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.
for the long haul.