PUP-13: Initial WAGMI Parameters

Timeline is important in this respect. For those who just joined, this may see premature. For those that have been running nodes since mainnet, relays are up hundreds of times since launch.

When viewing your suggestion in that framing, this reduction should have happened long ago. In hindsight, that’d probably have been preferable so that people are used to a dynamic reward amount, governed by the DAO.

I would also suggest that we not frame this as a team vs everyone else argument. This is my proposal and I’d prefer if the framing was that we’re all agreeing to do this together.

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definitely don’t see anything as a team vs anyone else, so sorry if that came across in my comments.

It may be helpful to provide a model that shows how this would work at current level of relays and at different levels of relays, and perhaps the current best guess on where we think relays will be 30 60 90 180 365 days from now based on BD efforts or things already locked down in pipeline waiting for deployment and that impact on rewards.

Also - have these changes to the model been run by any academics/economists?

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I think we newcomers understand that, in your eyes, it should have been done a long time ago, we see how you are all eager to get this going… but maybe if you do what you yourself suggest and look at the proposed changes through our lens, maybe you can understand why many of us seem to think these slashing of rewards are premature.

I’m not going to rehash the same arguments for not changing the rewards systems now. These arguments have been made both in this thread and the PUP-12 one, you guys have all read that.

I’m sure you have strong reasons to change the rewards system, as has been laid out in the PUP-12 thread.

What I think isn’t being communicated clearly to us (newcomers) is why the need to do it in this way, and this soon, using clear metrics, so that we can understand.

I think it’s being vaguely explained and we’re just sort of going with it without truly understanding the whys behind the changes.

If there was a way to show projections and consequences for keeping the system as is for, let’s say, the rest of the year, and how these changes would benefit the network in concrete ways, I think it’ll help to get behind these proposals.

Not saying we can do anything about this, since most of us can’t vote anyway. :sweat_smile:

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@RichCL, can you provide some insights here?

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Am supportive of this proposal, but the only hesitation I have is the start date of the reward scaledown. Would support if we began it 60 days from the vote as opposed to 30 days, to take into account that many have staked with lockups (i.e. 81 days initial lockup for Poktpool) based on the current reward levels. To reduce rewards within these lockup periods (even if it’s a slight decrease in month 1), would not be viewed positively by those that have recently staked based on the current multipliers.

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The basis for the WAGMI doomsday scenario is the escalating relays to token ratio which is a measure that conveys very little helpful information. Participants in a free market economy must be profit maximizers and their metric is the total return per node. It is this measure by which investment decisions are made.

((Current value of staked Pokt – initial cost of staked Pokt) + (current value of Pokt * Pokt generated by the node in the period)) / (initial cost of staked Pokt) = total return for the period
WAGMI is concerned that with node inflation exceeding relay growth there will be an inevitable crash in the value of Pokt.

We either believe in the power of the market or we don’t. The WAGMI scenario does not take into account that as the total return decreases per node that some owners of staked nodes will leave the market to seek higher returns elsewhere and those that are satisfied with the total return or have a more optimistic view of Pokt will remain in the ecosystem. The decrease in the supply side of service providers will raise the number of relays per node (increasing the Pokt per node), increase the total return per node and thus the market will be at equilibrium again, right where is should be. All of this is done by the collective action of thousands of market participants. Talk about decentralization, this is it!

Following I will address the concerns raised in the initial WAGMI forum post.

The Grow my Slice Mentality

The concern here is that “if the inflation rate exceeds the increase in the rate at which the market price increases, Pokt tokens will decrease in value.”

A fundamental aspect of the free enterprise system is that everyone is a profit maximizer and they DO CARE about the price of Pokt tokens and will always act rationally to preserve total returns. This is what makes the free enterprise system work. It produces the strongest and most efficient market existing. If every participant in the Pokt market operates as a profit maximizer then they are making the overall Pokt market more efficient and stronger. It is the collective profit maximizing decisions of thousands of Pokt market participants that makes the pie bigger and better for everyone.

The proposed deflationary solution is one sided hurting those that have staked nodes and Pokt token investors to the benefit of node hosts. Node hosts provide a valuable service and are vital to the long term viability of Pokt but Node hosts are looking for a fix to their problem in the wrong place.

Constant price pressure

The “constant price pressure from fiat-based hardware costs” is a very real concern for node hosts, but welcome to the capitalist system! What company that has sizable upfront sunk costs does not have this same pressure? Chip fabs sure do with a typical fab cost of $3B to $4B before they see the first dollar from the sale of a chip and years in the development process.

Node hosts have the tools at their disposal to manage this risk, raise the price they charge customers or change term length of the agreement from monthly to something longer that matches the amortization of the hardware.

The “constant price pressure” is the risk of the node host and is a market risk the node host is paid to accept.

Major Network Underutilization

The “major network underutilization” problem is the same as the “constant price pressure” problem. Any company with a sizable sunk cost has this problem. Again, if the demand for chips decreases the chip fab will also have the same excess capacity problem. It is the burden of the node host or the chip manufacturer to be efficient and intelligent in their decision making and if they are wrong or inefficient they will suffer.

The network underutilization problem is solely the risk of the node host and the node host is compensated for taking this risk by the rate they charge their customers. If a node host is inefficient a more efficient node host will step in to take their place, as it should be. I know it is cold but that is the way the free enterprise system works and it works best.

Perception of Unsustainability Problem

I would rather have the perception that the Pokt market is grounded in the tenets of the free enterprise system and is highly efficient than the perception that the Pokt market is one side or inefficient.

Initial WAGMI Parameters

The statement in the Rationale for WAGMI is not correct, “this plan provides for a gradual step down to token incentives to the RelaysToTokenMultiplier via WAGMI to accommodate all who are part of the Pocket ecosystem.

This proposal does not accommodate all in the Pocket ecosystem. It does not help those that have staked Pokt nodes or owners/investors of Pokt tokens but weakens the system for everyone across the Pokt ecosystem. Only node hosts benefit from this proposal and then only for the short term because after a while the market inefficiencies will wreak havoc. As the Pokt ecosystem weakens it creates room for more efficient and free market aligned competitors to enter the space. We all suffer in the long run.

Solution

The proposed solution to this non-problem of a series of escalating deflators is based on the premise that we can plan the economy. We all know how well central planning worked in the past for the Soviet Union and China, it didn’t!

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

This non solution is against everything that Pocket Network and Web3 hold dear, that “an efficient market will bring your cost-basis closer to zero over the long term”, and decentralized decision making makes the system more efficient, stronger and benefits the most Pokt users, not just one segment of the economic system.

Pokt is built on the Web3 tenet of decentralization. What is more decentralized than thousands of Pokt participants making decisions each day with their money? Nothing is more decentralized, certainly not a committee making deflation decisions for the group. Jeez, it sounds like we are creating a central trust authority. Let’s call it the Pokt Federal Reserve.

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I agree with the major concerns here:
Assumptions of immediate need. Is there this need?

Pokt price dropped with a worldwide market crash. Given that all this new minted token is still plowing into nodes, all seems fine. Even the Federal Reserve does not pre-plan interest rate adjustments. They may suggest that multiple adjustments may be needed but they do not hold to a pre-planned approach because markets often are self regulating

Death Spiral worries if nodes outstrip relays:
Why are we so worried that people will bail in droves? This is profitable to quite a reduction in rewards AND price. This is a yield play. Investors seeking yield will stay so long as that yield is competitive with other market yield opportunities. It seems we have some room before this “death spiral” takes place.

Forgetting the core ideals of Pokt:
Pokt actually serves a purpose - people wanting to trade it is not the purpose. It’s a flywheel to power growth. But the product succeeds on its own merits as a product. And the free market will or will not demand that product and investors will or will not invest.

Black Swans:
The assumption that we can predict economic trends and consumer behaviors has been proven wrong so many times in the past. It gives me pause.

The only thing that concerns me is “perceived inflation” bc that is a real variable normally taken into account by the Fed in their formulas.

I believe we need a METRIC for this and data collection around it to help us determine the weight of this variable in the mix. It’s important but I’m concerned it’s overweighted here.

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Your appeal to free-market economics is irrelevant. It would be relevant if the supply-side is paid directly by the demand-side but it is not. All of your economic analysis focuses on the supply-side which means it is fundamentally flawed.

POKT has a decoupled economic system wherein apps (the demand-side) stake (and will eventually be burned when we reach the maturity phase and v1.0 is live) proportional to the tokens that they mint for nodes (the supply-side). It is intentionally designed this way to minimize the number of transactions needing to be validated, thus minimizing the cost of coordination.

It is because we do not have a traditional market system that we have these levers to calibrate. And because we are not yet at the stage where we can activate the demand-side, through app purchases/staking or app burns, we need to calibrate these levers until we are. Your appeal to the failures of communism is, therefore, while rousing, also irrelevant and lacking in the context of how Pocket works.

Calibrating these levers is a natural part of the growth phase that we envisioned from the start, prior to us activating the demand-side in the maturity phase. I’ll remind you that the original vision was to “tenthen” this metric when we hit 1B total supply; we’re currently at 900M total supply.

This makes no sense when you consider that node providers are predominantly making money as a cut of the inflation. What makes you think they, who currently benefit from high inflation, are the main proponents of this proposal?

Chip fabs get paid in USD which they can then pay to their suppliers. Node providers get paid in POKT. Are their suppliers accepting POKT? No, node providers have to convert their POKT to USD in order to pay their suppliers. Okay, well who’s buying their POKT? Other nodes; as I explained above, we haven’t closed the loop on the demand-side yet. This means that all else equal, the only “free-market equilibrium” (i.e. one in which the supply-side is not relying on itself) is one in which the price of the token is hyperinflationary.

Paid in what? POKT. The price pressure is not a risk that node providers take on, it is coming from the node providers who need to convert their POKT earnings into USD to cover their infrastructure costs, paid to hardware suppliers who don’t know that POKT even exists. I ask you again, who’s buying the POKT that they’re selling?

The nodes are being funded largely by passive stakeholders who are paying the node providers to run nodes for them. The node providers are not taking on any risk in doing this, they are not deciding whether the additional supply is needed for the demand, because their customers will find another node provider and they are in fact beneficiaries of the inflation they get a cut of. This has nothing to do with node inefficiencies and everything to do with people funding nodes that are not currently needed for the demand-side, which again you have excluded completely from your analysis. Until the demand-side is activated, and supply-side incentives are more tightly coupled to demand, we need to calibrate the supply-side.

This is just as we envisioned it from the start. The bootstrapping phase provides us with a foundational supply. We succeeded in this, growing from 5k nodes to 29k nodes in the last 6 months. The growth phase of the network involves calibrating our supply-side, since we no longer need to bootstrap quite so much. This is where we are now. We have more than enough supply to grow the demand-side tenfold and to lock users in as paying customers. Once we reach the maturity phase, growing and activating the demand-side through app stake burns, then you can talk to me about free markets.

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Candidly, I am unsure where Adam is getting his numbers in PUP-13. Shouldn’t an economist be retained in order to verify this approach? POKT is still so nascent – this could have inadvertent, unknown, and unintended consequences for attracting node runners.

I understand Terra LUNA revamped its tokenomics by retaining an economics consultant; and their success has been historic. I would hope for a similar approach for POKT, for the sake of continued success for this community.

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maybe get the Terra LUNA guy

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Well, the user JackALaing was asking another one if a 5-month ramp down was drastic in his eyes, to which my answer is: Yes.

I mean, I understand this projects move fast and that crypto is very volatile, but if investors are going crazy over the FED changing 1 to 2 % the interest rate in a couple of years term, speaking or reducing the incentives for new investors by 50% in a matter of 5 months is insane. I have seen the proposals here to lessen the impact of inflation on the token, and the token price, but so far all the proposals seem to point to a decrease in rewards. That might be useful for a couple of early investors that had access to the project when it was only OTC, but for all the new investors that could get in after the otc, and that have already lost 50%+ of their capital during this time it would be a huge hit to their benefits to add this proposals on top.

Also, yes, the team isn’t verbally against the burn of tokens, but all burn talks are being diverted towards the incentive decrease, which has the same practical outcome as being against a burn. In my eyes a token burn would benefit all investors equally; regardless of their time in the project, and would tackle the inflation problem vs. the rewards decrase.

We are rehashing a good number of things here that have been addressed in other threads. After the first two proposals, I believe we have reached a rough consensus on numbers to determine whether the DAO voters want to move forward with implementing as currently constructed.

I would be comfortable sending this proposal to a vote.

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The one thing that I believe has not been addressed (apologies if I missed it) is whether POKT is using an economist or other expert in currency systems/game theory to evaluate the impact this will have on the ecosystem. If the team is just relying on their own work that’s fine, but would be good to know. But given this represents a change in strategy from the initial economics (I know the tenthening wasn’t set in stone, but it seems like that was the original idea of how this would work at this point of growth), would have expected some outside 3rd party work to be prudent given the amount of $ at stake here.

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Can you expand on this point? I’m not sure I understand what you’re after here. Because node host revenue is determined by either raw node count or per node revenue, I’m not sure this argument holds water.

I think you may have misconstrued the point that was made. I’m speaking about the price pressure on the token due to node runners (of all shapes and sizes) needing to convert POKT into USD, stables, or other cryptos to pay fiat-based fees.

To be clear, it’s on node runners and providers alike to find a way to maximize profits on their own. WAGMI does not cater to any one class.

I’m concerned about this framing as well, because under the current lemma, nodes aren’t charging the customer, they’re inflating the network. Let us also not pretend that Pocket Network is purely free-market, because the protocol dolls out work in pseudo-random format where even bad nodes get work.

If you run the math out, what you’re suggesting is reckless and very detrimental to the entire Pocket ecosystem. I would suggest that you do some modeling to understand the impacts of what you’re suggesting. Your argument appears to hold water until you realize that the system was designed to a) reduce the RelaysToTokensMultiplier via the DAO and b) that this impacts all participants equally.

Can you please explain which numbers you are unsure of? I’m happy to explain any misconceptions.

This is a dangerous notion. I’d be in favor of other mechanisms if they were at our disposal. The fact of the matter is that the system was not designed so that we could just burn tokens.

Rather than just say, “we should do burns,” I’d like to see a well-researched proposal about how/who to burn. @XingTongZhilian how do you suggest that we do burns at the present?

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I’ve just been lurking here for the last week or two. I realize that I have not earned a vote and that my opinion in all likelihood means very little. At any rate, I would like to say that this proposal has my support except for the hasty way in which it is planned to be implemented.

My final interjection on WAGMI is this:

After running some scenarios through modelspace it appears that the 50% cut to rewards would be very well tolerated by spreading out the reductions to the RelaysToTokensMultiplier in monthly increments of 4.167% over the course of a year.

These small yet effective cuts would allow for a graduation to where we need to be regarding inflation without jolting node operators out of their roles.

Just my 2 sats

Regardless, I’m staying here on this poktship :rocket: for the long haul.

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Well, I’m not a developer -yet-. but afaik the most simple burn mechanism is to send the ammount to be burned to an invalid address so they become unrecoverable. Including this in every tx would not only reduce the circulating supply, and furthermore the inflation problem; but would aswell favour node operators with additional tx fees. Definetly not now, but perhaps in the future I’ll be able to more broadly contribute to the project in the technical side.

At first blush, I’m not apposed to the burn for every tx, but I believe this has pretty wide ranging impacts for proofs, claims, etc. which I think need to be taken into account before ever pursing something along these lines. Taking things a step further, when looking at the net effect: charging nodes to transact in the normal course of business, effectively reducing their rewards and circulating supply…isn’t this the same as reducing inflation?

I agree 100 percent with @adam on this point. Burning tokens is taking us in the wrong direction. POKT is a commodity, not an asset.

Quick formula: Any economy is the conversion of commodities to assets.

Commodities are the inputs. Assets are the captured value of the energetic output.

Therefore, when an economy runs out of inputs, so begins the death of its outputs.

We burn POKT at our peril.

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