I posted a new thread with a spreadsheet that gives a detailed look at the way different parameters would likely affect different size node runners. I put it as a separate thread to keep this thread focused on inflation specifically.
However there is a lot of crossover, and it specifically has a variable which can be set to this proposal’s inflation rate.
Instead of guessing what effect different parameters will have on different sizes of node runners, this just puts our entire node landscape in an adjustable spreadsheet.
The $254k figure was highlighted as a benchmark against Infura, which manages to charge users a similar amount for equivalent relays, to make the point that this amount should at least be safe to move forward on today. If we can’t match that, how can we expect to compete with other RPC providers? Whether price continues to drop from here is irrelevant to the decision today – if the downward trend that you identified continues, we’ll end up in the same place regardless of this proposal passing or not.
We are not proposing that this specific figure actually be locked in as a theoretical USD limit. See in bold:
The decision about whether to drop certain chains is outside the scope of this proposal. The message you quoted was a call to reframe our thinking to be more intentional about our “network spending” around a chain’s potential to contribute to our protocol revenue. This would be a mindset shift that may lead to future proposals if the path we go down leads to certain chains being nonviable economically. There are no contractual obligations for the protocol or node runners to maintain support for certain chains.
Just so my feedback is here as well. ARR has a few blind spots that create an imbalanced ecosystem in curtain market conditions. The main one is it does not account for varying market conditions.
POKT Price Creates Imbalance
If the POKT price is reduced to $.02C by the time POKT hits 10B relays a day, the Servicer economy would be sitting far below what it tenable. ARR is designed so that regardless of what happens with the price, deflation is always prioritized, at the expense of the Servicer, Validator, and DAO economies.
That is hugely problematic and unnecessary. On the flip side, what I’m proposal with Burn And 🥩 Harnessing (BASH) Deflation Economic Model provides the same amount of tokens burned as ARR, but does not have the deflation imbalance (see left side of image above with the blue markings).
When looking at 15B relays, ARR again prioritizes deflation despite the fact that 50% more hardware is required to service 5B more relays. This type of model could likely crush QoS if relay growth does not allow servicer growth to account for more costs.
I created a section in the BASH spreadsheet that shows what ARR would look like with different market situations (as shown above). Changing the price and relays shows the imbalance that only favoring deflation will create. I encourage everyone to check it out.
The only outcome I could see is there will need to be future proposals for ARR at different price and relay points. Regarding BASH, comments about it specifically are welcomed on it’s thread, but I wanted to put the relevant issues with ARR in this thread for posterity’s sake.
But with regards to your challenge to the fitness for purpose of ARR in a super deflationary scenario, we have much bigger problems if POKT falls to 2c. And much more than a simple change to how much we pay our supply side will be on the cards. So in that scenario, I’m not sure how helpful BASH will be in that position either. As I’m sure that the supply side will notice that the unit value of their rewards are on a downwards trend, and may look to exit before it gets any worse. This is why we need to ward off inflation now and send a very clear message in this regard.
Everything else re gateway staking, increases to stakes more generally, parameterising the gateway burn are all on the cards, but just aren’t top priority. They can happen afterwards with sufficient research and debate.
We believe that the emission reduction proposed by ARR is the first necessary step towards making 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.
Further, ARR doesn’t preclude any future proposal to add any of the new parameters or mechanisms proposed by MINT and BASH once they have been sufficiently debated and tested. Voting for ARR doesn’t mean voting against the additional parameters proposed by BASH or MINT, it’s simply a vote to reduce emissions. Any questions about gateway staking, parameterizing the gateway, defining a more dynamic gateway fee schedule, or tying emissions more directly to gateway fees, should be deferred to other proposals.
We hold the principle that making changes in a simple step-wise fashion is preferable to trying to design the perfect complex system upfront. Our first proposed step is to address the problem of excessive emissions. As the community appears to be generally in agreement with this direction, this proposal is now up for a vote.
It is my opinion it is too early to make changes and too soon since the last. Portal migration traffic issue has fixed and relays are increasing. POKT is already attractive to builders. Let’s get RC-0.10.0 implemented first to see what happens and then come back to the table.
I thank Jack and everyone for taking their time and working hard on POKT economics. I appreciate the effort that went into this proposal, and grateful of people thinking how to improve tokenomics of POKT. Unfortunately, I don’t think this proposal is the right idea, at least not at this time.
The agreed upon proposal we have in place already reduces the inflation to single digit numbers (same as Spain, Belgium, Germany, etc.) reasonably quickly, but it does so gradually without any sudden jerks to the fundamental financial parameters. Losing 60% of revenue overnight is massive. Any massive change to a network that wants to inspire investor confidence should happen over time, with a long runway.
220k POKT emission is NOT enough for a diverse and healthy supply side.
220k POKT emission doesn’t all go to node runners. With 50/50 rewards share, it is more like 110k POKT. This means top 3 node runners, each with ~8000x 15k stake as of today, would only make $14,000 per month in gross revenue BEFORE hardware, labor, legal, insurance, marketing, customer support, etc. This will very likely drive many node operators out of business / out of network and most certainly won’t make Pocket more attractive to new node operators – one of the top motivations of the proposal. Node operators leaving the network is bad for decentralization, which is arguably the biggest advantage of Pocket.
Comparing 220k daily POKT emission to Infura is flawed, because 1) Unlike rewards share, Infura doesn’t give a large % of their revenue to their investors and their relationship with their investors for much longer term (vs. customers of node operators, which can move between providers easily and quickly). 2) Infura achieves that pricing point using scales of economy. Infura couldn’t afford it sustainably if all they did was 1.3B relays 3) For 10B relays, Infura would already charge 6x of what Pocket would emit – remember, 220k is constant up to 10B but Infura figures mentioned in the proposal is for 1.3B relays 4) While appreciate of what PNI/PNF/DAO does, Pocket node runners of course have costs other than pure node running such as marketing, customer support, legal, technology development, etc. and of course, rewards share. 5) Unlike POKT, Infura has vertical integration, which allows them to make optimizations that is not possible in POKT. For example, to get discounts, they can make longer term commitments with their cloud providers, because they don’t have to protect themselves against sudden swifts in fundamentals economics like this. 6) Infura can differentiate itself with more than price or perf when times are tough (say, better documentation, customer support, even website design for that matter) CherryPicker doesn’t care ANYTHING but perf, which is very costly.
Reduced rewards might cause sell offs. Because a sudden drop like this might give the impression that network is not doing well. Similarly, node operators going out of business will demoralize some of their customers, taking their investments elsewhere with them. Sure, love it or leave it. But the problem is, this can start a negative spiral - initial sell off triggering price reduction, which triggers more sell off, and further price reduction. Granted, a small probability, but not to be completely dismissed.
220k POKT emission doesn’t all go to node runners. With 50/50 rewards share, it is more like 110k POKT. This means top 3 node runners, each with ~8000x 15k stake as of today, would only make $14,000 per month in gross revenue BEFORE hardware, labor, legal, insurance, marketing, customer support, etc. This will very likely drive many node operators out of business / out of network and most certainly won’t make Pocket more attractive to new node operators – one of the top motivations of the proposal. Node operators leaving the network is bad for decentralization, which is arguably the biggest advantage of Pocket.
POKT doesn’t owe business-model node operators a guaranteed market to profit. Labor, legal, insurance, marketing etc are aspects of a business that spun out of demand for node services. They made tons of money when POKT was over 1$, charging amounts unbelievable by today’s standards, even with newer software optimizations taken into account. Funny that you say node operators leaving is bad for decentralization. Because node operators are definite points of centralization. Especially ones holding very large amount of nodes and are prone to US regulations.
Reduced rewards might cause sell offs. Because a sudden drop like this might give the impression that network is not doing well. Similarly, node operators going out of business will demoralize some of their customers, taking their investments elsewhere with them. Sure, love it or leave it. But the problem is, this can start a negative spiral - initial sell off triggering price reduction, which triggers more sell off, and further price reduction. Granted, a small probability, but not to be completely dismissed.
So are we supposed to keep rewards high to please node provider companies? When their massive profit realizations for months were what caused the massive drop in price. It seems like when the node operators are winning, the project is losing. Maybe if greedy ones go out of business, more people can learn to set up their own node, or smaller and better optimized node provider companies could pop up. The fundamentals are strong and even if we get set back temporarily, we will know that value extracting actors left and surely the strong fundamentals will make sure POKT comes back stronger and healthier.
If not now, when?? 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)
Yes, Pocket is attractive to its current community, but without proving our sustainability to a broader external audience, we will struggle to bring in fresh talent across every stakeholder category we care about - supply, demand, protocol, governance, investor, and so on
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.
Since then, PNF has been leading discussions into our economics, engaging with all of the key stakeholders within Pocket, as well as many builders and investors currently sitting outside of our community. The sustainability of Pocket’s economics is a major barrier to entry for outsiders, and a known problem within Pocket’s community.
Voting against ARR will be the perfect confirmation bias for all those who think that Pocket’s community will never make the tough upfront decisions required to reform its economics in time. While ARR is not a panacea, it’s a step in the right direction. And sends an important message to the new stakeholders we want to attract.
To do this I respond with the following extract from the original proposal. Yes, nodes have additional costs, but way less than they every would have on their own as a standalone blockchain API provider.
I agree with this assertion, but for a different reason than you. Mainly, that we should be able to do much better than Infura and any other centralised/“decentralised” competitor. Everything in our ecosystem thesis is ultimately about how we overcome the RPC trilemma to achieve this:
It is true that the figures in the proposal are for 1.3B relays, but it’s important to bear in mind two key points:
Node runner costs don’t scale linearly with relays. My understanding is that the current number of staked chains would be pretty much sufficient for 10B relays.
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
@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.
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.
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)?
Fingers crossed. That’s all we can do. More specifically, all that ARR offers.
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.
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.
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
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.
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.
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.
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.
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.
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.
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!
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.
There are two polemics that need to be put to rest:
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.
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.
