan was to have inflation connected to network metrics. WAGMI connects inflation to a value metric determined by the Foundation Directors. That isn’t necessarily a bad thing, since it can help move things in a healthy direction, but it is a deviation from original plan. That is why I’m wondering if this is considered a short-term plan, or a long-term plan.
I would probably prefer that a long-term plan have inflation based on self-contained network metrics and not be reliant on human decision makers, hence my questions
Good angle @simsst . @zaatar also seemed to be hinting at this.
From the Demand side (dApps) perspective, any volatility in price doesn’t impact their cost to use the service. This is already dynamically adjusted by the previous and successful PUP 7 proposal. As a result, making the cost to dApps in a stable currency is not necessary.
I’d like to clear up a few things here while I work on a more detailed response with some recommendations on process and numbers.
The economic model will never be directly controlled by the Foundation. Adam is proposing that the DAO delegates the ability to consistently adjust the inflation to what the DAO decides. The Foundation is a Cayman entity with 1 supervisor (myself representing Pocket Network, Inc. a Delaware C Corp) and 2 directors (@nelson and @thegostep). We’ve always believed that the DAO should supersede any legal entity to avoid pigeonholing the DAO in a specific jurisdiction.
In the Foundation Articles of Incorporation, it is written in Cayman law that the DAO must approve addition or removal of the directors or supervisors. We intentionally designed this as a set of checks and balances for off chain governance.
I recommend reading sections 1.5, 4.5, 4.8, 4.17, 6.3, and 6.8 of the Foundation’s Articles of Incorporation for more information on the who controls what.
These parameters were not hardcoded in the protocol. We decided against hardcoding anything ahead of time because there was no way we could predict how our own growth would occur. It made much more sense to allow things to play out and let the DAO decide on what parameters to change. The docs referencing this have not been updated to reflect this and we’ll be sure to update this ASAP.
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Thanks everyone, I sincerely appreciate all of the thought put into this thread.
To play devil’s advocate so that we leave no stone un-turned; I would argue that if we constrict buyside growth potential we must do the same with sell side FUD potential. The effect of doing one and not both would be that the directional growth of the system would be biassed towards a particular direction. If the buy side was constricted it would assume that the relay and node growth pressure will stay relatively high and if the sell side was constricted it would assume that the FUD or coin sale pressure would remain relatively high.
The best option IMO is the current one of free market economics. The price per POKT given a long enough timeline will be relatively stable. Node operators will invest in more nodes and they will sell off coins, but that’s the market. That’s healthy. If you have enough nodes your operating costs per node should remain relatively fixed per node compared to the growth rate of the node if you are reinvesting accumulated POKT back into new node operation. The more nodes that you have the larger your horizontal surface area is for POKT collection thus enabling you to take a much larger vertical price hit in price per POKT.
Thanks! I’m so late joining the governance forum; you have achieved some fantastic work. I need to read the rest then…
There is a reason I would still favor USD pricing = adoption.
f. ex. I couldn’t be bothered paying my Netflix subscription in NFLX tokens, my Microsoft license in MSFT tokens, all adjusted by the systems, so that my cost is always +/- so and so many USD… It just takes too many thinking steps for the consumer to cross the bridge. Make it simple to the consumer, and do it the way you want in the background.
I didn’t interpret the proposal as having a DAO mechanism for deciding on the inflation rate. I was under the impression the Foundation Directors decided the inflation rate, and was concerned about the long-term optics. Thanks for clearing that up!
Thanks for clearing that up as well. I had come into this convo thinking there were existing parameters.
An inflation plan is a pressing matter and am looking forward to see where this proposal goes. It has my support.
The idea, as @o_rourke describes, was to set a target with the DAO via a proposal then have the Foundation Directors adjust the RelaysToTokensMultiplier to hit that target. Unfortunately, with volatility in relays, there will be a regular adjustment of RelaysToTokensMultiplierto hit the WAGMI target as determined by the spreadsheet linked above.
I’m not opposed to other burning mechanisms. I’d like to encourage the distribution of the token, but there may be a right time/place for this sort of mechanism. I’ll add some language to clarify.
100% correct. It was a model with arbitrary inputs that led to a decrease in inflation.
I agree with the premise, but am unsure on the solution.
However, I think you - somewhat inadvertently- make a compelling point to constrict the supply side so as to counter-balance the dynamic demand side. This would
limit thrash in the short-medium term
lessen inflation such that it would increase the likelihood of POKT becoming a token with predictable utility
allows there to be natural clearing equilibrium at some point
To go with your original suggestion, we would have to roll back the demand side constraints, possibly opening a can of worms that may be difficult to address within this scope. I get the Classical Economist model framework here (and generally side with it), but it may be counter-productive given the path we’ve started down.
This is an amazing community and overall debate. Just to add my two cents:
To be frank, this debate is majorly influenced by the following factor – whether one has secured their POKT bag yet, or if one is still accumulating. Both parties desire to see the POKT network thrive. Yes, implementing a rapid “tenthening” of rewards may positively influence POKT price, but may not truly promote a WAGMI scenario.
My suggestion is to institute a “halving” of rewards instead of a “tenthening” (in accordance with a specified timeline). This would help mitigate inflation while maintaining nominal rewards for node runners. Additionally, the messaging of “halving” is viewed favorably across the crypto space and could promote overall positive sentiment.
However, reads like the debate at a pre- 1988 meeting of Soviet tractor factory Directors, who all produce the same model of tractor and are insulated from the international market and producers of close substitutes and thus international demand and prices.
They do not need to understand what their customers require (e.g availability, predictability, and competitiveness of pricing) as the overall production quota has been set. Their sole goal is to use a semi market mechanism to allocate production quotas and thus investment opportunities amongst those in the club.
As others have suggested, given the success of the project, why not commission a competent crypto economist to quantitatively model the DEMAND and supply sides of the economy, including competitive dynamics?
Been watching this proposal for a while. As an investor I’m glad to see this conversation taking place, I think the current inflation is unsustainable. Especially if the growth in number of relays continues on its current path. I invest in Pocket because I fundamentally believe in its utility, but I think once listed the market will not take kindly to a coin minted in the billions, with ever-increasing inflation and no end in sight. A system that incentivizes holding your POKT instead of dumping it as quickly as possible is going to benefit everyone in the long run. I support this proposal wholeheartedly.
What’s interesting about Pocket is that the supply and demand side of the market are separated and use similar, but different mechanisms. Both staking, but different in their implementation. This means that we have to view supply and demand as separate mechanisms that are connected by one common component: POKT.
There are many nuances to the proposals which are underplayed in your comment. Understanding that there is a distinct separation between demand and supply allows us to implement a somewhat simple inflationary target like this. I’d prefer to keep things simple rather than create something immensely complex that no one understands. I’d be happy to go back into the lab for a few that acts as a better mechanism, but I suspect that it’d have just the same effect as what I’m proposing now. Worse, it may not provide the simple peace of mind that has been mentioned due to it’s complexity.
I wouldn’t mind playing out the crypto economist scenario, but I fear that we’d commission a model that would only be as good as our assumptions. I’m not saying we shouldn’t do it for the learning, but I am saying it’s not a cure all.
