Sustainable Emission Reduction (SER) Pre-Proposal

[msa6867]

@RawthiL

I disagree when the author say it is not the primary goal of the proposal, it is indeed a critical point of it.

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

@RawthiL

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 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.

@RawthiL

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.

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.

@RawthiL

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 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

[bulutcambazi]

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)

[msa6867]

@bulutcambazi

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?

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.

@bulutcambazi

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.

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

@bulutcambazi

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.

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.

@bulutcambazi

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.

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.

@bulutcambazi

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)

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.

[Cryptocorn]

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

[msa6867]

@Cryptocorn

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.

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.

@Cryptocorn

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

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.

[Caesar]

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.

2. 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.
3. 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.

[msa6867]

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

Too much staked POKT

[crabman]

I like and support this proposal!

[Cryptocorn]

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.

[RawthiL (Ramiro | POKTscan)]

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.

[msa6867]

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.

[crabman]

@bulutcambazi

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.

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.

[poktblade (Blade)]

@crabman

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.

[ethen]

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

[Caesar]

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.

2. 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)?

[msa6867]

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?

[Caesar]

Total Supply figures both in CMC and CG are out of whack.

CG: 1,525,220,027
CMC: 1,146,111,711

I could have used the CMC number if I had to make it look worse. But I used 1,380,339,114 from poktscan (which I consider more reliable) for my mental math.

But that’s not the precise point I was making about POKT, so please don’t get fixated on that one thing. We will miss the forest for the trees.

I agree with @RawthiL that both 3 billion and 2 billion are arbitrary numbers, and therefore my challenge is to be aggressive if we are setting a “soft cap”- A) (Market Cap (MC)/Fully Diluted Value (FDV)) as close to 1 as possible, and B) That will bring predictable timeline for max supply to hit to something more reasonable instead of a ridiculously long one of 15+ years from now. That just doesn’t help what we are trying to solve here, which is to turn around the supply side narrative and sentiments in POKT’s favour. We have to make this work!

And therefore I am challenging to put 2 Billion on the table, and then discuss measurable tradeoffs and risks (IF ANY).

[Caesar]

Wanted to add a few:

A) We are talking about supply side economics here, and not demand side. This is no way to undermine the importance of demand side and I also don’t see any conflicts anywhere, they are mutually exclusive. Moreover, an aggressive change in the supply side (narrative) complimented by “right” kind of marketing (narrative building) could boost demand for speculative buying and investment for the token itself. And that’s not detrimental in anyway.

B) Here is some content about the importance of FDV from an OG Jordan Fish (aka Cobie), who has been around for 12 years in the crypto space and there are only a handful of such kinds, and 2 respected VCs with clean reputations, who are also ETH bulls:

• On the meme of market caps & unlocks - Cobie
• Bell Curve Podcast: Peak ETH: Ethereum's Monetary Policy Explained | Roundup - Blockworks (14th min - 17:20)

Btw, I am not just sharing content from random CT/YT influencers to make a point. These are thoughtful examples.

FDV and MC/FDV are important metrics, specially for lesser known/small cap projects.

C) I want to reiterate that Sustainable Emission Reduction (SER) - #10 by Caesar is still my idealistic view point, where I suggest a holistic introspection of everything around the POKT token before deriving the supply side model. My idealistic stance and in that my agnostic stance to SER have not changed.

However, that may not be very pragmatic and we desperately need positive catalysts in this project. Plus as I said, I am not seeing conflicts and detriments in the present and in the future.

My assumption is that SER is likely to move to the proposal and voting stages and given that assumption, I want to support in the best possible way given my exposure to markets and narratives. Therefore my request to discuss and debate the aggressive option on the table to move the needle.

[RawthiL (Ramiro | POKTscan)]

It is difficult to either be against or in favor of this proposal as it is, but I’m inclined to be more on the “against” side.

In one hand this proposal tackles a recurring problem of the Pocket Network that is inflation. It proposes a way to make emissions more predictable. On the other hand it relies on a MaxSupply, which is a whole concept on its own and this proposal cannot function without a MaxSupply. Moreover the MaxSupply s being chosen lightly and it does not seems to be a step towards a Floating Supply (which I believe to be more inline with the POKT token).

Now, I fear that if this proposal passes and we set a MaxSupply as defined here, the news about POKT having a max supply will be more important than the fact that this proposal tried to fix inflation. Then, if any value is set today, we will need to stick to it or any future value will not be credible.

I agree with @Caesar about the narratives and the problem that this proposal creates. Proposing a value too high like 3Bn wont have any real effect besides filling the checkbox “has a max supply”, this wont attract many investors (only the dumb ones). Also, setting this value too low, will put the tokenomics into an unnecessary stress. Reducing too much the tokens available to mint wont magically drive the price up and will only (potentially) benefit current holders, not future investors.

I think that the best way would be to target inflation rates and not max supply. We need to estimate (under different scenarios) where the token supply will lie once application burning hits and target that zone. I think that narratives can be build upon an strong and consensual tokenomics model, it will require more work but will bring better results. (I do not want to mix subjects here, so I wont go any deeper into this.)

[msa6867]

Thank you @Caesar and @RawthiL for good discussions. I will updated the table to show all the way down to 2.0B max and I will add a column to show the time period to halving the inflation. I think “time to inflation halving” is the best way to compare inflation

What I am inclined to do is separate this into two proposals. This one would focus on the framework with a default, less aggressive target to take effect March 1, with a companion concurrent proposal focused specifically on right-sizing the target value. There is precedence for this approach with PUP11/13 and PIP22/PUP21. I would invite @Caesar to co-author the second companion proposal. Let me know if this approach makes sense.

I will respond the the rest of the recent discussion shortly. In the meantime, @RawthiL can you please expound on the following:

@RawthiL

it does not seems to be a step towards a Floating Supply

As far as I can tell, the proposal is perfectly compatible with the goal of eventually hitting a zone where app burn balances emission, while scratching the investor/market place itch of “what happens with token supply if there is significant delay in app burn turning on.”