PUP-32: Accelerating the Road to Revenue (ARR)

Attributes

  • Authors: Pocket Network Foundation (PNF)
  • Parameter: RelaysToTokensMultiplier
  • Current Value: variable according to Sustainable Emission Reduction (SER) schedule
  • New Value: variable so as to maintain Target Daily Emission = 220k POKT per day
  • Replaces: PUP-30: Sustainable Emission Reduction (SER)

Summary

To accelerate the road to becoming a deflationary protocol as outlined in The Road to Revenue, signaling to the world that POKT is on the path to economic sustainability, we should lower daily emissions to a target of 220k POKT per day (which equates to a ~5% annual emission rate today, then decreasing in % terms as the total supply increases). We will continue using the weekly adjustment mechanism from SER to ensure we’re accurately targeting this emissions rate; this proposal just replaces the Target Daily Emissions schedule from SER (currently 610k POKT, ending at 420k POKT in Feb ‘24) with a fixed Target Daily Emissions of 220k POKT today and in perpetuity until replaced by a future proposal.

Motivation

  • Make Pocket more attractive to new builders, contributors and node operators by demonstrating that the Pocket Network community cares about the long-term economic sustainability of the protocol
  • Strengthen the protocol revenue narratives (from burn and multi-gateway) for POKT that will be getting more spotlight with Messari reporting, Token Terminal updates, and PNF’s PR efforts
  • Maintain sufficient emissions to sustain supply-side and prevent unwinding of two-sided market

Specification

220k POKT per day is derived from a reference Deflationary Threshold of 10B daily relays, based on the GatewayFeePerRelay of $0.00000085 per relay and a reference price for POKT of $0.038.

References:

  • GatewayFeePerRelay = $0.00000085
  • Reference Price of POKT = $0.038 (30d trailing avg)
  • Reference Deflationary Threshold = 10B Daily Relays

Note: because the demand-side is priced in USD (out of necessity, being a commodity service whose competitors price in USD), fluctuations in the price of POKT will alter the Deflationary Threshold in practice if we do not have additional mechanisms to incorporate the USD price of POKT into emission controls. This will come in a later proposal (more on this in the Rationale section).

Calculations for Daily Emissions:

  • POKT Per Relay = 0.0000223684 POKT
  • POKT Burned Daily for 10B Daily Relays = 223,684 POKT
  • Approximate Target Daily Emissions to be Deflationary at 10B Daily Relays = 220k POKT

Calculations for Annual Emission Rate:

  • Approximate Target Daily Emission Annualized = 220k*365.256366 = 80,356,400.52
  • Current Total Supply = 1,612,712,238.346057
  • Annual Emission Rate = Daily Emission Annualized / Total Supply * 100 = ~5%

Rationale

Why care about protocol revenue and economic sustainability?

Pocket Network has always been a pure utility protocol. We are providing a picks and shovels infrastructure service to the crypto industry and embedded in our core strategy is the desire to become the blue-chip decentralized infrastructure protocol, with the ecosystem’s strategic goals including Pocket having $1B of annual protocol revenue, the most trusted infrastructure brand in crypto, and the institutional financial rails expected of a blue-chip token.

As shared in The Road to Revenue, the ecosystem strategy thesis, and a DNA update before that, protocol revenue should be the north star that guides all of us working on Pocket Network:

Protocol revenue is the right guiding metric for Pocket because it best represents value creation and capture from across the entire ecosystem. It is a shared metric for which we are all responsible. It’s inherently focused on creating value for customers, and on closing the loop so that value flows back to ecosystem participants and to the POKT token. Revenue is the key building block for a sustainable network economy, which in turn is key to ensuring that Pocket is truly unstoppable… protocol revenue is what we will use as a network to track progress along our future path.

Furthermore, higher interest rates have prompted a clear swing in investor sentiment from qualitative factors - narratives, ideas, and so on - to quantitative factors - such as revenue, profit and defensibility. The market no longer rewards superficial measures such as growth for growth’s sake. Consequently, projects with growth-centric economics will struggle to attract new stakeholders due to a general flight towards the certainty and safety offered by fundamental value. If the industry is uncertain about Pocket’s stability, this affects all aspects of our network’s adoption, including application developers, who will be less likely to adopt our infrastructure if they’re uncertain about our longevity.

A corollary benefit to reducing emissions is that it offers the DAO the opportunity to be more creative with its treasury in the knowledge that the sturdier economic foundations provided by a more scarce POKT should make campaigns involving POKT in the future more successful. An example here would be additional POKT rewards to liquidity providers who support wPOKT, but there are likely to be many more examples.

Setting POKT clearly on the path to economic sustainability contributes to all of our ecosystem goals, reinforces the legitimacy of Pocket’s brand in the wider crypto industry, and maintains our attractiveness to prospective new stakeholders.

Why use 10B daily relays as a reference Deflationary Threshold?

Besides being a nice round number, 10B has also been identified as a theoretical limit to daily relays in v0, subject to upcoming protocol upgrades such as doubling the block size in RC-0.10.0. Using this Deflationary Threshold as a reference, therefore, implies that we will not try to become deflationary until v1 has launched next year, but that v1 could be deflationary from day one, which mirrors the journey Ethereum went through (becoming deflationary only after a major protocol scalability upgrade).

Having recently hit 2B daily relays during testing by a large client (per PNI’s reports) and with other large clients reportedly in the pipeline, 10B is an ambitious but realistic target for the next 9-12 months. We also anticipate relay growth to multiply with the proliferation of more gateways. It will also not take exponential growth beyond 10B for this strategy to begin paying off. At 10B daily relays, we would be a top 40 revenue-generating protocol, and with emissions remaining fixed at ~5%, further growth to 20-40B relays would make us a top 20 earnings protocol (where earnings, as defined by Token Terminal, equates to being deflationary).

Why not just set emissions so that we’re already at the Deflationary Threshold?

This would require setting Target Daily Emissions to approximately 26k POKT per day, or $30k per month. If we set emissions too low, we risk driving out too much of our supply-side, unwinding our two-sided market, and not having the capacity to meet growing demand.

Why keep the fixed emission rate model? Why not set mint equal to burn?

The fixed emission rate model introduced with WAGMI and continued in FREN/SER holds emissions to a constant rate, which is a necessary component of establishing a Deflationary Threshold. Without holding the emission rate constant, any growth in daily relays would equally impact emissions as burn, meaning we’d never become deflationary.

Some community members have proposed setting mint equal to burn, arguing that all emissions should be a direct reflection of payments by application developers (and/or gateways). This is a node-centric view of Pocket’s economics, abstracting away the protocol and assuming a direct relationship between the application developers and the nodes serving them. We would advocate instead for a protocol-centric view of Pocket’s economics, where the protocol is an intermediary collecting revenue from application developers on one side and paying node operators on the other. This provides us with more flexibility to scale the supply-side up or down independently of the demand-side, accounting for the context of serviceable demand, protocol limits, and economies of scale.

Is $250k per month sufficient incentive for the supply-side?

A daily mint of 220k POKT equates to approximately $254k per month (at the reference POKT price of $0.038), which is almost exactly the same as the cost for 1.3B daily relays per month using Infura (based on their pricing of $0.00000657 per relay or, alternately, Infura’s $1k/mo Growth Plan of 5M requests/day scaled up 260X to 1.3B), despite the fact that Infura’s pricing accounts for a reasonable margin to fund their customer support, sales, marketing, and engineering functions, as well as their non-node running infrastructure, on top of their node running costs.

All non-node running costs in Pocket are currently accounted for by PNI, PNF, and the DAO, and not Pocket’s node running community, which should give us the confidence that $3m+ per year in incentives is more than enough to incentivise a sufficiently resilient and performant community of node operators that have to pay very little in terms of customer acquisition costs relative to starting their own centralized offering (provided, of course, that they pay for their own POKT), even if the significantly reduced rewards may prompt some unstaking/consolidation.

Lastly on this point, it should be noted that in the long-run we should not be willing to settle for matching the cost of centralized providers like Infura. If the wholesale strategy being pioneered by PNI is to have any merit, and the addition of gateway intermediaries with their own operating costs is to be economically viable, the protocol itself should be spending less on the supply-side than the equivalent cost of Infura et al. We should work towards this either by holding supply-side spending constant (see USD-denominated emission controls discussed below) and growing the relays we serve or by cutting supply-side spending further.

Is ~5% a good emission rate?

Using the protocols listed on the Web3Index page as a guide, we can see that annual inflation for other leading Web3 infrastructure projects is as follows:

Ranking on Index Name of Project Annual inflation
1 Storj [1] 0.56%
2 Livepeer [2] 9.86%
3 The Graph [3] 3%
4 Akash Unable to verify
5 Sia [4] 5.96%
6 Pocket 11-14% (SER forecast - POKTscan’s live data)
7 Helium [5] 13.4%

Sources:
[1] Storj: Storj (STORJ) Price, Chart, Value & Market Cap | CoinCodex - unable to verify elsewhere
[2] Livepeer: https://explorer.livepeer.org
[3] The Graph: Indexing - The Graph Docs
[4] Sia: SiaStats.info - Macroeconomics
[5] Helium: HIP/HIP-solana-parameters/token-emissions-as-of-solana-migration.pdf at 5c6363d663f984a9c90c30648ec89684c40f18ff · helium/HIP · GitHub

Although this information is difficult to reconcile as different protocols account for inflation in different ways - and websites such as stakingrewards.com include both inflation and transaction fees in their staking rewards calculations - we can say, with a reasonable degree of confidence that Pocket’s inflation has been much higher than almost all of its contemporaries since inception.

Reducing Pocket’s emissions to ~5% (assuming zero burn) results in an inflation rate that is 17% less than the median of 5.96% in the 5 examples above (other than Pocket) that we have numbers for, and 25% less than the average of 6.56%. However, as far as we can tell, all of the examples above are on inflation schedules that are reducing every year.

It should be noted that ~5% would be the emission rate (or % APY), not the inflation rate. Inflation will be a function of emissions minus burn and will thus decrease over time, notwithstanding the natural reduction in % as a result of emissions being fixed in absolute terms to 220k POKT per day, if burn continues to grow relative to emissions.

Why publish this proposal before the node economics survey results?

As has been discussed in various channels, PNF is preparing a survey to help demystify the unit economics of node running, to help inform future emissions policies.

While we hope the results will be informative, they will not be a panacea and should not be a blocker on positive progress. They will be a rough measure of the average operating costs of node operators today, not a reference for what the operating costs should be if we optimize the supply-side.

While we wait for the survey results, we can get the debate started on these proposed measures which have been considered carefully with reference to other data points, such as the benchmarks above for pricing and inflation rates of comparable projects.

Why no USD-denominated emission controls?

In The Road to Revenue, we advocated for introducing some USD controls to emissions, to adjust for the impact that price fluctuations would have on the Deflationary Threshold. These components were the most controversial parts of our post, with a few community members disagreeing on principle with the dollarization of Pocket’s economy. It is our view that it is necessary as a result of providing a commodity service that the competition prices in USD. We also feel that it is a natural conclusion of the protocol-centric view of Pocket’s economy (described above) that we would calibrate our supply-side spending in USD terms, given that not only are the demand-side fees priced in USD but also the individual node operator expenses such as hardware, salaries, etc.

Besides what is likely to be a heated ideological debate, such control mechanisms would also need to be explored more deeply before being proposed for implementation in production. Rather than delay by getting hung up on one component of the overall strategy proposed in The Road to Revenue, it was our view that we should make progress in a stepwise manner.

It should be noted that not doing this now means that the reference Deflationary Threshold of 10B daily relays used to calibrate the proposed emissions of 220k POKT per day is not a threshold that we would be able to signal, since it will fluctuate with the price of POKT. This proposal kickstarts POKT’s accelerated path to sustainability but would not be the final step. Once we have settled on a USD-denominated control mechanism, and built consensus on the desired USD supply-side expenditure, which will be informed by the survey results among other data points, we plan to follow-up with a proposal to fix emissions based on this USD target.

If overprovisioning is the issue, why not use other mechanisms to incentivize consolidation of nodes?

These have been done before (see PIP-22 and PUP-19) and could certainly be done again. Such changes will be more involved and more disruptive on a protocol level (e.g. forcing upstaking, or else unstaking, of nodes).

In any case, consolidation of nodes isn’t a primary objective of this proposal. The main objective is to signal to the world that the Pocket Network community cares about the long-term economic sustainability of the protocol. Reducing the gap between minting and burning is the only way to do this.

How should we account for the impact on the DAO treasury?

As @msa6867 pointed out in the thread, this proposal will also reduce the rate of growth of the DAO treasury which may reduce the future spending power of the DAO (assuming no change in the value of POKT). This may warrant increasing the DAO Allocation (%) in the future, which would in turn reduce the Servicer Allocation (%), though we have opted not to factor in any DAO Allocation adjustments for now because to do so would require speculation about parameters and context we cannot predict (such as the value of POKT and whether the existing treasury will be sufficient to support contributions in the medium to long term, through mechanisms such as the ERA Budget).

Dissenting Opinions

We’ll put node operators out of business

The natural biggest concern about a proposal like this is that we’re going to cut emissions below some critical level that will lead to most node operators unstaking, pooling hardware (e.g. Community Chains), and ultimately centralizing the supply-side.

We’d like to propose a reframing of this problem.

Building on our RPC trilemma thesis, a decentralized network should be able to deliver a service at a lower cost than any other centralized alternatives. How do we get there, you ask? As per Olshanksy’s writings on this, and PNF’s strategic thesis, we believe that the path to overcoming the RPC trilemma is through our community. A community that collaborates together to share costs and innovations and benefits from being able to use their infrastructure for more than just one use case should be much more cost-effective and nimble than any large centralized RPC player that has to run the full stack of sales, marketing, engineering, customer support, operations, and so on, in house. It is vital that Pocket’s community leans into the differences available to us all as a decentralized open source community, as this is ultimately where our competitive advantages as a community lie when compared to our centralized competitors.

To date, it seems we have implicitly assumed that node operators should be able to rely on Pocket as their sole source of revenue. No crypto network is an isolated ecosystem, we are all embedded within a broader ecosystem, and this is especially true for Pocket (arguably more than most) serving RPC data for 30+ unique ecosystems. Yet most other crypto networks embrace their inter-network relationships far more than we have.

Every node operator who is providing RPC data for a given blockchain is just a few more steps away from generating revenue as a validator for said blockchain. If more node operators were validators for the chains they already support, thus diversifying the income they derive from their nodes, this would massively benefit the ecosystem as it would enable costs to be driven down to the marginal cost of servicing a relay. To be clear, we are not saying “you’re on your own” or “look for revenue elsewhere” but that there is significant underutilised value in the public good we are already providing to the 30+ networks we serve and untapped channels to capture this value more effectively, which would reduce the burden on Pocket’s economy to fund these activities all by itself.

This would also help to strengthen our ecosystem’s strategic relationship to the networks we serve by forming deeper relationships with their community members, promoting deeper cultural understanding of their ecosystems, accumulating governance power in their DAOs, and ultimately enhancing our understanding of their developers (our end users). For an example of a scenario where this would have helped us, see the repeated failed Gnosis Chain proposals (1, 2), where we were unable to garner enough quorum in their DAO to pay for the public endpoints we’ve been providing.

If any node operators want to pursue this strategy, PNF would be more than happy to help them raise their profile within these 30+ communities so they can acquire delegations more easily.

Factoring in these 30+ revenue sources that are available to node operators, and the Infura benchmark we referenced above, should give us the confidence that $3m+ per year in incentives is more than enough to incentivise a sufficiently resilient and performant community of node operators. For those who may nevertheless need to unstake and sit on the bench, they are looking at a dilution rate of only ~5% per year and decreasing over time, a far more palatable rate than the 60% they would have faced a year ago.

Won’t we squeeze the long-tail of chains?

A related concern is that node operators would drop support for the long-tail of chains that bring in fewer rewards, especially those which are more expensive, but which may nevertheless be strategically valuable to Pocket in the long-term, including contributing to the narrative of Pocket’s ubiquitous multi-chain support.

One thing to note is that, as a function of lower traffic chains and newer scaling technologies, many long-tail chains are among the cheapest to operate. There are exceptions such as Polygon Archival and BSC Archival but exceptions should not rule our policy-making; we should set policies based on the average case and then figure out solutions to address the exceptions (e.g. Community Chains).

We should also never assume that the Supported Blockchains list is append-only. Exchanges typically delist tokens if their volume drops too low - we should not be afraid to adopt the same approach if long-tail chains fail to grow their relay counts and prove their ROI to us. Chains with potential for growth can be strategically supported at a loss but the DAO should be judicious about dropping chains that weigh us down.

Lastly on this point, the economic R&D workstream for v1 includes a topic on computation-differentiated rewards and fees, which should make the conversation with regards to how much we charge/reward relays on different chains much more nuanced in the future.

Edit to add:

As @msa highlighted in the thread, it would be helpful to provide more detail on how this proposal might impact the QoS of long-tail chains, which may see underprovisioning of nodes due to low rewards, and whether this might be unsustainable considering the DAO is paying out monthly for DAN altruist backups in the case of low QoS. He later answered his own question but I’ve provided more detail below based on the DAN reports that PNF has seen.

To provide more detail, DAN estimates average monthly costs of chain nodes as follows:

  • Low Node (typical baremetal node for inexpensive chain): $190
  • Special Node (chain which is unusually expensive): $1,000

Special Nodes currently include only Solana (0006), BSC Archival (0010), and Polygon Archival (000B). These currently only do 2M, 2M, and 4M daily relays respectively, so would be candidates for delisting when combining their unusual cost and their low traffic.

Let’s say 8 long-tail chains (as msa predicts) drop below the quality threshold that requires more use of DAN for those chains, that all of the most expensive chains are in this set, and we’re paying DAN for 4 altruists per chain for redundancy’s sake, we’re looking at max $15,800 per month paid out from the DAO treasury to DAN, or ~450k POKT per month at current prices.

Implementation

The implementation of this proposal is very straightforward. The FREN calculator, being used to calculate each weekly adjustment of the RelaysToTokensMultiplier parameter, would be updated to target a fixed daily emissions of 220k POKT rather than the targets outlined in the currently active SER schedule. The weekly adjustments would continue as usual.

Copyright

Copyright and related rights waived via CC0.

15 Likes

@Dermot, @o_rourke, and I spoke about this briefly this morning where Dermot conveyed this being the mindset that has been missing, and has made inflation adjustment proposals of this magnitude contentious each time they’ve come up.

I know for a fact that some of our ecosystem players, like BlockSpaces, C0D3R, Easy2Stake, and others operate across other ecosystems for exactly this reason.

I believe more of our players stretching beyond our ecosystem to our partner ecosystems will be a net positive for Pocket Network.

I also acknowledge that some of the dissenting opinions here may be around having to buy into other ecosystems tokens to become validators, but I believe this is the nature of the beast at this point in time.

1 Like

Completely aligned with the above. As reflected by the order books of POKT’s liquidity providers, the current inflation rate of 12% (despite being reduced significantly over the last year) is creating a disproportionate amount of daily sell relative to buy pressure. 5% marks a step in the right direction but I fear this may still be too high. We want to redue uncertainty as much as possible and the time period between 5% and the protocol becoming deflationary creates a bit of a grey zone. Ultimately the goal is for supply side fees to accurately reflect paid demand and the token to derive its value entirely from its utility in the Pocket ecosystem.

If someone provides a service and charges $10 for it, why should he be remunerated $10.5? The same applies to Pocket’s node runners, why mint more tokens than the actual paid demand? The community at large needs to understand that severe reductions in the amount of emissions create scarcity in the supply and this tends to have a positive effect on price. I would suggest a direct 1:1 burn/mint ratio. In doing this, the community and particularly the supply side (as they are the largest token holders ) need to be aware of the potential benefits of 1:1 as to prevent a large sell-off.

At the current demand of 1.3B relays/day, the supply side is receiving around $33,000. This figure is denominated from the current token price which hovers at its all time low. Any increase in token price will seriously impact this number. The quickest way to achieve this is by creating scarcity in the supply. Node runners need to stop looking at yield in terms of POKT but rather in USD. The inflation rate means nothing if price continues to plummet. Sure, you can make 12% on a stake of 75K+ POKT. But what does that even mean if the 75K+ POKT you bought last month is now worth half of what you paid for it? This is what we call an imaginary yield ladies and gents…

4 Likes

Supporting this proposal. 5% is a decent start, but it should be cut down to 2% temporarily as long as we are under 5B daily relays. This is a good change in the right direction for the current circumstances, but still too conservative and should be more aggressive.

Could you please intensify work on mechanisms to incentivize consolidation of nodes further? Addressing this part is as important as inflation rate tweaking and should be done as soon as possible.
I think most important change would be to raise the minimum staking amount from 15k to 30k, but also raising the upper limit from 60k to 75k or even 90k.

2 Likes

If I had a vote, I would approve! But expressing my support here, as a bag holder of POKT and a major fan of the project.

There’s a tug-of-war between the supply side and stakeholders (due to price action), and this proposal balances it nicely. For those demanding an even lower rate, that would be too aggressive in my opinion. I think 5% is a great start given the phase we are in, and further closes the gap between emission and burn. That’s the most important part at the moment. We should not forget that this is a “road” to revenue and getting to a place of a healthy and profitable protocol is a marathon, not a sprint. As long as we keep making strides toward this goal, things will fall into place.

In regards to the value of POKT, I feel like some community members put too much weight into emission rates like it’s going to fix everything on its own. That’s not going to happen. Over time, we should go even lower, but for now, it’s more important to increase actual protocol revenue and burn rate, as well as the number of POKT holders. An inflow of new investors would have a much higher impact on price action in the short- to midterm than drastically reducing the rate right now. Of course, these two affect each other but this level should be enough to garner more interest.

Hope the proposal passes!

1 Like

Thanks @JackALaing for making such a great work including all points of view and keeping the proposal objective as clear as possible.


I like to see that there is some comparative point in the selected minting value. While we are not infura and our costs should not be the same, it seems logical to think that we should be able to match their costs when we discount their selling and PR costs and add our redundancy costs and token holders shares.

I still think that 220K POKT a day is very low for node running services, most of them charge around 25% of the node earning to the clients, meaning that the node running companies will get even less. To make an example, a company of relatively big size have around 5% of the total tokens, smaller ones have around 1%. A really good node running service, charging 20% rev share to their customers, from a relatively small node runner company with around 1% of the relay share of the network (due to staked token volume, chains and QoS) will earn per day:
220K POKT * 0.01 * 0.2 = 440 POKT / day
This means that at a token value of $0.038 (from post date), the NR company will earn:
440 POKT/day * 30 days * 0.038 $/POKT ~= u$d 500
This seems to be a little low. There are a few choices for NR services:

  • Centralize: use services like CC, which is not what Pocket Network wants (I hope).
  • Drop support: Small chains, probably most from the top 5 and below will be shut down.
  • Increase rev share: The current ~25% of rev. share that node running clients are used to have will have to be changed and by a lot.
  • Dump their tokens to outlast competence (damping): The hyperinflation period created a lot of tokens, we don’t know who has them, but node running companies probably have their war chests.

But let me be clear. I’m not against a drop of emissions to 5 %, I’m saying that the effects that this might have are not the ones that the community would expect.
Price will not rise due to this alone, generating “scarcity” is not instant and is not done though emission constraining alone. Each time we restrict emissions we make Pocket a worst investment, so I’m more interested on what we can build around this reduction. This proposal is just a partial thing, like putting a band-aid, by its own it will not do nothing.
I look forward of seeing a more ordered plan (not necessarily as part of this proposal), something that can give node runners and future investors a horizon. We need to reach v1 but we need to do it with an economic plan that takes care of redistributing supply into the different actors (validators, servicers, gateways, fishermen), provides basic metrics for investing in each of them and show that protocol growth in terms of paid relays translates to gains on each of those actors (protocol growth alignment).

6 Likes

I support this proposal.

While I do agree with many of the concerns around short term impact (most notably low margin operators being pushed out, further centralization, and I expect my providers will be raising their revshare to cover costs while the price remains low), the work towards long term sustainability is important, whether or not it impacts price in the near future.

I’ll be voting in favor.

3 Likes

I disagree with this proposal. I appreciate that I am in the minority, but I think it’s important to voice the counter positions.

  1. My main belief is that the majority of our focus should be on building paid demand. Bringing up the Revenue/amount burnt is far more impactful for us and should be the nexus of our focus. PNI, Dicky in particular, and the new Gateway are all good examples of positive developments. But the ERA budget only allocates $30k of $1.1M to Gateway development, when we should be doing everything to gain more sales: a) bring up QoS to attract more clients to v0, b) incentivize Gateways to spend more on sales/Dev Rel teams.
    Increasing demand takes time and our focus should be increasing support towards these efforts l.

  2. While we believe in theory that lowering supply will increase price:
    A) it hasn’t happened for the last several lowerings
    (“But we haven’t lowered it enough!” - if the magical number to lower rewards to is Mint:Burn, then this doesn’t get us there and will be as effective as previous proposals.)
    B) if we look at real world examples, price has not gone up when inflation was slashed to the above levels. CAKE did something very similar (a fee generating crypto) and price halved. BNB now has inflation at levels lower than proposed, yet price didn’t move (pre Binance FUD/enforcement).
    Can someone point to a case study, or better yet several where there’s a definitive causation of lowering inflation from 11.4% or thereabouts to 5% and a jump in price?

To me the positives of doing this are to quieten the POKT FUD throwers who are so vocal on this issue and toxify the entire community over it (~10 people out of 20,000) and that it could be a good marketing/narrative a la @Caesar we could build retail hype on (ideally with a (soft) Max Cap, but that is another contentious arguement.)

8 Likes

I welcome any input/review from GRIP’s economists

2 Likes

You’ve certainly voiced some of my concerns.

1 Like

I do not agree with this proposal. I honestly think this going to cause mass unstaking and many node operators shutting up shop. Many people probably will be selling too causing further price decline.
If nodes drop this will probably cause QoS issues too which isn’t going to be a great look if we want to get paid relays.

Honestly speaking not sure I’ll be staying staked if this gets voted in, I don’t particularly like being locked in for 21 days, and many others probably feel the same, I love what POKT does and what it stands for. I see huge potential and downsides too , therefore not sure if it will survive in the long run if I’m totally honest, so a 21 day lock is a risk to me.

I also don’t want to support noderunners who will take more or less all my rewards and dump them on the market adding to sell pressure anyway. ( I get they will need to ) I’d rather hold and be free to sell if I ever need to without being locked in especially large amounts.
The lock up is worth it now, but at 5% inflation and after noderunners have taken their share at these prices or lower there will be nothing left what’s the point of staking and being locked in?
There is lots of risk and no reward! Inflation reduction has done nothing for us so far and may be the cause of the price decline to these levels.

I also think POKT will lose large holders and whales, these people lock in value and keep prices stable to a certain degree. Without them prices would probably be a lot lower, if they are earning next to nothing why stake POKT and not stake another coin that does not look like a token that is dying on the charts?
You’ll get their big bags dumped on the market too.

I honestly think this is a big big mistake. I’m not a voter so my voice will be ignored I know. Just want you guys to think long and hard before voting this in. This is going to do more harm than good I think.
I agree with more or less all the points @Cryptocorn has made. He makes some valid points.

5 Likes

Results of this proposal will be not only to reduce rewards to servicers but also to validators and DAO treasury. At the same time DAO treasury might be additionally burdened with increased rare-chain monthly support as a result of this proposal. If there is no intention to adjust DAOAllocation and ProposerAllocation in tandem with the reduction to RTTM, then at a minimum, please add a subsection to the Rationale section addressing this choice. Alternately, if you choose to consider modifications to DAO and Proposer Allocations in conjunction with the reduction to RTTM, then again, provide rationalization for the choice.

Please get together with DA (Decentralized Authority behind Community Chains) to make a list of chains that may be in danger of falling below the 2 node per geozone needed to meet latency and availability targets and get quotes for these chains to be supported under the rare-chain section of PIP-28: DAN (Distributing the Altruist Network) . Please link results to this proposal when available.

Please coordinate with PNI to triage all chains into following buckets: (1) desired to strategically support at a loss if need be (2) contractually obligated to support chain (and expiration of such obligation) (3) candidate for pruning if supply-side support falls below that needed for reasonable QoS. Please link results to this proposal when available.

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Hey @Cryptocorn

Thanks for your input, as always.

It’s important to remember the primary purpose of this proposal is to:

While you are absolutely right that paid relays should be a primary concern for us all, concerns about the sustainability of POKT act as a massive barrier to adoption, including application developers, as well as new capital providers and contributors.

Said another way, increasing paid demand and reducing inflation are both necessary conditions to improving the sustainability and vitality of POKT and the broader Pocket ecosystem. However, they are not sufficient by themselves, and certainly not on their own. There are many components to this equation and we need to push all of them forward. Hence the objectives and priorities set out in the recent Era post.

WRT demand specifically, you are aware of PNI’s pipeline that is getting better and better and starting to look genuinely exciting, as well as the new gateway launch that should happen relatively soon, and will act as another new and diverse driver of demand. We have put a lot of our time into supporting both of these initiatives, which is an unseen component of our capital allocation strategy that doesn’t appear on the ERA budget. When we say that we want Pocket to grow to $1B of annual protocol revenue we mean it.

Another unsaid component of demand is awareness. Notwithstanding efforts to improve QoS, there is still a massive share of the market that is up for grabs if Pocket can improve its brand, design, and marketing to maximise awareness of Pocket’s value proposition, improve top-of-the-funnel opportunities, and avoid spending any time on customers that are not currently a good match for Pocket’s product offering.

This is why we hired a top PR firm and a new head of marketing (and are paying for them from PNF’s budget, not the DAO’s). These initiatives have a natural lag before the value they bring comes to the surface, but we are extremely confident that all of Pocket’s ideal customer profiles will soon be aware of Pocket’s unique value proposition and why they should choose Pocket for their RPC needs.

Lastly, to pick up on this point:

I personally believe CAKE to be a poor comparison as its token has no utility beyond speculation. CAKE isn’t necessary for the Pancake swap protocol to run. It’s just a financialised asset engineered on top.

The best example of the positive effects of reducing inflation is the OG crypto, mama Bitcoin. I’ll leave it to the chartists amongst us to show how every Bitcoin halvening has led to a massive price increase in the 6 to 12 month period afterwards. And the next best example is ETH following the merge, which caused annual inflation to drop by 88%, with ETH continuing to go up afterwards - and since - despite the worst possible news stories that have ever hit the crypto market, from Three Arrows and FTX onwards.

Lastly,

I politely but vehemently disagree. Many within the Pocket community acknowledge that POKT’s economics needs to improve. Additionally, every builder and capital allocator in crypto I have spoken to over the past few months - including a notable few who already hold POKT - has expressed dismay about Pocket’s unsustainable economics and the need to reduce inflation (amongst the other things that need to be done to get Pocket to where we all know it can get to).

We want to onboard as many great new people to POKT, and the broader Pocket ecosystem, and we need to get POKT on the path to economic sustainability to do so. Reducing inflation is one of these necessary steps, and it’s just taken this long to get to this point because the community has pushed - arguably for way too long - to keep inflation high.

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  1. Building paid demand should be our main focus but at the end of the day it is a huge variable. Supply, however, is completely in our hands and can be altered by changing a few parameters. Agreed that more should be devoted to Gateway development but what better way to stress this than by setting 1:1 burn/mint? If the supply side only receives tokens based on paid demand that creates an ever greater incentive for them to attract new clients.

A) I think 5% is still too high (as expressed in my first comment to this post) but already better than 12%. Mint:burn parity is what we need.
B) All the examples you mentioned (CAKE & BNB) have very low utility relative to POKT. In these examples, people hold the token to get discounted trading fees; the token is not a means of exchange between supply and demand. POKT needs to derive its value entirely from its utility (as outlined in V1).

This has nothing to do with POKT FUD throwers. The early node runners lost huge sums because of poor economics, this is about achieving long-term sustainability. This has nothing to do with marketing/narrative, this is about fundamentals. Hype means absolutely nothing in this context, hype can create huge spikes in the price but these moves are not sustainable. Pocket’s price keeps falling off a cliff because of supply. Look at the order books of CEXs, huge daily sell pressure relative to buy, why do you think that is?

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My GRIP feedback would be:

Great structure to the proposal. Lots of references to outside sources to incentives research.

My one note is in regards to:

This proposal doesn’t seem to account for any price changes within POKT. January 1st POKT was 5.5c and has undergone a -31% drop to your proposed 3.8c lock. If $254k per month (or $3.048M a year) turns into $175k ($2.1M a year) with another -31% price decrease to 2.6c, would the core thesis still remain?

Most proposals that have USD needs to be met are structured so the USD value is the measuring point. This proposal is a bit of a hybrid, as it’s trying to meet USD needs, but in a fixed POKT value manner. I think price would need to be taken into account for this proposal to not need frequent future amendments.

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From a small node-runner’s perspective, this huge emissions rate cut is justified if it will produce a MASSIVE increase in paid relays. For those who may not be aware of new customer enlistment, please provide a FACT-BASED forecast of anticipated paid relays. In other words, what specifically is in PNI’s pipeline? What other CONCRETE details can you provide on incoming Pocket Network clients and revenue streams?

Can you please elaborate on what “massive share of the market is up for grabs”?

(Apologies if the answers to my questions are available elsewhere in the Pocket-verse. Repeating them here will be helpful.)

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Hi @zaatar

None of what I said is a simple binary. As I said in my response above, this inflation cut is one of many measures we - as an ecosystem - need to take to onboard new contributors, including application developers. It is not as simple as “Reduce inflation by 50% and Relays will increase 2x”

My reference to PNI’s pipeline was to answer the request from @Cryptocorn for more efforts to be put on demand generation, instead of inflation reduction. By referencing PNI I was demonstrating that others in the ecosystem are already focused on demand. PNI’s pipeline has ultimately nothing to do with this proposal, but I am sure that @PoktNews and many others in the community can show you the relevant PNI pipeline if you are still interested.

And re the massive market share up for grabs, please review the “decentralising Pocket’s demand” section of the supporting analysis to the ecosystem thesis we released, along with the relevant appendices - see here. We are talking about a daily relay market of 1-2 T relays. QoS isn’t the only reason Pocket doesn’t have more relays. World-class brand, design and marketing is an obvious low-hanging fruit we can fix to help our demand-generation efforts, in addition to inflation reduction, the new gateway, and everything else we are doing as part of our BHAGs, and the new ERA prioritisation framework we are hoping to implement.

Please LMK if any of this is still unclear

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I have outlined in the comments section of the RDI pre-proposal the reasoning against pegging the supply side to USD. The decreasing dollar value of the emissions as the price of POKT drops is an important component of the feedback mechanism to right-size the supply (e…g, node runner attrition as dollar value of rewards drops, increasing rewards per node for remaining nodes). Removing this feedback mechanism by pegging emissions to USD can lead to hyperinflation.

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My personal thoughts:

Ultimately, to me this proposal isn’t so much about inflation, as it is about what the lowest amount the node running ecosystem needs to cover all chains and be performant. This proposal essentially cuts POKT for the node economy in half… but 50% drop in price would do the same thing (though in just more time potentially). We have been heading down this road for a while, and this proposal is the first to actual define what the limit is for the Node Ecosystem.

Defining A Healthy Node Ecosystem

I believe that before we can define the reward limit of the Node Ecosystem, there first need to be a definition of what a healthy node ecosystem is. The thesis of this proposal is that $254k a month is sufficient…

… but what is a healthy node ecosystem?

  • How much consolidation of staked POKT into fewer providers does is positive consolidation?
  • How many nodes per chain are required to be performant?
  • How many providers per chain provides performant QoS?
  • What percentage of the network should be locked up via stake to be considered healthy? (It was 78% a year ago, and now is down to $62)
  • What percentage of the network should be locked up via stake to be a good launch pad for v1?

I’m hopeful the results of the survey can give definition to these questions.

Consolidation vs Cost Distribution

At the POKT State Of The Union, PNI expounded extensively about dramatically reducing costs in the Node Ecosystem, without centralizing the POKT staked on the network… through chain cost distribution (AKA: chain node pooling). The argument was that it would allow POKT to have staking services that were still giving a lot of diversity in the POKT ecosystem, while having a performant chain distribution network in the background that reduces everyone’s costs. Instead of consolidating the staked POKT to reduce costs in fewer providers, a distributed chain node ecosystem could reduce the cost for all.

Distribution is: Instead of 6 providers all paying for 6 Fuse node, 6 providers distribute their resources into 2 Fuse nodes.

Consolidation is: Instead of 6 providers all paying for 6 Fuse node, 4 providers close down and 2 providers absorb the customers from the others.

I don’t see this being about what POKT “wants”. This is about being real about the state of POKT market and the economics of node running. Rewards for providers are going down, regardless if it is from this proposal or from the price of POKT decreasing. Even if someone doesn’t like this proposal, all the economics trends are very clear that cost reduction is critical for NRs or they will go out of business. NR are already publicly saying that if something doesn’t change they are going under… so it can’t be ignored.

Your characterization of CC is inaccurate. CC is public chain pooling platform to do exactly what PNI was just suggesting in October. CC actually took it a step further by making all payments settled in POKT (giving more utility to the POKT token and reducing the sell pressure, instead of using USD for payments), and did it in a non-centralized gateway manner (where POKT nodes are connected to other providers directly via DNS with no extra gateways or hops).

With where the economic trends are already going, most NRs are not making it without cutting costs dramatically. The game theory is such that the smaller will close and the bigger will grow. If you believe that there is a better way for NRs (especially those not in the Top 3) to reduce their costs to stay in business, that does not include cost distribution via chain node pooling, then do share. So far chain node pooling has been the only solution that has been put forward, and those use CC are quite happy to have the savings and will likely outlast those that try to do everything on there own.

I believe that distribution of chain costs is WAY better than consolidating all staked POKT into the hands of a few. The economics are such that one day folks with either wake up a POKT ecosystem where:

  1. The majority of staked POKT, chain nodes, and even gateways are all under single entities

  2. Staked POKT remains distributed across many staking providers and there is an open network of chain nodes which reduces everyone’s costs, ensures distributed QoS (objectively better for the network), and prevents full stack monopolies.

I believe 2 is OBJECTIVELY better.

Timing

I agree with the concept of reducing inflation, but I don’t know about the timing. I don’t believe it will have the “buy pressure effect” that some believe it will have. @Cryptocorn’s point #2 is spot on that it hasn’t any actual effect, which has a primary selling point to inflation proposals.

These examples are from huge coins that have massive buy pressure markets for their utility. Bitcoin does it every few years (vs a proposal that does it all at one time like this one) which gives Bitcoin the ability to grow on the buy side before changing their inflation. BTC has ample buy side utility as the center of all crypto trading. ETH did it after they have ample utility and there was already ample utility to it. POKT utility right now is only for staking (which has all but dried up), and apps staking (aka app buy pressure) doesn’t come until v1, and it’s not clear to me that v0 gateways will have meaningful volume within v0.

On-board with the concept, but sure about the timing or the proposed effect it will have on our market… but open to changing my mind.

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I get your concept, and in an makes sense ideally speaking… but @JackALaing is proposing a theoretical USD limit to maintaining a quality node ecosystem at around $254k. The limit is being set in USD, therefore you have to measure according to the POKT value to USD.

You are correct that pegging to USD could lead to hyper inflation if the token loses more and more value… but it doesn’t change the fact that those costs have to be paid out in USD, and this proposal is being setup to set a USD limit based on real world node running (which requires exclusively USD), so without a mechanism to address that USD limit if the token price decreases… what happens? That is my question and it can’t be answered by disregarding the value of POKT to USD since USD is the value peg and the required asset to pay for the infrastructure costs.

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