Hello @AVAV , and thanks for taking the time to put your thoughts in a detailed thread.
The post has some formatting issues, you created code blocks or something but the test seems to be a single block. I think that it should be all plain text, can you or any mod edit it to make it more readable?
Now to my thoughts on your post. Its a long post, so its going to be a long answer…
General Calculation of Costs and Profits
I would argue that DAO and Validators should be included, when you account for them (15% of emissions), the total reward to be divided among Node Runners (NRs) and Stake Holders (SHs) is 187000 POKT per day.
You are only taking into account POKT nodes in the equation and a load average that’s only true for the biggest node runners. Lets say that the cost of running a server is indeed U$D 250, but only those node runners with more than 300 nodes can effectively met the cost per node that you claim. Most small node runners, who make up for the decentralization of the network, will not meet this requirement, paying a higher value per node.
More importantly is that the cost of running the POKT nodes is actually negligible compared to the cost of running the blockchain nodes. The actual cost of running a POKT node with 15 chains, to achieve network average like you expect in your calculations, is much much higher. Yes, this cost is liquefied the larger the operation is, but once more, you neglect small node runners and niche service providers.
You chose to conflate node runner gains with the human resources of the node running operation. Normally node runners, big ones, have several employees to keep up with server needs, this is not only a large burden for node runners, it is also something vital to the protocol. The larger teams in the ecosystem are the ones helping the protocol thrive, so we must have them in mind when accounting for actual large node runners gains.
On the Selected Variables
You base your model in the Number of Nodes (NoN), or the equivalent in 15K nodes and the total minted per day, 220000 POKT.
This approach has some problems in my opinion:
- The number of nodes only represents the total stake available (not exactly tho). This number could be used to infer the return of POKT by POKT staked in 15000 POKT bins, but no to infer the returns by node unit, since it depends on other important factors, such as staked services/chains.
- The number of nodes is subject to change, either by changes in stake amount (PIP-22 must die) or in changes in the stake strategies (One node per chain/service, one node per geographical region). This will mean that selecting what and where you stake a node has major impact on expected returns.
- The system is not lineal to the selected variables, which makes it difficult to project so far. The staking of additional nodes does not translates in more rewards, the total reward pool is the same it just get more and more divided. You can increase the reward pool then, but this creates more supply growth (more on this later).
We are Not the Bitcoin Model
On a broader sense you seem to use the Bitcoin model as a reference or inspiration. I think that the POKT Network is very different to Bitcoin, we only share the blockchain technology to keep track of our accounting, period.
The Bitcoin model is to increase the blockchain security by promoting the creation of more nodes that have to commit real world resources to receive rewards. They want to have lots of nodes to increase the difficulty and hence prevent attacks.
The POKT Network on the other hand has its security model tied to the validators stake, this is a fixed number (1000 nodes). The rest of the nodes, the nodes that your post is dealing with, are just service nodes, they do not provide security to the network.
So, the question is, do we want more servicers? yes and no, we want more decentralization which is not the same as more nodes.
The amount of work in the POKT Network is not the same as hashrate of a Proof of Work newtwork such as Bitcoin, more nodes do not mean more Remote Procedure Calls (RPCs). The RPCs are controlled by demand side no supply (servicers), habing more servicers (irrespective if they are independent or big node runners) does not translates into any positive statistic for the network.
What I want to say with this, is that if a node runner does not have the expected gains, s/he cannot deploy more and more nodes to increase their gains. Well, s/he can (to some extent) but we don’t want that, because it only creates more centralization.
Tying APY to a Given Value
As one of you main conclusions you propose to set the Annual Percentage Yield to a given value above the federal interest rate. I assume that the APY of POKT is denominated in U$D otherwise they are not comparable.
Aside the technical debt that this will generate (oracles, algorithms and probably periodical PNF fine tuning), this approach has bigger economical difficulties.
The first and more clear problem is that it creates a positive feedback loop between price and emissions. Positive is bad here. If we commit to a given APY and the price is low and with a downward trend, then the emissions will explode to keep the APY in U$D on track. This leads to a hyper supply growth (a.k.a. hyperinflation). We were on track to this, the only way to stop it was by a harsh recession, last year the NR and SH earned almost nothing, but we survived and POKT is just starting to recover.
Arguably one of the main interests of the community at large is to have a stronger POKT/U$D exchange rate (“numba go up”). Fixing the APY to a value in a foreign rate (U$D) will make us loose the little control that we hope to have over our exchange rate. We are trying to ignore the Impossible Trilemma (or Unholy Trinity, sounds way cooler).
Fixing an APY will mean that we are controlling the amount of money that is flowing in the system, modifying the amount of POKT by means of an exogenous variable, the federal interest rate of the USA.
By definition of the POKT Network code, the movement of capital is almost free, only a little friction exist in the unstaking time, but we have absolutely no control of the capital mobility in our network. This means that we cant restrict capital flow if needed.
The only remaining variable in the trinity is the exchange rate. This is actually what the community wants to protect, but in the proposed scenario, with fixed monetary policy and free capital movement, the only variable to adjust the equilibrium will be the token price.
We cannot fight this fact, those that tried failed.
We have created a thread bout this a while ago, you can go deeper into the POKT network economic problems here and reading the document.