Sustainable Emission Reduction (SER)

Attributes:

Author(s): @msa6867
Parameter: RelaysToTokensMultiplier

Current Value: variable so as to maintain Target Daily Emission = 690k $POKT/day starting Jan 1, 2023 and beyond. (At projected Jan 1 supply of ~1.50B $POKT, this corresponding to an effective inflation rate of 16.8% for 2023, 14.4% for 2024, 12.6% in 2025, etc.)

New Value: variable so as to maintain Target Daily Emission = 690k $POKT/day starting Jan 1, 2023 and decreasing by ~1.4% monthly thereafter with total supply asymptoting to a maximum value of 3.0B POKT. (At projected Jan 1 supply of ~1.50B $POKT, this corresponding to an effective inflation rate of 15.5% for 2023, 11.3% for 2024, 8.6% in 2025, etc.)

Summary:

Since the start of WAGMI in February of this year, RTTM has been aggressively reduced from 10000 in February to 730 today and a projected 640 to 650 come January 1. Corresponding, average servicer rewards per 15k staked have reduced from the hundreds of POKT per day to mid-teens today. The reductions have been effective in reducing the rate of growth of POKT supply as shown in Figure 1, but have come at a cost to node runners in terms of being able to innovate fast enough to remain profitable.

Figure 1 – Historical record of POKT Supply (Million), Genesis through Present

There have been several sentiments expressed on how to proceed once PUP-22 reaches the end of its reduction cycle on Jan 1, 2023. The main sentiments expressed are as follows:

  • Node runners need a break from further emission following 10 months of aggressive reduction
  • Less aggressive emission reduction measures are needed going forward: the rate of recent reward reductions is outstripping the rate at which node runners can innovate to reduce costs, threatening the ability of node runners (especially small node runners) to continue their nodes
  • Node runners need predictability of rewards: monthly reductions over the last 10 months have varied between 0 and 24% and the WAGMI and FREN proposals only cover about 5 months at a time, making it hard to know what rewards to expect in the future
  • Inflation/daily emissions is still too high and needs to be reduced further
  • Having a tokenomics with infinite max supply hurts Pocket Network in terms of appealing to a larger investor base; defining POKT tokenomics to have a finite max supply is beneficial in terms of market appeal and attracting investors.

Continuing with further aggressive reductions in the vain of WAGMI and FREN is incompatible with the first two sentiments expressed above, while doing nothing is incompatible with the last two. Both these courses of action are incompatible with the middle sentiment above of wanting predictability of what the future holds.

On the other hand, bringing the era of aggressive emission reduction to a close while continuing indefinitely with a very gentle, predictable monthly reduction going forward provides a good balance to all of the above-expressed sentiments. This proposal puts in place a modest monthly reduction in target daily emission of approximately 1.4%, and defines a methodology for PNF to accomplish this monthly adjustment in such a way as to cause the max theoretical POKT supply to be 3.0B POKT, independent of monthly variations between actual vs target emission levels.

Abstract:

This proposal provides for a gentle ~1.4% per month step down of target average daily emission PNF uses to set RelaysToTokensMultiplier (RTTM). The methodology to implement this reduction is such that the max theoretical POKT supply will be 3.0B POKT independent of relay growth or other factors that may cause systemic over-minting. In addition, it gracefully and stably accommodates any App burn that may potentially be executed in the future.

In particular, starting in 2023, target daily emission would be set to:
(1) Target daily emission = 690k POKT * (3-X)/(3-x0)
where X is the current POKT supply (in billions) and X0 is the POKT supply (in billions) as of January 1, 2023.

For example, if on January 1, 2023 the POKT supply was 1.504B and the result of 690k daily mint during the month of January caused POKT supply to be 1.525B on February 1, 2023, then the target daily emission for the month of February would be set to 690k * (3-1.525)/(3-1.504) = 680k. If February emissions then resulted in a total supply of 1.544B on March 1, then target daily emission for the month of March would be set to 690k * (3-1.544)/(3-1.504) = 671.5k. The result is an approximate 1.4% reduction in target daily emissions month over month. The corresponding change to average servicer rewards, month over month, would be less than 0.2 POKT per day per 15k stake during the first half of 2023 and would be even less thereafter. This provides stability and predictability to node runners while maintaining desirable emission reductions over the longer term.

The Pocket Network Foundation (PNF) will continue to calculate the RelayToTokenMultiplier (RTTM) by dividing the target daily emission rate (denominated in uPOKT) by the Trailing 7 Day Average Relays. Poktscan shall be used as the source of truth for relay counts for the measured periods. As per PUP-29, RTTM updates take place once per week; updates to target daily emission rate will reflect starting with the first regular weekly update following the first of each month.

This proposal is a middle ground between taking no further action after January 1 (keeping target daily emission at 690k) and continued aggressive reduction in emissions. In practice, it is closer to the “do nothing” approach in the short term, as seen in Figures 2 and 3, while providing a well-behaved asymptote to 3.0B total supply over the long term, as seen in Figure 4.


Figure 2 - Average Daily Emissions (Million) Genesis-Present plus projection into the future under various pot-FREN conditions (blue = no action. grey = this proposal, orange = continued aggressive reductions)


Figure 3 - Total POKT Supply (Million) Genesis-Present plus projection into the future under various post-FREN conditions (blue = no action. grey = this proposal, orange = continued aggressive reductions)


Figure 4 - Total POKT Supply (Million). Long term projection under various pot-FREN conditions (blue = no action. grey = this proposal, orange = continued aggressive reductions)

Under the terms of this proposal approximately 233M, 197M and 166M $POKT would be added to the supply during 2023, 2024 and 2025, respectively (assuming that no App burn is implemented before then), resulting in single-digit inflation by 2025.

Motivation:

The Bootstrapping phase, from approximately June 2020 through February 2022, was designed to encourage user adoption of the Pocket Network. Following this, aggressive emission reduction measures were taken from February through December 2022, to reduce annual inflation from triple digits to mid-teen levels. Going forward, it is desirable neither to maintain high inflation nor to continue highly aggressive inflation reduction measures; a middle ground is needed. This proposal seeks to provide that middle ground.

Any predicable, continued reduction to emission averages, no matter how small, has, as a natural consequence, the tendency to asymptote to some corresponding maximum supply. Being able to define a maximum supply is desirable in terms of public relations and attracting new investors to POKT who, whether right or wrong, will not consider a token for investment if it has an undefined or infinite maximum supply. While it was not the primary goal of the WAGMI and FREN proposals to define a maximum POKT supply, the current trajectory of POKT growth under WAGMI/FREN is already toward a maximum supply; any continued reduction, no matter how small, will naturally trace out to a maximum.

Table 1 shows the theoretical maximum supply and the period to inflation halving that result from various levels of month over month reductions to target daily emissions starting in February 2023. 1.4% monthly reductions (corresponding to a max supply of 3.0B) was chosen as a middle-of-the-road value for this proposal; other values in the sub-2% range can be considered as well. For example, if the community felt the even smaller 1% month-over-month reduction was preferable, the target daily emission could correspondingly be set instead to 690k POKT * (3.6 - X)/(3.6 - x0). Or if the more aggressive 2% month-over-month reduction was desired, the target daily emission would correspondingly be set instead to 690k POKT * (2.56 - X)/(2.56 - x0).

The last column of Table 1 lists other cryptocurrencies with emission reduction schema that fall approximately into each row of the table. As seen, a number of projects adopt a tokenomics that incorporates the equivalent of a month emission reduction close to 1.4%. Many of these trace their history to emulating bitcoin’s emission-halving scheme which takes place approximately every 4 years. This column can be more fully populated as reviewers suggest new tokens to add to the table. Emission halving in the two-to-four year time frame creates an approximate balance between decreasing rewards and decreasing operational and capital expenditures needed to generate those rewards in keeping with Moore’s law and its approximate equivalents as applied to processing, memory and storage.

Table 1 – Max POKT Supply as a natural consequence of small, stable monthly emission reductions.

monthly emission Corresponding Corresponding Period Other projects w/
reduction max POKT to reduce emissions similar long-term
(percent) supply (Billion) by half (Years) emission reductions
0.2% 12.00 28.8
0.4% 6.80 14.5 IRON
0.6% 5.00 9.6
0.8% 4.14 7.0
1.0% 3.60 5.7 SOL, AVAX
1.2% 3.25 4.8
1.4% 3.00 4.1 BTC, ADA, LTC, BEAM
1.6% 2.81 3.6
1.8% 2.67 3.2
2.0% 2.56 2.9
2.2% 2.46 2.6
2.4% 2.38 2.3
2.6% 2.31 2.1
2.8% 2.25 2.0
3.0% 2.20 1.9
3.2% 2.16 1.8
3.4% 2.12 1.7
3.6% 2.09 1.6
3.8% 2.06 1.5
4.0% 2.03 1.4
4.2% 2.00 1.3

Rationale:

With regard to the methodology used to accomplish the monthly reductions, two methods are possible. One method focuses on column 1 of Table 1 and applies a fixed percentage reduction each month to the target daily emission. The second method focuses on column 2 of Table 1 and applies a variable reduction each month based on actual net supply growth during the previous month. The latter approach is more stable in terms of accommodating emission fluctuations that happen in practice. In particular, the proposed methodology self-corrects systemic over-mint or under-mint conditions, while the alternative approach causes such deltas to accumulate over time, as seen in Figures 5 and 6. For this reason, the second methodology is chosen as the basis of this proposal.


Figure 5 – Projected Average Daily Emissions (Million) with Systemic 15% overmint such as occurs during periods of rapid growth of relays (blue = no overmint. orange = this proposal with 15% overmint, grey = alternative defined-reduction method with 15% overmint)


Figure 6 – Projected POKT Supply (Million) with Systemic 15% overmint such as occurs during periods of rapid growth of relays (blue = no overmint. orange = this proposal with 15% overmint, grey = alternative defined-reduction method with 15% overmint)

In addition, the proposed methodology causes a potentially more sustainable response to any App burn that may be implemented in the future. The proposed methodology results in an eventual equalization between app burn rate and daily emission rate leading to a stable token supply, while the alternative methodology can become significantly deflationary, as shown in figures 7 and 8. This is of lesser importance, since further instructions on how to accommodate app burn can be provided to the DAO via a follow on proposal if and when app burn is implemented in the future.

Note: this proposal itself is agnostic as to whether App burn will be implemented in the future or not. Figures 7 and 8 are neither an endorsement of nor prediction that App burn will turn on in 2025; it is simply a hypothetical exercise to show responsiveness of emissions under the terms of this proposal should App burn be turned on at a later date.


Figure 7 – Projected Average Daily Emissions (Million) with hypothetical 400k/day burn starting in 2025 (blue = no burn. orange = this proposal with burn, grey = alternative defined-reduction method with burn)


Figure 8 – Projected POKT Supply (Million) with hypothetical 400k/day burn starting in 2025 (blue = no burn. orange = this proposal with burn, grey = alternative defined-reduction method with burn)

Range of Parameter Space for Consideration:

The proposal as currently worded offers a “line in the sand” of 1.4% monthly reduction (corresponding to 3.0B max supply, per Table 1). That being said, a wide range of acceptable values exists, and the authors recommend for consideration anything between 0.6% and 2.0%. Anything above this range may be too aggressive in rate of reduction and anything below this range corresponds to a theoretical max supply that is so high as to not carry any positive weight for public relation purposes.

The proposal also offers January 1 as a “line in the sand” for when to baseline the denominator in equation 1 (with the first reduction to target daily emission occurring one month later). That being said, the baseline could be set to a wide range of acceptable dates, allowing for an extended period of time at 690k target daily emissions before initiating the regime of small reductions. For example, equation (1) above could be rewritten as:

“Starting in April 2023, target daily emission would be set to:
(1) Target daily emission = 690k POKT * (3-X)/(3-x0)
where X is the current POKT supply (in billions) and X0 is the POKT supply (in billions) as of April 1, 2023.”

This would cause target daily emissions to be set to 690k for the months of January, February, March and April 2023, with the first reduction occurring in May 2023. Note that Table 1, as currently populated, applies to a January 1 baseline. If April 1 was baselined instead, the table would adjust slightly. For example, the max supply of 3.0B would correspond to a monthly reduction of approximately 1.47% instead of 1.40% due to the approximate 63M POKT supply growth over the extra three months.

The author recommends Jan 1 to June 1, 2023 as being an acceptable range to consider to baseline the “X0” supply (with the first reduction occurring one month after baselining). Defining the go-forward plan now - even if it includes a static period at 690k POKT emitted per day - is superior to deferring the discussion for some months down the road due to (1) giving node runners predictability of what to expect reward levels to be in the future and (2) allowing Pocket Network to immediately control the tokenomics narrative in the marketplace.

Dissenting Opinion - Demand-Side Alternative Approach to Inflation

The above proposal assumes a continuation of the supply-side approach to inflation that has characterized Pocket Network since inception – bringing it to its next logical phase of reduced rate of supply growth with asymptote to a maximum supply. An alternative demand-side approach to inflation has been outlined by @srndptme (Vitality | Linen Wallet). In this alternative framework, inflation is an adjustable knob that is set to grow or shrink the supply-side infrastructure (e.g., POKT nodes, app chain nodes, etc) to match current and near-term projected demand and for now would be set to a drastically lower value than current setting.

[NB: In the following discussion, the term “supply” will be used synonymously and interchangeably with the term “infrastructure” and refers to the actual network infrastructure in place to service RPC demand. This is not to be confused with how the term is used in the body of the proposal in which it refers to a quantity of POKT tokens, whether as a theoretical maximum, a current number of tokens minted since genesis, an amount of tokens currently in circulation, or any other measure of units of POKT.]

The objections raised by @srndptme to the above proposal (and by extension to the original definition of RTTM being fixed to 10000, to WAGMI and FREN proposals in the past and to any other alternative supply-side approach to inflation in the future) are as follows:

  • There is no scientific basis for the approach outlined or for the values chosen. Inflation should be based on scientific rationale, not be arbitrary.
  • The defined approach gives too much care to what node-runners desire (e.g., “Node runners need a break from further emission.”) Node runners are not the clients of the system. DApps are. Catering to the vote of node runners creates supply-side bloat that may seem for a while to profit node runners but ultimately leads to price collapse in which everyone looses
  • Pocket Network is currently way over-provisioned on the supply side given current and near-term projected demand. To be competitive with centralized RPC service providers, supply utilization should be close to ~60%. While utilization is an elusive number to calculate for Pocket Network, it is safe to say that, in the aggregate, supply utilization is well less than 10%. This means that Pocket Network could shed 80% of its current supply-side infrastructure and still be able to service current demand with no degradation to QoS. Inflation should be cut so as to cause a deleveraging of supply down to only that which is needed to service the near-term demand. That may mean inflation of ~5%. Only the most efficient node providers survive, and investors will regain confidence that Pocket can be competitive in the marketplace.

Inflation, according to @srndptme, should be set dynamically according to the following rule set:

  • Define metrics by which you can assess right-matching between supply and demand (ideally this would include methods to measure infrastructure utilization as well as QoS metrics)
  • Define metric targets which would indicate the right amount of infrastructure is in place to handle current and projected demand (e.g., 60% utilization).
  • Ascertain current and projected demand over next 3-6 months (e.g., using P95 relays per block or per session would take demand spikes into account)
  • Ascertain deltas between the current/projected metric values and the target metric values
  • Adjust inflation so as to close gap between current and target metric values. For example, if current supply utilization is grossly under the target utilization, then make a drastic cut to inflation to drive out supply (i.e., all but the most efficient node providers), bringing up the utilization of the remaining supply back toward the target.
  • Repeat last 3 steps in a continuous loop, lowering or raising inflation rate so as to incentivize supply to be subtracted from or added to the network to meet projected demand.

The DeFi lending protocol Compound (COMP) is an example of a project that follows the above procedure of using an inflation knob to right-size supply (funds available to lend) to demand (funds desired to be borrowed).

Applying this methodology to Pocket Network is hugely more complex than applying it to Compound and perhaps cannot be effectively accomplished at all. First, supply, in the case of Pocket Network, is not liquid capital as in the case of Compound, but is highly illiquid, coming in the way of hardware requiring large capital expenditures that cannot easily be shed and service contracts that cannot be cancelled on a whim.

Second, supply, in the case of Pocket Network, is not global as in the case of Compound, but granular. The Pocket network may be overprovisioned in some regions and on some chains but under-provisioned in other regions and/or chains. Ideally, Pocket would have the ability to specify inflation (i.e., relay to token multiplier) on a per-region, per-chain basis, but that ability does not and will not exist in V0 and is not currently on the roadmap to exist in V1 (though a good case can be made that it should be added to the V1 roadmap).

Further research is need to see if the above challenges to a demand-side approach to inflation can be overcome and if so what set of metrics could be defined to ensure right-sizing the supply side to the projected demand.

@srndptme has argued that no DAO action should be taken in consideration of post-FREN emission strategy until this research is complete. The author of this proposal counters that while the above research is of high importance, it does not follow that this proposal or other counter proposal should not be considered in the meantime. This research may take months to conduct and there is no guarantee that it will yield a satisfactory strategy. It would be imprudent to leave the entire community directionless as to a planned course of action following the last FREN update on January 1 simply because a better and more drastic course of action may be defined in the future.

For example, if the community were to vote to pass this proposal in its current form (1.4% monthly emission reduction corresponding to a POKT cap of 3.0B POKT), the resulting narrative of max POKT = 3.0B can immediately replace the current narrative of max POKT = infinite in the marketplace. Then if research proves that making a drastic cut to inflation such as to force out a sizeable percentage of the supply-side infrastructure is needed for the health and long-term viability of the project, that can be separately voted on and enacted without doing injustice to the 3.0B max POKT narrative, since the result of such drastic cut in emission would be a POKT cap even less than 3.0B.

Dissenting Opinions - Other:

1 Like

Great supply analysis, this subject is indeed important. Something must be done in the post-FREN scenario.


First I have my main concern for all inflation control proposals. As a node runner it is not nice to have the income (POKT) isolated from your work (relays), I mean, more relays do not result in more POKT but they result in more hardware on the supply side. Nevertheless the token stability must prevail over node runners gains and I have not seen any other proposal that can satisfy both node runners and the token health. But this is just an opinion from a node runner and is not a critic to this pre-proposal (maybe include some insights on this if you have any?).


I think that the proposal is well intended and tries to seek a middle ground using tools that are not strange to the Pocket Network. I have some comments over the following subjects:

Calculations Disclosure

It will be really helpful to have these calculations available for the community, for checking and experimentation. Even having the projection curves as CSVs will be really good. If you need help with these I can assist you.

Asymptotic Behavior - Range of Parameter Space

The proposed formula will work as long as we update the value regularly and the asymptotic max supply supply is relatively “far” from the daily emissions.
What I say is, there must be a defined number of years that this is expected to work (a new column in the table?). As presented with 3 B POKT max supply, it will take 15 years to reach the 90% of the max supply, with a 2.56 B POKT max supply it will take 10 years. Both are far enough in the future. The problem of being more aggressive with the max supply should be highlighted, if the value is chosen too low (i.e. 1.5 B POKT) the max supply will be reached too fast and since the increment of supply POKT is not controlled (it comes from daily relays) it could lead to places where the proposed equation is not well defined (it will shield negative daily emissions).

This might sound as an edge case, but since the proposal is setting a max supply, it will be very likely for the community (POKT holders probably) to propose lower values for the max supply. They will require some explanation on why this value cannot be totally arbitrary and this proposal is accepted.

Clarity

I find the proposal very clear (I hope I got it right), however it might be too technical for many community members. I think the main features that are being proposed here are:

  • Set a MaxSupply. A value of 3 B POKT is proposed and well justified. I disagree when the author say it is not the primary goal of the proposal, it is indeed a critical point of it.
  • Setup an asymptotic supply growth based on this MaxSupply.
  • Set the inflation (asymptotic growth speed) to a value that is a middle ground from doing nothing and use FREN/WAGMI-like approaches.
  • Re-utilize the mechanisms used by WAGMI and FREN (RelaysToTokensMultiplier parameter) but change the calculation methods. No coding needed.
  • It is compatible with any App payment method (such as App token burning).

If I’m correct I think that these should be highlighted (a short TL-DR?) to help guide discussion for the non-technical audience. The narrative at the beginning seems too centered on emission reduction percentages, but these are only the consequence of an unknown process which is the number of relays by day. The proposal is in fact immune (sort-of) to this variability and these percentages can change anytime without harming the goal of the proposal.

The “Alternate” hypothesis analysis is very valuable and helps to justify the chosen method, however it is not entirely required. I mean, I really like it, but it can be part of a more in-depth analysis that the main audience could skip. Also, seeing random minting scenarios for both approaches would be really interesting (but not required).
I think that separating this “alternate” hypothesis will help focus the discussion on the actual proposal and not on other scenarios. (just my opinion)

Dissenting Opinions

I think that the " Demand-Side Alternative Approach to Inflation" was discussed in the Den? In any case, please say the source of this (just for record keeping).
This opinion surely deserves the given analysis, but is quite large. I would place the “other” opinions before this one if they are easier to answer.
Also, have you made any analysis on POKT price projections and how this will affect over provision on the supply side? I think that given the current bear market and the current proposal the supply side constriction will occur anyway.

1 Like

Curious about this candidate feature -

If this was coded into V1, what does the maintenance process look like? Should the inflation setting rates be regularly updated, proposed by a risk committee, open to be proposed by anyone in the DAO, etc?

My intuition is that coordinating the regular rates of these 100+ or so dials (# of regions * # of chains) is a really interesting economic coordination problem that would probably require something like Maker DAO’s risk core unit. Not a good or bad thing. Just curious if you see it this way too.

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First, I want to make sure to get a consistent answer from core dev about this feature for v1. @JackALaing indicated in TG that this is a planned v1 feature. On the other hand, your answer casts doubts in my mind . Could you please double check with the v1 team … and also find out where in the roadmap this falls (i.e., at v1 release vs a year later). I really see this as a must-have feature for Pocket Network’s long term viability.

That being said, I have full confidence that it will not be hard at all to set these knobs, once we have the right metrics in place (see the recent discussions with Vitality et al). In order of preference, these would be set:

  1. automated, on chain
  2. automated off chain (PNF-controlled script executes param updates automatically)
  3. semi-automated off chain (PNF-controlled script determines values, but PNF personnel must key in the resulting parameter value as a parameter update
  4. manual oversight and decision making

I doubt #1 will be possible. and I doubt there will ever be any need to stoop to #4. #3 is where we are today for setting RTTM, so if worse comes to worse, PNF personnel would have to key in RTTMi,j instead a single RTTM value according to script output. But I think with just a modicum of engineering work, PNF could automate it so that param updates are submitted automatically.

That being said, if on-chain solution is possible, that would be the way to go.

As to the algorithm for selecting the values for RTTMi,j, I have no doubt that a suitable algorithm will be found, discussed and debated and passed by the DAO prior to the feature being available. That is the whole research area that Vitality and I and others are digging into

2 Likes

I will update the text on my next edit to remove that verbiage

This was discussed first in Telegram group " the Den". I do not have a pointer to the first discussion. This was followed up by long dm conversations between myself and Vitality. I have created a research thread on the Forum to capture the public discussion thread and will add to that thread redactions from our private discussions; I will add a pointer to this research topic in this proposal.

I am in the middle of working on this. what you ask is a very important consideration and can be the basis of an argument for following up FREN with much more aggressive emission cuts than are outlined in this proposal. The premise being : either we aggressively cut production costs (e.g., by aggressively lowering inflation and/or by aggressively increasing network usage) or the market will cut them for us (by slashing POKT price).

The absolutely most important factor in reducing production cost and over-provisioning is though sales. All else being equal, if we can triple our relays over the next few months, that would slash production costs by two-thirds (on a per relay basis, which is the only basis that matters).

The approach outlined in this proposal should work well , IMO, if we hit the targets outlined in at the “State of the Union” presentation. If we slip from these targets, I think further slashes to inflation will be warranted to make up for the underperformance on the demand side. Conversely If we outperform these targets with paid relays, we can find ways to reward the network providers in such a way as to not violate the 3B cap (or whatever the DAO decides) narrative. This would be the beginning of morphing into the approach Vitality has been advocating and which I think can be pursued on top of DAO deciding what happens post Jan 1 rather than delaying all action until we have it all figured out.

I agree. the demand-side approach to inflation would solve this dilemma. See my above thoughts on how to handle under- or over-shooting demand targets as the beginning of morphing to incorporating demand into the equation

1 Like

Thanks for the proposal! Appreciate your thoughts and insight. It is always refreshing to see different perspectives.

My biggest request from you is to please articulate the problem better. As is, the proposal brings a solution, but does not clearly explain the problem. Why is inflation a bad thing to begin with? Or, how much inflation is bad? What is the math and rationale behind the ultimate goal of absolute 0 inflation?

Some other feedback for your consideration:

corresponding to 3.0B max supply, per Table 1

A certain supply cap (e.g. 3B) means eventually 0 rewards for the supply (regardless of how many node runners there are). There won’t be a service with very little/no rewards. No service, no customers; everyone can go home now. Therefore, IMHO, this proposal is incomplete without an app-token burning component. Apps must be paying in some way for node runners’ efforts, and it cannot be completely decoupled / left as an exercise to the reader.

Pocket Network is currently way over-provisioned on the supply side given current and near-term projected demand.

This is not true. Because of the light client, HW is utilized to its optimum limit. If there is more traffic, less nodes are packed per HW, and more HW is spun up as a result. If there is less traffic, excess HW is retired, more nodes are consolidated together. HW cost is now independent of how many nodes there are. Therefore, forcing nodes to unstake will NOT reduce network provision or costs, it will simply push out the investors. They will unstake and sell the POKT, disappear into other networks. We don’t want fewer investors, we want more investors.

Only the most efficient node providers survive

We do NOT want only the most efficient / strongest node runners to survive. There is already an immense pressure on node runners in terms of cherry picker. If they are not really good, they don’t earn much anyways, and they folded already. Increasing the pressure further more, and driving all the little guys out of the system will lead to more consolidation, less decentralization, less redundancy, less reliability, less privacy, … We will end up pretty much like a centralized provider, which is done by others very very well already. Let’s not ignore one of the legs of our tripod (cost, perf, decentralization)

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On my next edit I will add a"problem statement" and add some rationale. In a nut shell, right-sized inflation is not inherently bad. App burn has always been on the raodmap for Pocket Network whether that be two years out or three or four. In mature state with full App burn, the net between emission and burn determines inflation/deflation levels (with inflation=burn being equivalent to 0 inflation). This net can be controlled for various purposes, but this is not for now, since we are no where close to app burn starting. In the meantime, prior to app burn, it is desired to take control of the narrative in the marketplace regarding POKT tokenomics (e…g, cap vs infinite supply), and bridge the gap between our competitors production cost and the Pocket Network production cost implied by our inflation (using Vitality’s nomenclature where POKT production cost per relay is inflation converted to USD at current market plrices divided by relays serviced… not to be confused with node-provider costs)… but does so in a gentle enough fashion as to allow node runners time to innovate to match the decrease in reward levels rather than making it a shock to the system that node runners can’t keep up with and therefore quit.

I will update the proposal to indicate that the eventuality of App burn is assumed by the proposal but the timeline of its turn on is not… the values chose (eg 3.0B / 1.4% monthly reduction gives 50 month betfore rewards are cut in half. App burn should turn on long before that

I have tried to be careful not to use POKT node count as a proxy for supply-side right-sizing for the reasons you outline. I will scrub the document to make sure that there were not accidental implications to the contrary.

Light client is not a panacea for Pocket Network. It solved one inefficiency. Lots of other inefficiencies, overprovisioning, etc. remain, hence the need for continued innovations, such as what PoktScan is attempting to do with GeoMesh.

I have thought this same way for a long time and still do to a large extend. Hence the very gentle approach to reduction outlined in this proposal and also informing my other recent proposals (see PUP-27 and 28). The thought being that the more POKT that is locked up in nodes and the less in circulation, the better for the valuation of POKT in the marketplace. Lately Vitality has been challenging my way of thinking. He offers the contrary point of view that the result of aggressively driving down inflation and forcing any bloat out of the supply side will restore investor confidence in the project and drive up valuation, even with all the transfer of POKT from locked to circulating status.

The proposal, as stands now, falls in line with your way of thinking. This is a hot-button topic that is bigger than just setting emission levels and has been discussed extensively in the Telegram group “the Den” and elsewhere. There is no easy answer as to balance between decentralization and efficiency. This proposal errors on the side of favoring decentralization over efficiency.

The more I read this, the more I warm up to the proposal.

It’s a good interim solution to continue to slowly bring down emissions in a controlled and forecastable manner.

I make the assumptions that this may be modified/superseded as necessary to move to a per region/per chain relay reward mechanism in v1.

I am slightly in favour on an April 1st introduction, giving node runners some additional time to prepare. However I would still support this is that action is not taken.

I’d also like to bring up the idea (It might need an additional proposal if thought controversial) to include a budget for a PR campaign (Coin Telegraph feature) around the enacting of a supply cap for POKT. ~$10 - $15k or so for a promotional story, PR wire, twitter ads etc

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It will absolutely be modified once that granularity is in place. Assuming the framework outlined in this proposal is in place, the target daily emission can serve as a global constraint that leads to a reference RTTM - from which RTTMi,j can be adjusted up or down on a per chain and region basis according to where we need to incentivize or disincentivize supply.

This is a great idea! I would definitely consider it as a separate proposal and not conflate with this one, even though I don’t think it would be controversial at all. Assuming the framework outline in this proposal gains traction and seems likely to pass if put to a vote, there would still be further work needed before we can be confident of putting out the new narrative into the marketplace. Namely we, collectively, must consider how we may want to modify inflation in the future (e.g., as we get “smarter” about implementing a course of action suggested by Vitality, or to incorporate the v1 granularity you mention above) and make sure the “3B cap” narrative - if that is what we end up with - is not going to be upended some months down the road, lest we have to publish a mea culta saying “oops, we decided to go back to infinite cap or 20B cap” or something like that" At a minimum you want a narrative that you know is going to stick until v1, and care should be taken in future DAO actions to keep whatever narrativeis decided upon in tact as much as possible unless veering to a new narrative is clearly needed and superior.

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I support continuous discussions and improvements in tokenomics. Other than Bitcoin’s, there is no other precedence in the space that is “lindy” enough. We are at infancy and most of the space is still running experiments.

I do not believe that we will hit bulls eye in tokenomics at one shot but as long as we make leaps upon each attempt, we will be in the game.

I have read through the entire proposal and I am neither in support nor opposed to anything specific yet because I wish to see what PROFISH wants to bring to the table. What he has alluded to publicly so far is taking inspiration from Ethereum’s, which I am very interested to learn more about. After Bitcoin’s monetary policy, Ethereum’s post-merge token model (that involves burn) has created a winning narrative in the market, and I am very curious if that would fit Pocket.

Having said that-

Here is what I suggest we don’t do:

  1. Oversimplify this and “brand” it as “fixed supply” roadmap or something. Here are the reasons:

a) The less an asset does, the more relevant is it’s fixed supply- Gold, Bitcoin, Punks, dickbutts, etc. Fixed supply isn’t as relevant for assets with max utility- dollar, stocks, utility tokens.

b) Fixed supply (with no rhyme or reason) reflects sloppiness and weakness in token design, and a shortcut to “number go up”. Let us check ANKR: ANKR Tokenomics – Ankr ; its tokenomics page is literally a joke.

As a result, such tokens will attract speculative retail and detract well-capitalised and long-term sophisticated buyers/investors.

c) We should distance ourselves from over-branding fixed supply. If that’s the residual outcome of the tokenomics done right, so be it. But that shouldn’t be the goal by itself and neither should be branded and hyped.

  1. Any attempt to calculate price impact (do price predictions) due to future changes in tokenomics is completely futile, and I strongly suggest to not waste time there and/or have that influence decisions. Price is a function of supply and demand but it’s not that simple and consists of many variables. Supply can still be assumed but any demand assumption will be full of personal biases.
  2. Over complication: The underlying tokenomics shouldn’t be over-simplified as stated above but at the same time it shouldn’t be so complicated that nobody but only the creators understand.

“We are complicated” or “Pocket is complicated” mindset isn’t going to get us the top mind and market share.

What we should do-

  1. Economics is one of the 4 that tokenomics should address, the other 3 are: Distribution, Utility and Governance.
  2. And then design a system considering the above that is a) fair, b) transparent, and c) aligned with the long-term mission and values of Pocket.
  3. Create a project team involving relevant stakeholders and tackle this as one big “qualified” team instead of working in silos.
  4. Bull and bear market matters in this. We could do this in phases. 2023 or at least H1 2023 is fair to be assumed as continuation of bear market. End of 2023/2024 onwards could be assumed as start of bull market. We could prevent further degradation of token value (not necessarily appreciation) in the remaining bear market by “making some progress”, and that could mean:

a) debunking myths in the market such as POKT is a hyper-inflationary rebase token,
b) driving the narrative that an overhaul in tokenomics is coming, and/or
c) executing temporary burns

This will buy us necessary time and maybe give us few useful data point to launch the new robust version at the start of the bull market. The timing will be perfect.

We shouldn’t rush to the end, that would be fatal.

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@Vitality has placed his thoughts in a Google doc. Please see his comments here

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I like and support this proposal!

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I’ve evolved my thinking on SER- I think it will be a useful addition to the tokenomics and narrative, and I’d be in favour of voting on it and implementing now, not q2 as I earlier suggested.

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It would be helpful if, before submitting the proposal, the pre-proposal text is updated to reflect the suggestions.
My main concern is that this proposal will set a MaxSupply, but that is not correctly highlighted. The reader must understand this in the first paragraph. Also the disclosure of the calculations will be really interesting for the community.

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I will update the pre-proposal to incorporate the suggestions. Some suggestions are conflicting so I need to figure out the balance. I will spell out that it does result in asymptote to a MaxSupply in the opening paragraph. However, I do not want to overemphasize this. I will also add link to the spreadsheet used to generate the graphs and tables.

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I disagree with this statement. Many investors just like to hold their tokens and/or happy with a low APR delegating their tokens to someone else. What really drives investors away is a constant dilution of the market share of their tokens and uncertainty of max supply. Ideally, we want investors to do NOTHING with their tokens but just buy and hold. Pocket is very expensive to run and we want to stop encouraging people to run their own 3-4 nodes because that makes the network over provisioned and expensive. In my eyes, two things are very important in this regard, one we need to create easy ways of staking (TPOKT for example) but something decentralized, and second this proposal which encourages people to just buy and hold.

Removing horizitionally scaled servicers along with adding delegation would make staking much more straight forward, similar to cosmo’s delegation, redelegation.

just let everyone plug into sendwallet. similar to the way keplr wallet has it.

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Hi @msa6867 and @Cryptocorn,

Seems like you are leaning towards creating a proposal to get SER approved sooner than later.

And looks like working towards “max supply” or at least taking advantage of the narrative around it is in the core of this proposal.

I honestly don’t have “THE SOLUTION” yet and I am in an exploratory mode as I have stated more than once. But I understand that something needs to be done before we get into deeper issues and have more robust solutions in place maybe after V1. I am of an opinion that the discussions, debates and solutioning around the token (utility, economics, governance) should never stop. And that should not be taken as a sign of incompetency but as quest for growth, as this space is still in its infancy.

Having said that here are a few thoughts and requests:

  1. There should not be a message and expectation for “hard cap” like in Bitcoin. We are working towards a “soft cap” that introduces predictability, that can also be revisited in the future depending on how POKT, its utility and the ecosystem evolve.

Once we have a cap, the “Max Supply” section for POKT in Coin Market Cap (CMC) and Coin Gecko (CG) will get populated; currently it is blank. So that would favour the narrative.

  1. I would request to explore a more aggressive max supply: a soft cap of 2 Billion instead of 3 Billion. I read the middle ground approach in the pre-proposal above. But I think we will agree that there is no hard science and math behind either.

However if putting a cap is in the core of this proposal, the change has to be optimal “to move the sentiments”.

(Market Cap (MC)/Fully Diluted Value (FDV)) value also in CMC and CG at more >.05 is considered attractive , closer to 1 the better of course (IF we are just talking about the narrative behind max supply). And a soft cap of 3 Billion makes the (Market Cap (MC)/Fully Diluted Value (FDV)) value unappealing IMO, and I am very close to such sentiments because of my day job.

Just as a side note- POKT’s FDV number is a workaround at this moment, uses “Total Supply” in absence of Max Supply.

Hitting the projected max supply timeline is >2037, and this is just too far away to move the narrative/sentiment needle in the crypto space and for a lesser known token such as POKT. We are not talking about Bitcoin here.

An argument could be that burn will be an accelerator and therefore will fulfil the need for aggression in the future.

Yes, but the impact of that is not set in stone and could be a few years away. By then V1 will be done and we should anyway continue to discuss POKT, its utility, economics, etc. Whatever we will implement today is an interim solution.

We need the proposed change to turn the narrative and the sentiment in POKT’s favour, and my fear is to achieve that objective, this transition can’t be a soft one. We will not be able to make everyone happy and there will be tradeoffs. As long as they can be measured, discussed and agreed upon, we should not hesitate to be aggressive. If this works, it will alleviate a lot of Pocket’s financial challenges in the short-run. We need this to work!

Can we please put the soft cap of 2 Billion option on the table, and then measure and discuss tradeoffs (if any)?

How is FDV calculated.? It would seem it would simply be MC * max supply / current supply ?? In which case if max supply was 3B, the ratio MC/FDV would be about 0.53. I understand the closer to 1 the better, but 0.53 certainly falls in the range >0.05. What am I missing?