Current Value: 50%
New Value: Variable, decreasing over time
Related Proposal: PUP-11: WAGMI Inflation
While the WAGMI inflation reduction proposal (PUP-11) was contentious and heavily debated during the start of 2022 when there was a total of 10k – 15k nodes servicing the Pocket Network, subsequent over provision of nodes (to a maximum of just under 50k nodes) and the needs of node runners to sell POKT rewards to pay for infrastructure fees has led to a general consensus within the community that inflation must continue to be lowered as we leave the Bootstrapping phase and its associated goals of prioritising network adoption and move towards the Growth phase and a focus on more balanced long term economics.
As the last of the PUP-13 Initial WAGMI parameters is implemented on July 24th, giving a target inflation rate of 50%, this proposal would extend the reduction of inflation over an additional 5 months, with the goal of a 20% inflation rate by the end of 2022.
The Bootstrapping phase was designed to encourage user adoption of the Pocket Network. To this end, it exceeded its goal and the network has passed the milestone of processing 1 billion relays per day multiple times as of writing (early July ’22).
High inflation via a generous reward program was used to incentivize the creation of the node network to provision the infrastructure that could process client relays at scale. Coinciding with a steep rise in POKT’s price as more investors entered the POKT ecosystem, this led to ultimately an over provision of nodes. The associated need by node runners to sell rewards to pay for infrastructure costs coupled with a bearish Macro environment has led to POKT’s price dropping from a peak of $3.15 to a low in early July of $0.0888, or over 97%.
While great effort has been made to optimize supply of nodes without harming product provision, detailed in PUP-19, PIP-22, and the work around LeanPOKT, this proposal argues that an inflation rate of 50% is still too high for the long term health of the Pocket Network.
As the cost of supplying a functioning node to the network reduces due to supply optimization outlined above, this gives the ecosystem opportunity to continue to reduce reward inflation in a way that balances the needs to continue to incentivize node runners to provide for the network while lowering the inflation rate in a sustained, controlled manner.
This proposal builds upon the previous PUP-11 and PUP-13 proposals, which have generally been accepted by the community to have been both necessary and helpful to the ecosystem at large.
We recognize that an end goal of 20% annual inflation may still be too high for the long term needs of Pocket Network, and further proposals may additionally be required to continue to manage inflation against reward over-provision.
However, this proposal seeks to balance a steady reduction of the inflation target, in a manner such that it does not bring overt shock to the ecosystem and any 2nd or 3rd order consequences this may entail.
This proposal provides for a gradual step down to token incentives to the RelaysToTokensMultiplier via WAGMI, a continuation of the PUP-13 reduction of target inflation rate every 30 days from passing.
- This assumes that this proposal is passed within 30 days of the last PUP-13 adjustment:
- This proposal continues to work with a base total supply amount of POKT concurrent with the original WAGMI proposal: 945 million circulating POKT and assumed July 24th rewards of ~0.001473 POKT/relay
• 30 days after the last PUP-13 adjustment: WAGMI Target Inflation = 42.00%
• 60 days after the last PUP-13 adjustment: WAGMI Target Inflation = 35.00%
• 90 days after the last PUP-13 adjustment: WAGMI Target Inflation = 29.00%
• 120 days after the last PUP-13 adjustment: WAGMI Target Inflation = 24.00%
• 150 days after the last PUP-13 adjustment: WAGMI Target Inflation = 20.00%
Implementation of this proposal would be simple, as it is a continuation of an existing mechanism.
While the majority of the POKT community now accepts the need for reward inflation reduction, some have argued for a more aggressive approach to lower inflation further, faster.
This proposal balances the perceived need for further inflation reduction with a timeline and model that allows both for medium-long term projection modeling by node operators and to keep incentives high enough that there is no sudden change in node provision and the economics behind such that may lead to unwanted consequences that are detrimental to the ecosystem.
Some have argued to continue the 10% monthly reduction utilized by PUP-13 to a goal of 20% or 10% annual inflation. The proposal above curves the reduction to a more gentle slope over time, as keeping with a 10% reduction would continue the increasing percentage change of total reward reduction. A drop from 30% to 20% target inflation is a steeper reduction of 33% compared to the reduction of 24% to 20%, a drop of 16.6%. The reward reduction of 20% to 10% target inflation would be steeper still at 50% percentage drop.
This proposal further recognizes that a 20% target inflation will likely not be the long term inflation rate needed for the Pocket Network. Informal conversations and Pocket Network social media debates have given a range of proposed targets, ranging from 12 - 8% to a negative deflationary environment post a burning mechanism being implemented.
This proposal further recognizes that multiple POKT influencing events will transpire over the timeline suggested above (PIP-22, PUP-21, PUP-19, the Portal for demand side POKT staking and others) and as such we believe it to be prudent to limit the scope of the next phase of the inflation reduction measures, such that a hard stop in 150 days will create a focal point to re-evaluate the inflation target after the implementation of current proposals and any outside influencing events. If any major event were to dramatically call for a more immediate change in POKT’s target inflation, a superseding proposal could be tabled to address a pressing concern. However, this proposal is designed to allow for a measured reduction in inflation that attempts to balance all stakeholders needs as viable at the present time.
Proposal has been reviewed by Jinx, who advised to bring it to the wider community for comment and debate. Thanks also to Jinx for offering a better title name than the working name.