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.
We have to think first about what we want to achieve at this stage of the network. If we want the price to increase, then inflation rate of new POKT minted has to be lower than the node growth rate. This way, the demand for POKT will outgrow the inflation so price can increase.
On the other hand, if the price increases too much, then we discourage NEW sovereign node runners to come in, since this will be very expensive for them.
As Orourke has said several times, the KPI is always “number of sovereign node runners” (we can add other parameters, like sufficiently decentralized number of node runners, but this will complicate things at this point). So, a price increase achieved by reducing inflation, will be negative for the KPI and decentralization of the network.
Another suggestion would be to set an algorithmically-defined inflation rate that takes into account the decentralization of the network, number of new sovereign node runners coming in and the number of relays in the network.
For example, if we have a surge in number of relays on xdai, we would need to have more nodes coming in to support the growth. How do we achieve this? By increasing inflation and keeping the price of POKT from exploding higher, in order for new node runners to come in. Once we reach a point that we have enough number of nodes in the network to support the relays, we can decrease the inflation in order to increase POKT price without reducing the number of nodes.
I think though we have to also consider staking pools. While it’s true that it will be harder for any single person to be a node runner, if there’s millions of POKT holders that will create a flourishing ecosystem of fractional staking pools. Which will ultimately affect decentralization positively, as well as raising the network’s reliability and quality of service overall.
Hype is more powerful than any economic model.
We’re gonna go up, and we’re gonna go down.
And…
If we’re lucky…
We’ll do the over and over.
Eventually, the fundamentals of supply will start to exert themselves, but not anytime soon.
First thank you!
After going on your proposal and the comments i find me self bombarded with a lot of aspects to the issue of crazy high inflation, which is seen with very young projects. Pocket network have passed this stage in my eyes and should “behave” accordingly.
In order to simplify and being able to witness and measure each step we are taking towards reducing inflation, i think we should start with the WAGMI proposal and observe the results.
Than we will be able to see if and what steps are needed to further improve the tokenomics. this will also increase the amount of members who vote with a greater understanding and clarity. This simplifying will also increase the speed in which proposal can be improved.
Re-iterating previous “warnings”:
I’m no financial wizard whatsoever + recently introduced into the project.
For transparency: I’m a node operator.
Seems like the primary component of $POKT is the user (dApp). Its the user’s demand which sets the wheels of this protocol in motion. Without it - no POKT.
Does the above determine that the users are the ones who need to be highest in POKT’s chain of beneficiaries? (Benefitted in the form of low usage costs etc.) and only then come the rest?
With that in mind - it is obvious that the need for periodic control over the POKT’s faucet is mandatory. As mentioned above, it doesn’t have to be used, in case the “natural” flows of the market forces (more manipulated than “natural” in my view) take POKT to the anticipated “maturity stage” without too many growing pains and risks. But having the ability to regulate inflation is a must-have option that may prevent damage to the POKT project. (And lets be honest here, were humans, there’s a good chance (~99%) it will get irrational, biased and dominated by interests of the larger entities - so at least have some way to restrain human nature)
What is the profile of a service node operator at the “maturity stage”? How many nodes will be staked by small retail investors (pools, individuals) and how many by Whale node operators?
The prices are expected to stabilize when equilibrium of dApps/service nodes reaches a steady state - pricing down POKT to the level expected from a project that is to be the dominant RPC distributor in Web3 (like LINK is aiming for oracles I guess?!). POKT should strive to incentivize both retail investors who stake and the large “whale” node operators. APR should be set accordingly throughout the project’s timeline - another reason for having the option to control APR.
Getting this filtered through a professional seems like a must. I would get a few pairs of eyes looking at this. You may get different views and different weighing of the factors that come in play here. As mentioned above - there are hypothetical predictions that have to be taken into account - if we cannot model those accurately, we can at least frame the entropy using worst-case/best-case scenarios and predictions on usage volume/network size and their fluctuations etc.
This project’s fundamentals are very strong. The fact it is relatively easy to elevator-pitch POKT to anyone, is a great indication of a fantastic & well focused project. Kudos to all involved!!!
First of all thanks for allowing me to write down my views on it…!!!
I like this proposal, but it’s complex.
Instead of this WAGMI. I believe current inflation is sustainable. Current in the growing phase of the network, the emission is 0.01Pokt per relay. I read somewhere in past, once it achieves a growing phase (1B token total supply), then rewards per relay will go down from 0.1 to 0.001 means 10x lower than current.
The benefit of this is, that it decreases emission and keeps inflation in check. It may be argued that, it’s not sustainable for node runner but on the contrary token price rises based on supply-demand and low emission. This again keeps balance in the network.
I believe the proposed inflation emission is sustainable both in terms of adoption and in terms of price appreciation.
We are already at 840 MLN tokens at the moment and growing with around 5 MLN tokens per day. So it will not be long before we hit the 1 BLN tokens. From that moment, the emission base will decrease from 0.01 - 0.001 POKT per token/relay.
So I do not see the benefit of the WAGMI proposal as the above will already take care of the inflation issue or what I am missing here?
exactly my point…!! The current inflation control method of reducing rewards from 0.01 to 0.001 works best like Halving of Bitcoin…!! Some may claim that Node runner won’t be able to coup up their cost but By reducing the reward means the Price can go up…!! It’s a win-win for both “node runner” and “token price appreciation” as at a certain point token price will find its equilibrium.
With WAGMI controlling dynamic inflation but flatting out fixed daily rewards is not actually controlling inflation…!! it always stays for a lifetime…!!
There is no pre-programmed method of change in the mint rate at certain milestones of supply.
This isn’t accurate. The mint rate doesn’t automatically change at 1B tokens (or any other amount). While this was originally thought about, nothing was predetermined or hard coded upon launch of the protocol.
If you are referring to the model that I made, that was purely theoretical. The reality is that the DAO is in charge of the parameter and only it can choose to make the change.
yes, I got it…!! Compared to WAGMI that solution seems more feasible and sustainable…!! or after certain blocks, do halving…!! This kind of model is sustainable compared to daily fixed amount of inflation for a lifetime…!!
