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

[RawthiL (Ramiro | POKTscan)]

@Dermot I appreciate your passion for ARR, but don’t try to sell it a great (or even good) proposal. Take the win and start building the next step because, as you say, ARR is only a step in the right direction, nothing more. Its a step that the community is willing to do, but not due to the fitness of ARR.

ARR wont:

• Create buy pressure: It does not act on this front at any extent.
• Reduce sell pressure: Node running costs are not related to emissions, a server cost the same regardless of how many POKT we print.
• Bring contributors into the ecosystem: Actually it will kick-out some of them as the node running becomes impossible to sustain (not saying that we need to try to keep them either, just describing)
• Increase POKT exchange rate: It does not provide any mechanism for this to happen, its all hopes and market sentiment modulation.

ARR will:

• Show that the Pocket Network is trying to lean away from the seignorage paradigm (minting out of thin air). This is a great step that might bring capital to the system (not builders).
• Make some telegram folk (briefly) happy (or encourage them to ask for 2% or 0% supply growth).

I agree with some points made by @bulutcambazi , but I voted yes on this proposal, because I think of it like what it is, a step. A band-aid. I hope that once we remove ARR out of the way we can start thinking in Pocket economy as we should.

@Dermot

It is true that SER passed “only” 130 days ago, but much has changed since, and even at the time a lot of the community acknowledged that SER would take far too long to get inflation down to more sustainable levels (when compared to Pocket’s levels of demand)

Funny, because a faster plan was proposed and the community decided to go with the current one. The community acknowledged it was the right speed when the community voted.

@Dermot

SER passed 130 days ago, and it was clear from the moment it passed that it wouldn’t be enough, at least to those looking for more sustainable economics. SER was a fudged compromise negotiated by and between the community without any of our involvement.

This is very unhelpful for the DAO. You are saying that the community discussing, agreeing and voting on SER did not responded to the community? Who are “those looking for more sustainable economics” if not the DAO (which is the community)?

@Dermot

More relays means more protocol revenue. Which will further cut net inflation by way of the burn. Even if the current gateway fee stayed constant (which is highly unlikely given that it is currently artificially low to help bootstrap the current gateways), at 10b relays, there will be a hell of a lot more buy pressure on POKT from gateways alone, nevermind any other source

Fingers crossed. That’s all we can do. More specifically, all that ARR offers.

[Misskitty42]

The proposal is already up for voting, so this comment is probably too late, but I feel compelled to say my peace regardless.

On (over)provisioning
When determining what is the right size of the network, it seems that a question has been left unaddressed: what would be appropriate number of pocket nodes to support a BHAG of 10B relays per day? I haven’t seen a concrete number – other than what @Dermot has just alluded to – but it would be a helpful metric to have.

What is a node runner?
Seeing the results of the node runner survey would also have been helpful before the proposal went up for a vote. The conversation so far seems to have assumed that node runners are a monolith, which I would posit isn’t really the case. The commercial entities probably make up most of the network and have the loudest voices, but it would have been helpful to see which participants are not running nodes as a business. There is a line of thinking – which I find myself agreeing with – that successfully lowering the network cost relies on the hobbyists, i.e. those that run nodes for themselves and offer up spare computing. I would also argue that some in the network are decentralization maxis, who will stay [redacted] much longer than some commercial entities can stay solvent because their profit motive is secondary. The point here being, that not every node runner has the same pain point when it comes to inflation/emissions, and the protocol is the strongest not only when the nodes are decentralized, but also when the node operators are diverse.

(again, having an idea how many nodes are really required to run the network at 1, 2, or 10B relays would be helpful to determine whether how much could theoretically be supported by the hobbyist/maxi camp).

On timing
As has been mentioned, the implementation of further inflation reductions is vital, as the consensus seems to be that further drastic inflation reductions will lead to mass unstaking. The issue is whether this unstaking will lead to mass selling, and what, if anything, can be done to take those unstaked tokens out of circulation. Can those tokens be used to provide liquidity for wpokt? If so, that could give node runners (or HODLers) an alternate income stream.

[Dermot (Dermot O'Riordan)]

@RawthiL

ARR is only a step in the right direction, nothing more. Its a step that the community is willing to do, but not due to the fitness of ARR.

I’m not sure why you believe I think otherwise. ARR isn’t a panacea or any sort of viable end-state. It’s a step in the right direction. And its passing will also be no cause for celebration, just a positive signal that we can leverage to make some more progress.

@RawthiL

• Create buy pressure: It does not act on this front at any extent.

I largely agree, albeit there will be fewer barriers in the way of new buyers - whether as nodes, investors, or otherwise - because they should be less concerned about Pocket’s unsustainable economics. Reducing inflation will also improve Pocket’s ranking on Token Terminal, which tracks net protocol revenue, ie protocol revenue - emissions

@RawthiL

• Reduce sell pressure: Node running costs are not related to emissions, a server cost the same regardless of how many POKT we print.

Having less to sell, will obviously help reduce total sell pressure. Most node runners are already under water and almost all are currently selling all of their rewards.

@RawthiL

• Bring contributors into the ecosystem: Actually it will kick-out some of them as the node running becomes impossible to sustain (not saying that we need to try to keep them either, just describing)

It will kick some out. It’s unfortunate, but we realise that. But we know that an improved belief about the sustainability of Pocket’s economics will also open the door to many more new stakeholders.

@RawthiL

• Increase POKT exchange rate: It does not provide any mechanism for this to happen, its all hopes and market sentiment modulation.

Beware anyone who claims to know the answer to make a market-set number go up! I like to think that the game we all play is a little more nuanced than that. In any case, any valuation (even the price of the token) is a lagging measure that comprises many components, some of them fundamental (our collective efforts around supply, demand, community, governance, etc in the case of Pocket) as well as narrative (mission alignment, brand, sentiment, and so on). We are simply helping the community to work together better on what we can control, driving more demand, reducing supply, and raising awareness of all the great things happening in the community. From my experience, measures like valuations are usually either too bearish or bullish and never in a happy medium.

@RawthiL

I agree with some points made by @bulutcambazi , but I voted yes on this proposal, because I think of it like what it is, a step. A band-aid. I hope that once we remove ARR out of the way we can start thinking in Pocket economy as we should.

@RawthiL

This is very unhelpful for the DAO. You are saying that the community discussing, agreeing and voting on SER did not responded to the community? Who are “those looking for more sustainable economics” if not the DAO (which is the community)?

We have an incredible DAO, a DAO that we should be really proud of in terms of the depth of its participation and engagement. Still, it has been very hard to overcome the vested interests of the supply side on many major proposals. The fudge I was referring to was the compromise needed to appease the supply side at the time. And I voted for SER at the time because I still viewed it as a step in the right direction, and I give full credit to the proposal authors for drafting it and getting it over the line. Now that the Overton window is pushed open much wider, we can start to try and think longer term about more ambitious proposals that all of us can be more confident about standing a longer test of time.

[Dermot (Dermot O'Riordan)]

@Misskitty42

what would be appropriate number of pocket nodes to support a BHAG of 10B relays per day?

Pocket nodes, as per the current economic design, are really just market share points (as @RawthiL has helpfully described elsewhere). Having more of them increases your overall share of the relay pie, but they don’t cost much to run, other than the stake amount, so it’s the underlying blockchain nodes where the real costs lie. Answering this question will be crucial for the economics R&D workstream for v1. It’s important that we understand what we are optimising for across the system.

You can play around with this network costs spreadsheet put together by @shane in the meantime - GoP (Game of Providers) - Google Sheets - and check out the full thread here

@Misskitty42

The issue is whether this unstaking will lead to mass selling, and what, if anything, can be done to take those unstaked tokens out of circulation.

Remember that most of the supply side runs nodes non-custodially using POKT held by others. If node runners leave, those POKT holders can move their stake to another node runner. Alternatively, the reduced inflation of c.4.98% inflation proposed by ARR means that there isn’t as much of an opportunity cost if POKT holders prefer to just hold and wait to see what to do next. It shouldn’t be a binary situation requiring stakers to either stake or sell.

@Misskitty42

Can those tokens be used to provide liquidity for wpokt?

We will likely make a proposal to the DAO in August about a liquidity incentives plan for wPOKT, so moving POKT tokens across the bridge to stake as a liquidity provider in any new wPOKT pools will definitely be a new form of utility for POKT!

[Qspider]

There has been zero paid advertising to my knowledge so not many know about Pocket. It has been mostly word of mouth for a long time. How can there be a broader external audience without marketing? No marketing means little to none new customer/stakeholder/builder base. There should have been some type of paid marketing – at least a little (1% to 5% of budget)-- every month.

How can we make economic model changes when the economics just changed in the last week. Traffic and earnings are up around 200% or more in the last week. That alone changes everything making it more attractive. RC-10 right around the corner. wPOKT right around the corner. Too much change going on in this month so it’s difficult to see how someone could make improvement based on last months data. We need to see how this effects the token because there is much planned in the works this month.

[Cryptocorn]

There are two polemics that need to be put to rest:

1. This malicious idea that all Node-Runners are pure evil and only extracting value.

• Node-runners are some of the largest bag holders in Pocket. They make more money from the price going up than emission rewards.
• There is a wide variety of opinion on reducing emission rewards (‘inflation’). Lower rewards at higher prices would be beneficial for Node-Runners day-to-day businesses, so it is overly simplistic and simply wrong to suggest that they are some evil cartel maximising rewards at the expense of price.
• I work for a pooling solution, but my position being against ARR is nothing to do with any perceived value for my employer - I believe reducing emissions too sharply does more harm than good for the long term viability of Pocket- so let’s allow everyone to have a personal opinion, even if you disagree with it, without resorting to name calling on twitter.

2. 10% vs 5%:

• I don’t buy this over-simplified argument that at 10% inflation everything is wrong, its the sole reason for price crashing, no one will buy POKT or enter our ecosystem, etc but at 5% everything will be perfectly course corrected, all this new capital and developers will instantly flow to the system etc.
• To put things in perspective, Hyper inflation is defined as 50% increase per Month or 12800%+ per year!! We are discussing the difference of ~10% vs 5%. We haven’t seen the reduction from 3000% → 10% as a pancea, and even 5% will still be multiples of the burn so not at equilibrium.

We can discuss the benefits and costs of ARR (i.e. I support the marketing narrative) without these aggressive positions and binary thinking.

[Dermot (Dermot O'Riordan)]

Thanks @Cryptocorn - none of what you just said should have to be said, but I appreciate you for saying it.

@Cryptocorn

1. This malicious idea that all Node-Runners are pure evil and only extracting value.

While I’m unsure where this idea emanates from, as it couldn’t be less true to anyone who has been in this community for more than a short minute, I couldn’t agree more.

Our node runners have been Pocket’s most productive and impactful stakeholder group to date, with many also acting as builders (special shout out to Poktscan and Nodies, but also to almost every other node runner group in terms of their contribution to protocol development), some as validators, and almost all as active participating citizens of Pocket’s community. Consequently, it’s not surprising that node runners are the most well-represented stakeholder group in Pocket’s DAO. And well deserved too. In a proof-of-participation system like Pocket’s, the node runners have participated more than every other group.

It is undoubtedly true that for Pocket to reach its true potential, we need to onboard more stakeholders into Pocket’s other stakeholder categories - eg builders, applications, gateways, governors, and POKT holders - and help them meet the standards and participation levels set by our node runner community.

@Cryptocorn

Lower rewards at higher prices would be beneficial for Node-Runners day-to-day businesses, so it is overly simplistic and simply wrong to suggest that they are some evil cartel maximising rewards at the expense of price.

It’s not evil to make money. It’s all of our responsibility to govern the incentives that the protocol rewards. In any case, I agree about node runners being some of the largest bag holders in Pocket. I’ve made the same argument in both the BASH and MINT threads. Appreciation of POKT helps every stakeholder, including node runners.

@Cryptocorn

• I don’t buy this over-simplified argument that at 10% inflation everything is wrong, its the sole reason for price crashing, no one will buy POKT or enter our ecosystem, etc but at 5% everything will be perfectly course corrected, all this new capital and developers will instantly flow to the system etc.

Again, I agree. “Show me the incentives, I’ll show you the outcome”. To view the actions of a capitalist endeavour in black-and-white terms is a straight-up breach of our core DNA. We can all do better than to suffer such a midwit view. Here’s a meme for your pleasure to send to the next person who tells you this

And second of all, price isn’t related to any just one factor. ARR is certainly not a panacea for price, and shouldn’t be interpreted as such.

Lastly, just for the record, current inflation levels are tracking at c.15% - https://poktscan.com/explore?tab=supply

[bulutcambazi]

If node runners leave, those POKT holders can move their stake to another node runner.

When, not if. It has already started with Thunderhead and BlockSpaces. I cannot imagine the node runner landscape will remain the same after an overnight 60%+ revenue reduction. Node running is an extremely tiring, tedious job. Also, they are skilled infra engineers who can be valuable elsewhere – each infra provider lost is a loss of the capabilities of the ecosystem and decentralization. And finally, as this proposal shows, their entire revenue model (hence their business) is at constant risk of sudden and massive changes. They still cannot make plans or commitments or operate on borrowed money, because just two months from now, there can be another proposal to immediately increase DAO allocation from 10% to XX% for example…

So, when that happens, some investors will move to another node runner (and perhaps yet again to another one as they keep losing interest in running pocket nodes), some will remain idle and see what happens. But some will sell. Time has opportunity cost. If your trusted node runner(s) is quitting, and if you are only making $2 per 15k stake, maybe it is not worth your time anymore, and maybe it is time to realize the losses, get some tax benefit at least, and move to something with better risk vs. rewards.

I do believe in Pocket; it has an amazing potential. I, too, think that inflation is something that needs to be controlled. Where I disagree is the timing and implementation: No large infra project as ours should enact these massive financial changes overnight. Proposal aims to “Strengthen the protocol revenue narratives” but we would be signaling that the project is prone to sudden and massive swifts, which can (and I believe, will) scare investors. Also, this proposal is unlikely to motivate new node runners (one of the stated top goals) and even keep the price stable (because of the sudden instability it brings to the ecosystem.)

[Qspider]

Agreed. Landscape has changed. There is a lot to go over in the next month and I can easily imagine us all gathering again in August-Septemeber. Holding/Staking POKT just got more attractive now due to more relays and improved QoS. Now we implement the new RC this month and check out all those new benefits that come along with it.

To me tokenomics are optimal right now. Now stakers are making decent and helping to pay for all this network of amazing potential. The only thing that is missing is large volume buyers. This will come back over time and the sooner we get more marketing the more people will know about POKT. I’ve seen everybody out there in the community doing their part. This is an exciting time but we need to make sure everything goes accordingly with all these changes in a short period of time.

Dermot asked if not now when? In an orderly fashion is all I’m trying to say. QoS has improved and even though there’s been a large volume of unstaking traffic is increasing overall which isn’t bad. We could take on a whole lot and we’re ready to go at end of July and August. Market conditions are optimal. We will then have more data to look at and I am pretty confident it will be even more attractive.

Thanks for listening. Let me know if I made any formatting errors. I’m not used to posting here on the forum. Came here to say no but it’s going to pass anyway. if it ain’t broke don’t fix it.

Edited post to say relays are actually decreasing today by a large margin but overall it’s still over a billion relays. Our network of nodes can certainly handle this.

[JackALaing (Jack Laing)]

This proposal was approved with 18 yays and 8 nays. Snapshot

Per the implementation details of the proposal, the weekly adjustment schedule will continue as usual, with the next adjustment (due Monday) targeting 220k POKT daily emissions.

@JackALaing

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.