Updated Aug. 18, 2022 by @adam :
- Added the PUP-22: FREN Calculator to avoid calculation ambiguity
- Specified language that would cause a monthly update to the RTTM parameter regardless of whether or not there is a concurring specified change to the target daily emission rate to account for changes in Trailing 30 Day Average Relays.
Updated Aug 17, 2022 by @msa6867:
- Incorporated @JackALaing August 15 feedback. Simplified and clarified that NPF is to set RelayToTokenMultiplier (RTTM) based on a specified target emission rate, rather than the more ambiguous term “target inflation”. The corresponding expected annual inflation is also shown, but the target emission rates will be what is normative for setting RTTM.
Updated Aug 12, 2022 by @msa6867:
- Modified the first in the series of “WAGMI Target Inflation” reductions to jump immediately to 35%
- Aligned all WAGMI Target Inflation adjustments to month boundaries starting September 1, 2022
- Added clarity on what token supply baseline the Foundation is to use when calculating the RelayToTokenMultiplier from WAGMI Target Inflation
Author(s): @Cryptocorn @msa6867 @adam
Current Value: variable so as to maintain WAGMI Target Inflation = 50% (corresponding, in implementation, to a WAGMI Target Daily Emission of 1.295M $POKT/day)
New Value: variable so as to maintain WAGMI Target Daily Emission = 1.000M $POKT/day decreasing to 690k $POKT/day. (At current supply of ~1.36B $POKT, this corresponding to an effective inflation rate of 26.8% decreasing to 18.5% over the next twelve months)
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 prioritizing network adoption and move towards the Growth phase and a focus on more balanced long term economics.
The last of the PUP-13 Initial WAGMI parameters was implemented on July 24th, giving a target inflation rate of 50% as measured from the ~945M $POKT supply at the time PUP-13 was passed. This corresponds to an average daily emission of 1.295M $POKT/day (472M $POKT/year). Since its passage, approximately 416M $POKT have been minted. The current supply stands at approximately 1.36B $POKT. If no follow-on action is taken, the target of 1.295M $POKT/day will remain in effect resulting in $POKT supply growing by 472M $POKT over the next 12 months. This corresponds to an inflation rate of 34.7% over the next twelve months based on current supply of $POKT.
This proposal extends the reduction of emission rate over an additional 5 months, starting with an immediate reduction of target emission to 1.000M $POKT/day with a goal of 690k $POKT/day by the end of 2022. This corresponds to an effective inflation rate of 26.8% decreasing to 18.5% over the next twelve months. The step down sequence will apply an approximate 12% reduction in RTTM value at each step (RTTM_new ~ 0.88 x RTTM_old) with the first value of 1.000M representing an immediate double-sized step-down from the last PUP-13 value.
This proposal provides for a gradual step down of RelaysToTokensMultiplier (RTTM) via specifying a target average daily emission in keeping with the spirit and intention of PUP-11 and PUP-13 though with an updated nomenclature to clarify that what is being specified is a target emission rate (that unless changed will remain constant from year to year) rather than a target inflation rate (which would cause emission rate to grow from year to year due to the effects of compounding).
- September 1, 2022 (*): WAGMI Target emission rate = 1.000M $POKT/day (~26.8% effective inflation)
- November 1, 2022: WAGMI Target emission rate = 880k $POKT/day (~23.6% effective inflation **)
- December 1, 2022: WAGMI Target emission rate = 780k $POKT/day (~20.1% effective inflation **)
- January 1, 2023: WAGMI Target emission rate = 690k $POKT/day (18.5% effective inflation **)
(*) Assumes that this proposal is passed by August 31, 2022. In the event that it is passed after this date, the first adjustment shall take place immediately with no change to the remainder of the schedule.
(**) As measured against the baseline supply at the time of the proposal passing. The forward-12-month effective inflation rate corresponding to each subsequent change to target daily emission rate beyond the first would be slightly lower, culminating in a 17.1% inflation rate for 2023.
Implementation of this proposal would be simple, as it is a continuation of the existing mechanism enacted by PUP-11 excepting that it simplifies the math for the PNF by eliminating an archaic reference to the exact supply of tokens at block height 51909 on Feb 24, 2022 at 6:37 GMT.
The Pocket Network Foundation (PNF) shall calculate the RelayToTokenMultiplier (RTTM) by dividing the target daily emission rate (denominated in uPOKT) by the Trailing 30 Day Average Relays. Poktscan shall be used as the source of truth for relay counts for the measured periods. This is unchanged from PUP-13, but is simplified in explanation and implementation.
For example, on July 24, PNF divided the final target daily emission rate of 1.295M $POKT (1.295T uPOKT) by the Trailing 30 Day Average Relays of 944.5M relays to obtain the current RTTM value of 1371.
PNF may also use the following calculator to calculate RTTM:
PUP-22: FREN Calculator - Google Sheets
By inputting the Trailing 30 Day Average Relays and the WAGMI Daily Target Emission rate, a new parameter value is outputted. As a part of this proposal, the parameter value will be adjusted monthly, on the first of every month to account for changes in Daily Average Relays, regardless if there is a change to the Target Daily Emissions Rate.
Note there is no adjustment to WAGMI target daily emission rate on October 1, 2022. This is because what would have been the October step-down was accelerated by a month and combined into the September 1 step down, so that the inaugural step down represents a double-sized reduction from the last PUP-13 value. (I.e., September 1 reduction of target daily emission to 1.000M is approximately 0.88^2 x 1.295M $POKT/day.
Under the terms of this proposal approximately 111M $POKT will be added to the supply from time of enactment of first reduction on September 1, 2022 until the end of the year, an increase of approximately 8% over current supply.
In the absence of follow-on proposals, the default target daily emission rate in 2023 and subsequent years will remain fixed at 690k $POKT/day (252M $POKT/year). Since this is a fixed rate rather than a compounding rate, the effective inflation rate will decrease each year. Namely :
- 2023: 17.1% (252M/1.47B)
- 2024: 14.7% (252M/1.72B)
- 2025: 12.8% (252M/1.97B)
- 2026: 11.3% (252M/2.23B)
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 August 2022).
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 August of $0.062, or over 98%.
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 emission rate 690k $POKT/day (~17% annual inflation in 2023) may still be too high for the long-term needs of Pocket Network, and further proposals may 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.
Providing immediate reduction to 1.000M target daily emission (~27% inflation rate) slows growth in token supply and keeps pressure on node runners and service provider to continue to innovate on cost reduction and performance improvements, while not being so severe as to immediately cripple existing node runners assuming a return to recent lows in POKT price.
Pausing further reduction for the month of October allows time to absorb PIP-22, Lean Pocket and the start of portal monetization. For example, during the month of September, the DAO can begin to study system behavior in response to PIP-22-induced consolidation and the resulting QoS impact on smaller chains and the impact, if any, on smaller node runners. Pending review of these results, the DAO may determine that it is acceptable to raise PIP22-allowed consolidation from 60k, POKT to 90k POKT leading to further consolidation and cost savings during the month of October. That could help prepare the node-running community for further reductions in inflation target in the latter months.
During these two months the community is encouraged to continue to explore other methodologies for emission control that may form a more permanent roadmap for Pocket emission than the 5-month reduction plan put forward by this proposal. Any such proposal, if passed, would supersede the remainder of this proposal. Specifying a resumption of emission reductions post-October is necessary, however, to plan for the contingency that no superseding proposal is put forward or passed between now and November 1.
Resuming reduction of WAGMI Target Inflation starting November 1 will continue progressive reduction in the growth rate of token supply commensurate with node runners and service providers continuing cost-reduction and performance-improvement measures.
Stopping the reductions at 690k average $POKT/day allows for a reassessment of all factors, including price behavior of the POKT token, QoS, number of nodes, relay growth, demand-side monetization progress, etc. so that the DAO can take all this new information into account in deciding next steps.
Specifying reductions in terms of target daily emission rate rather than target inflation brings clarity to an ambiguity that existed in the original PUP-11 and PUP-13 proposals and ensures that even in the absence of follow-on action by the DAO, the actual inflation rate, on a percentage basis, will continue to decline in subsequent years.
NB: in all following discussion, any and all references to “inflation” are, in context, references against the baseline number of tokens as of Feb 24, 2022 (approx. 944.5M $POKT) not to current supply (approx. 1.36 $POKT). It is left to the discretion of readers to convert into current inflation rates if they so choose. ]
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.
Further dissenting opinions that were expressed during the PUP-22 debate:
“DAO should wait until PIP-22, Lean Pocket and Portal Monetization are assimilated into the system before deciding on next steps for emission reduction”
The authors have carefully considered this concern and conclude that at current POKT prices there is no breaking point that the vast majority of node runners would face by an immediate reduction to 35% even if this reduction occurs prior to their ability to incorporate these coming changes. A pause in further reduction is included to give node runners time to take full advantage of PIP-22 and Lean Pocket and renegotiate service-provider contracts as needed prior to further reductions.
“DAO should immediately reduce target inflation to 20%, not do so in progressive steps.”
The authors are sympathetic to this view point, but ultimately decided against this course of action in order to give node runners sufficient time to explore and implement a wide suite of cost-reduction and performance-improvement measures. We offer a concession to this viewpoint, however by reducing target inflation immediately to 35% (the half-way point between 50% and 20%) rather than the originally proposed 42%.
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.