Analysis of Proposals on Neuron Dissolve Delays and Exchange Maturity

[bjoernek]

TL;DR

This post analyzes further the proposals from the forum thread “Possible Optimization of Tokenomics”.

The primary method to balance supply and demand within the ICP ecosystem remains the continued growth of the cycle burn rate. Adjustments to inflation are likely to have a lesser impact.

In response to community feedback, the proposal to reduce neuron dissolve delays was modified to include an opt-in mechanism. If 25% of neurons opt in, the proposed changes would result in a modest 3.8% reduction in voting rewards. Given the community’s concerns and the limited impact, it is recommended not to pursue this proposal further.

The second proposal, concerning exchange maturity, has received relatively little attention and has been highlighted as complex by the community. Considering these factors, it is advised to table this proposal for now.

Analysis of Supply & Demand

Let us begin with an overview of the supply and demand within the ICP ecosystem.

The below graph covering January 2022 to April 2024 shows the monthly burn rate, measured in XDR (Special Drawing Rights). During this period, there was an impressive 11.6-fold increase in the burn rate.

The following graph compares the demand (cycles burned, based on a three-month average) to the supply, which includes node rewards and voting rewards. Currently, the cycles burned need to increase by 70 times to offset node provider rewards, at which point the ICP protocol would generate operational revenue. Furthermore, an additional 15-fold increase would be necessary to balance out the voting rewards (assuming that monthly voting rewards would be completely spawned to ICP and using the current ICP/XDR exchange rate).

These insights underscore the need for continued, significant growth within the ICP ecosystem. With major new features already released, such as integrations with Bitcoin and Ethereum blockchains, there is a substantial potential for further adoption. The ICP blockchain is well-positioned for expansion, and a single new successful use case could already dramatically increase the burn rate. Thus, focusing on enhancing the burn rate remains the crucial element for the tokenomics of the ICP ecosystem.

Impact assessment of Revised Proposal for Adjusting Dissolve Delays

Proposal Description:

This proposal introduces an opt-in mechanism allowing neurons to reduce their dissolve delays by a factor of ⅝. The process involves:

• Collecting all neurons wishing to reduce their dissolve delays
• Recalculating the total voting power (VP_new), which will be less than the current total voting power (VP_current), reflecting the adjusted dissolve delays.
• To ensure stability of voting rewards for neurons, voting rewards per unit of voting power need to remain unchanged. Therefore, the voting reward function will need to be adjusted in proportion to the VP_new / VP_current ratio.

Inflation Impact:

The inflation impact of this proposal directly correlates with the participation rate of neurons and their respective voting power. Based on data from the IC dashboard, which includes a breakdown of neurons by their stake and dissolve delay:

• If all neurons participate, the adjustment in the voting reward function would lead to a reduction of 15%.
• If only 25% of neurons opt in, the impact on the voting reward function would be a modest reduction of 3.8%.

Please note: Newly staked ICP will not affect inflation under this proposal, as the adjustment to the voting reward function is designed as a one-time action.

Conclusion

Proposal 1: Reduced Dissolve Delays

The analysis in this post shows that the primary method to balance supply and demand within the ICP ecosystem remains the growth of the cycle burn rate. Adjustments to inflation are likely to have a lesser impact.

Reacting to community concerns, Proposal 1 was adjusted with the inclusion of an opt-in mechanism. Assuming that 25% of neurons opt in, the proposed changes would result in a modest 3.8% reduction in voting rewards. Given this limited impact, pursuing this proposal further may not be worthwhile. It might be sensible to revisit the voting reward function at a later point in time.

However, a specific element of the proposal—reducing the minimum dissolve delay to three months—could be considered separately. This adjustment aims to attract new stakers by lowering the barrier to entry and merits discussion in a dedicated forum thread.

Proposal 2: Exchange Maturity

This proposal has received relatively little attention and has been noted for its complexity by the community. Given these factors, it is recommended to table this proposal for the time being.

[Hitman]

My thought is: Let’s have those who don’t want to dissolve their Neuron lock it forever with an extra 5% incentive and their coins will be burnt, and those who would like to dissolve their Neuron at any given time should drop their Neuron dissolve delay to 5years or leave it at 8yrs but with a 20% reward cut. I have an 8 years Neuron, and that’s my only staked neuron… I’m comfortable with whatever is good for ICP in the long run. Earning ICP forever is good if and only if the initially staked ICP is burnt, otherwise, it’s not a so good idea.

[plsak]

Hi @bjoernek and thank you, just thinking if it would be possible to share your (quick) opinion on or (quick) estimate of impact of the suggestion below - not decreasing inflation but motivating people to keep maturity in NNS and effectively creating short-term (7 days) staking option in NNS:

@plsak

include part of Available Maturity in calculation of Voting Power

@plsak

Current VP calculation:

voting_power = (staked_icp + staked_maturity) × age_bonus × dissolve_delay_bonus

Suggested VP calculation update:

voting_power = (staked_icp + staked_maturity + available_maturity/X) × age_bonus × dissolve_delay_bonus

@plsak

this would:

1. (further) motivate people to keep maturity even as available rather than using it to mint new ICP (causing inflation)
2. (partially) provide a short term staking functionality which NNS currently doesn’t provide
3. in general this would motivate people to rather keep maturity than ‘moving’ it as ICP to some exchange

Full comment:

Possible Optimizations of NNS Tokenomics (Updated!)

Thank you @dominicwilliams, when discussing tokenomics update (shouldn’t be applied often) I wanted to suggest one more modification (hope not too late - couldn’t participate yesterday) which would (slightly?) increase generation of maturity but might motivate people not to spawn a neuron (mint ICP - causing actual inflation) - include part of Available Maturity in calculation of Voting Power Current VP calculation: voting_power = (staked_icp + staked_maturity) × age_bonus × dissolve_delay_bon…

[bjoernek]

Hi @plsak
Thank you for reaching out! The underlying goal of your suggestion seems very sensible to me, namely providing incentives to keep maturity. On the other hand, I would argue that we have already an according mechanism for that via staking maturity (and I acknowledge that 6 months minimum dissolve delay might be too long for some users). Maybe reducing the minimum dissolve delay to 3 months would go into the direction of what you are proposing (allowing people to stake maturity for shorter amounts of time while still requiring the standard minimum dissolve delay).

[diegop]

This is the kind of post I like to see. One where numbers, humility, clarity of thought come together.

Kudos @bjoernek

[plsak]

Thank you for such quick response

I agree that reducing the minimum dissolve delay would be very convenient in general (I’d suggest to go for even shorter periods than 3 months), but with the proposed ‘staking’ of available maturity I believe we’d achieve a secondary staking feature - independent on Neurons dissolve delay.

Let’s say I’m staking ICP for 8 years, staked maturity is also locked for 8 years and with such change I’d get (much lower) rewards even for maturity which is kept as ‘available’ - but actually would be staked for 7 days - rather than spawning/disbursing it (when Maturity Modulation is in profitable area).

But indeed this is only as a topic for discussion (when tokenomics deliberation is already going on), again thanks for your inputs!

[Leo]

Thanks for this thorough analysis @bjoernek !!!

In your opinion, what is the best way for us investors to help out with this important issue ?

Cheers from Colombia.

Leo
8YearGang

[bjoernek]

@Leo

Thanks for this thorough analysis @bjoernek !!!

In your opinion, what is the best way for us investors to help out with this important issue ?

Many thanks for the great feedback @Leo ! In my opinion, the best way to help would be to support growing the ecosystem (support projects via advise or investments, promote ICP usage, …). If you are based in Columbia, you could maybe connect with ICP Hubs Latam ?

[IC_Maximillion]

Nice layout of all the facts thanks.

@bjoernek

The ICP blockchain is well-positioned for expansion, and a single new successful use case could already dramatically increase the burn rate. Thus, focusing on enhancing the burn rate remains the crucial element for the tokenomics of the ICP ecosystem

If that is the case after this study, it could finally be the time for Dfinity to invest some capital in to real world marketing besides the ICP Hubs e.g. (Billboards e.g. Piccadilly Lights, Mainstream Articles / Newspapers, Mainstream Youtuber coverage, serious outreach to Elon Musk or his team)

The ICP Hubs around the world are a huge thing and it will cause massive organic growth, wich is great. It could also be healthy to put the marketing on steroids with the above mentioned suggestions, to give the organic growth method the final push that it really could need.

I am aware of the current systematic marketing strategy and think its brilliant. With that said it could be effective to do a bit of both.

The brand name and logo must become visible to the mainstream audience in the real world and the above mentioned suggestions could help with that.

Animated 3D Billboard - Piccadilly Circus UK (Imagine a 3D ICP animation - AI & Blockchain, Why) @dominicwilliams

https://oceanoutdoor.com/locations/piccadilly-lights/

Thoughts?

[frederico02]

Great to see some data and further analytical research into these proposals and great to see the team doing this.

It would seem these proposals have a limited effect and wouldn’t affect the inflation to the degree some would like to see.

I personally think we just have to keep going strong. Maybe with the sell pressure we won’t be riding high in the next or up coming bull run but that is fine for me. Id rather we keep on the same track but perhaps push marketing and create a solutions team in the same way that AWS did. They had solutions teams ready to assist potential businesses in migrating to their platform. If we want to attract more projects to burn more ICP and hence cycles then lets support them.

Lets create an alternative to the serverless stack, create videos etc showing just how easy it can be to create a simple endpoint and store some data. It’s these simple, easy and quick environment spin ups that really catch the eyes of developers in the first place.

Much love to ICP team and the community.

ICP stronk

[ORCA]

Thank you for this!!

[Jdcv97]

You want to become millionaire overnight, that’s not how it works.

we need developers, investors that got in to the project because took months researching ICP not because they saw an advertisement on a busy street, that’s not the people I want here, your solutions doesn’t contribute to REVENUE or real usability of the network, just brings speculation and gamblers that’s ok could work in some way to keep pushing price up, but this doesn’t help to burn cycles (real usability) resources should go more to ICP hubs, getting partnerships with universities, schools just what AWS did at the beginning, they gave grants to developers to start learning their technology.

Separate the stock price drove by speculators with the real people learning how to build with the particular technology, in the end ICP it’s gaining much more traction in terms of real usability instead of most of the projects now, that didn’t crash yet because of speculators keep buying useless technologies but this doesn’t last forever, a company, product, technology, license etc, that doesn’t have real usage generating revenue doesn’t succeed in the long run, i come from traditional markets and one thing I see crypto people never discuss is about the revenue model their product has… I ask to myself, does this people at least took a calculator and did some numbers when they are promised that the fees model of their networks will bring to deflation ? It’s IMPOSSIBLE,
ICP it’s focused on developing every single component a developer needs so the network can charge here for using it, not AWS, money from storage and computation, query calls etc, will stay here in IC, not going anywhere else like traditional blockchains.

[IC_Maximillion]

@Jdcv97

You want to become millionaire overnight, that’s not how it works.

Thats not what i said. Read again.

[bjoernek]

Hi @IC_Maximillion
It would be certainly fun to see ICP on Piccadilly Circus , but I assume that this would come with significant costs, too. I have forwarded your suggestion to our marketing experts for consideration.

[IC_Maximillion]

Hi @bjoernek !
Yes that would really be fun! If there are plans to do some traditional marketing in the future - this could be a idea. Thanks for forwarding.
It could generate buzz among tons of people around the board that are passing by, including web2 developers, business owners, web3 developers, enterprises that are looking for such a solution & normal people in general that would marvel at the ICP space suit mascot.

Yes it could cost a significant amount to showcase there, like all marketing quickly cost a lot. Although the costs would still be slim compared to what other projects are spending.
So far, “we” ICP is mainly fostering organic growth marketing which is working really well, at some point it could also help (from time to time, here and there) to do something in that direction of which we are talking about right now, traditional marketing. Not much but just sprinkle it in to help start the fire.

In terms of the cost here is what i found, with additional services included.
(Image below - not from main source)
Its costly, but lets say this is done 2-3 times like once every two months until the end of 2024 (each time with a different message animation), with all the services that are included it could be quite the move, get serious reach and at the same time people will become familiar with the ICP brand and logo. ICP on the largest advertising display in Europe!

Maybe im just dreaming to much @emilio.canessa
https://oceanoutdoor.com/locations/piccadilly-lights/

[dfisher]

This graph on cycle burn over time each month is epic. Also, Kyle’s charts on neurons dissolving each month is also great.

@Dylan food for thought for the dashboard!

[Mpeiz]

I just want to confirm with a dfinity employee please. Are existing long term stakers going to be given the option wether they want to adopt any change put forward that includes the tokenomics aspect of it etc, or not?

Is this a proposal for another forced adoption, like what we had with the “tabled” tokenomics discussion, or are we going to be given the option if we want to or not, (regardless of vote outcome) affecting any neurons in the future?

Thanks

[diegop]

I am not sure I follow @Mpeiz . Can you help me understand what you mean?

1. Everything goes through an NNS proposal and voting
2. Forum Proposals get posted and iterated all the time. Indeed, the last proposal Dom posted, DFINITY posted that it would not follow through on. Proposals get posted all the time, and the intent is that they are deliberated, analyzed, talked about. very few of these actually become NNS proposals.

Can you help me understand your question better, please?

[Mpeiz]

My question is just, would these discussions be assumed to have an opt in option for existing stakers?
There are a lot of nervous investors including myself with these discussions.
Are the early adopters and investors going be given an op in, if any of these discussions became reality?
But thanks, I didn’t realise that this likely won’t reach voting anyway, but I am still curious on the answer.

Thanks

[diegop]

@Mpeiz

But thanks, I didn’t realise that this likely won’t reach voting anyway

Yes, i think this is an important point. An important intent of the forum is to publicize ideas, get feedback, etc… this is one reason it is very important that the forum be sane: ideas and proposals must be get honest critiques and buy-in. Many ideas are posted by many people. This is also why they are NOT (for example), just posted on X by saying “DFINITY is doing X” or “I will do Y”. Many times its much more reasonable to post proposals, see what folks think, iterate, and decide whether to continue or not.

But to your specifc question…

would these discussions be assumed to have an opt in option for existing stakers?
What do you mean by “discussions have an opt in” option?

That is the part I am not sure I follow. Here are the posisbilities I see:

1. If by “would these discussions be assumed to have an opt in option for existing stakers?” you are saying if these forum discussions have an opt-in option…

then my answer is:

“yes, any one can opt in to read or not read this forum.”

2. If by “would these discussions be assumed to have an opt in option for existing stakers?” you are saying “will there be an opportunity for existing neurons to vote on a NNS proposal that would affect on anything that affects them”,

then my answer is:

“Yes, since every NNS proposal is voted on”

3. If by “would these discussions be assumed to have an opt in option for existing stakers?” you are asking… “Ok, in the proposal that Dom proposed will there be a way for existing neurons to opt-in?”?

then my answer is:

“@bjoernek wrote in behalf of dfinity that no such proposal will come from DFINITY. So you are asking about the details of a proposal that was abandoned”

Are you asking me about the details of a proposal that was abandoned? If so, I would say, the proposal itself had few iterations, and the last one was to abandon it, so I am not sure how to answer that question.