I support the recommendations of Jack Laing of POKT Network in instituting a buyback of POKT from the marketplace that will be supportive of POKT’s price and of the network as a whole until the App-Stake Burn is implemented in the Maturity Phase. Why?
- POKT’s price has considerably
underperformed almost all other altcoins in this market downturn by a significant margin. See POKT vs. Altcoin Futures
The price decline has been dramatic, persistent and threatens the growth of the network in my opinion. Jack Laing presciently warned about our current situation in comments he submitted in “PUP-12: Inflation Stop-Gap Proposal: Double Trouble.” He wrote:
This shift to long-term sustainability revolves around burning POKT to ensure the POKT supply is stable doesn’t lose its value as a form of consideration to Service Nodes.
In addition, to ensure the continued sustainability of POKT, to retain reasonable margins for Service Nodes, and to eliminate unnecessary overinflation of POKT, the Pocket DAO may activate an Application Burn Rate (ABR) at the Maturity Phase. This means that any POKT minting is balanced out by Application stake being burned at the same rate.
However, there are many drawbacks to excessive inflation, such as sell pressure which may reduce activity on the network, network underutilization and unnecessary hardware costs, and a general perception of long-term unsustainability
Price is a factor in inflation
While we might like to treat POKT as an isolated system, infrastructure costs are paid in $USD, which means the price of POKT is a factor in inflation.
Another cause that I hadn’t considered, but I have noticed as a theme in people’s responses to this proposal, is the fact that infrastructure costs are paid in $USD and Pocket nodes don’t get cheaper when POKT gets cheaper. In fact, they’re more expensive now than they’ve ever been, with 4-8 vCPUs now being the recommended minimum adopted by most large providers. Now that POKT is almost half the price that it was last week, node runners, who are paying $USD to bare-metal/cloud providers, and stakers, many of whom are paying the node runners $USD to cover these infra costs, are now seeing less return on their investment in $USD terms.
I will add that Jack voiced these concerns when POKT’s price was 200%+ higher than where it is now. Node costs meanwhile have either remained fixed, or gone 50% higher (in the case of C0D3R’s premium nodes).
In fact, in POKT’s Monetary Policy it is written: This shift to long-term sustainability revolves around burning POKT to ensure the POKT supply is stable and doesn’t lose its value as a form of consideration to Service Nodes
Also in the Monetary Policy it is written: In addition, to ensure the continued sustainability of POKT, to retain reasonable margins for Service Nodes, and to eliminate unnecessary overinflation of POKT, the Pocket DAO may activate an Application Burn Rate (ABR) at the Maturity Phase.
I would argue that POKT is in danger of “losing its value as a form of consideration to service nodes,” and is no longer retaining “reasonable margins for service nodes,” now that node provider costs as of today can consume 30%-50% of the node provider rewards.
I believe that POKT’s monthly relays, new chain additions and number of nodes is proof-positive to potential clients that the network is “here to stay.” In addition, POKT offers many more attributes to prospective clients vs. a centralized node provider that enables POKT to begin charging for its service; above and beyond a “free tier” level.
As Jack Laing accurately predicted and recommended regarding this:
To address this in the long run, I think we should aim to close the supply-demand loop in our economy, activating the natural source of buy pressure from apps using the Portal to coincide with any inflation reductions on the horizon so that any drop-off in mercenary buy pressure can be replaced by app buy pressure, and apps can, in turn, swallow up mercenary sell pressure.
**This means ending the current free-for-all model in the Portal, activating payments above a free tier which can be set at a slight discount to centralized alternatives, and using the Portal revenue to buy back POKT from the markets. This, in my view, would be an effective substitute for app stake burns.
The general bear markets (in equities and blockchain), coupled with the persistent decline in POKT’s price and reduced rewards via WAGMI implementation may cause a cascade effect of node providers unstaking and leaving the network in the near future. This will cause a further significant drop in price and reduce the size of our network (which is one of our marketing points), as well as undermine the confidence of potential node participants. A price decline will feed into a negative feedback loop where selling begets more selling. All of this will occur while node providers incur fixed costs which consume an ever-increasing share of their returns since rewards are paid in POKT.
Recommendations
- The POKT team works to create a tiered payment system for customers, ending the “free for all” model currently in place. As Jack recommended: “…activating payments above a free tier which can be set at a slight discount to centralized alternatives.”
- Payments from customers are used to purchase POKT from the general marketplace.
- Purchases made from the marketplace are executed on various exchanges (MEXC, OKCoin, Huobi, etc.) at random times so as not to be front-run. I do not recommend purchasing POKT via OTC providers since it is not supportive of the price.
- The purchased POKT can be frozen and held by the POKT team for future sales (at some point in the maturity phase as a cash reserve), granted to the DAO, used to give grants to developers, or any other ideas that are supportive of the POKT network as a whole.