Hi @Zane
thank you for starting this thread and sharing your detailed thoughts! I will have a look at your analysis and then come back to this thread (this might take some time as I am currently involved in quite a few parallel initiatives).
7 Likes
While it seems we have many accountants here showing many formulas, the answer seems to be the same.
ICP growth potential is incalculable.
Letâs take a Psychology look at the ICP Model in my opinion.
The ICP isnât a coin for transactions but to purchase cycles on the IC or to conduct token connections.
Investing or transferring Government fiat currencies to a coin like BTC can, has shown and predicted to double or triple in price, lucky those who bought early.
ICP is not modeled on Government currencies or BTC but for the use on the IC network for usage.
My view on the rewards system on the NNS.
I have locked my neuron for 8 years but when I start to dissolve it is most likely my children will receive and enjoy the neuron worth as it didnât cost them anything and if I am not a dead person by the time the neuron dissolves I will not enjoy the returned ICP as I paid over $30.
I could get back my investment by the Maturity rewards and I have not spawn these as yet but I consider that I would be better off spawning and then return these to my Coin Provider for a better chance of increasing my investment returns.
For some reason I get the feeling that it is a dirty sentence to say I am here to invest for my returns to go to the moon, itâs not but I canât see that happening just yet or ever.
I understand that this is in the early cycle of development and anything could happen from a bust or boom but like Zane said, I am here for the project and would like to see the success for a better internet.
I have many more ICP in a non Neuron account and will ride the highs of the ICP price which I canât do with my locked Neuron.
I donât believe that the price will ever be going to the moon unless the model changes and I could reverse my decisions and investment on the NNS but I am not seeing anything worthwhile yet.
I am hoping that while most believe that unknown persons and new project ideas are the way to build the IC are in my opinion expensive and costly to the NNS with many reasons why it will not go to the moon when we have a end of cycle aging internet that has big pockets and teams that could and looking for the future internet that I thought was the IC was but is rejecting their business as poison but could burn many cycles, quickly.
Inflation is easy for me as itâs just the balance of cost and return but unlike buying a Property, 8 years ago, inflation will offset the return on the cost and I could increase that return with leasing there isnât any such foreseeable return on investment on the NNS model as it is all about risk, chance and making enemies.
Clearly having this discussion and seeing âgrowth potential is incalculableâ and that nothing inspirational or foreseeable then we need to look at why this is the case.
Cycle Burn Rate â ICP
Link-> https://kvyr2-jyaaa-aaaam-qbaca-cai.ic0.app/
Note: This burn is for cycles only, it does not include additional burns per transaction. Does anyone have an idea if this calculation is close enough to reality? A monthly accumulated would be missing, it would be great !
Unless Iâve calculated something incorrectly, I think the minutes per ICP burned is worse than that now. Per the IC dashboard, the cycles/ICP conversion rate (the graph is incorrectly labeled âICP/Cyclesâ) = roughly 3.3 trillion, and the current cycle burn rate is roughly (to be generous) 10 billion cycles/second. So 3,300,000,000,000 / 10,000,000,000 = 330 seconds to burn 1 ICP = 5.5 minutes. There are 365 X 24 X 60 X 60 = 31,536,000 seconds/yr., so that means 31.56M seconds / 330 seconds = roughly 95,500 ICP burned per year at this rate. Obviously this is very low compared to the inflation rate of tens of millions of ICP/yr. However, the bulk of ICP value will come from ICP burning by the SNS ecosystem, which hasnât even begun yet (beyond the SNS-1 beta test).
One can look at deflation (burning) of ICP as being roughly equivalent to revenue, and inflation as being roughly equivalent to cost. To get your head around that comparison to traditional companies, think of Google tokenizing their shares and charging customers GOOG tokens to generate revenue (deflation) and paying all their costs in GOOG tokens (inflation).
However, in my view, staking of ICP can effectively offset all inflation while still leaving enough annual return to compensate for the illiquidity of staking and the opportunity cost of the investment. Therefore, one could also view deflation as the rough equivalent to net income, not just revenue, at least in an ICP staking scenario with a maximum dissolve delay. (Iâm implicitly including node reward inflation in this offset too, which should become a progressively smaller portion of deflation as cycles burned / second grows.)
So if we round up the burn rate to 100,000 ICP/yr., the total ICP outstanding to 500 million tokens, and the ICP price to $4.40 as of today, that creates an implied P/E ratio of $4.40 / (100K X $4.40 / 500M) = $4.40 / $0.00088 = 5,000. A typical S&P 500 companyâs P/E ratio would be about 20, so one could argue that there is still a LOT of potential downside to the ICP price if growth in the IC ecosystem is any slower than explosive over the next several years.
Even at the âdepressedâ price of just over $4.00 for ICP, this still implies a very high current market cap of over $2 billion. That double-unicorn valuation is quite rich for what effectively amounts to (almost) a pre-revenue start-up company (given how SNS cycle burns arguably represent the true ârevenue launchâ of the IC ecosystem, and the SNS ecosystem is only now in the process of being launched).
To get to a hypothetical P/E = 20, the cycle burn rate would have to increase 250X from $10 billion cycles/second to 5,000 / 20 * 10 billion = 2.5 trillion cycles / second, which is not very far off from 1 ICP / second. That is obviously a very long way to go from todayâs burn rate, and it also assumes that the ICP price never goes up during this growth period, which obviously wouldnât happen.
Now letâs assume we are hoping for a âmoon priceâ of $175/ICP sometime in our longer term investment horizon after an explosive growth period, which would be roughly 40X the current price. Over 10 years or so, this is a reasonable valuation expectation given the very high risk of this investment. Since cycles are fixed based on fiat currency prices, not ICP prices, that means the burn rate would not have to just increase 250X to get to a P/E of 20 at this higher ICP price, but by 250 X 40 = 10,000X = 100 trillion cycles / second (excluding fiat currency inflation), as compared to the current 10 billion cycles / second. Again, this implies a massive amount of required growth to get to a price level of roughly $175/ICP when growth is assumed to become more stable. Is this possible? Sure. But, once again, we are a very long way off from that level at the current cycles/ICP conversion rate of roughly 3.3 trillion.
If someone could check my calculations, then I would appreciate it. I will update this post for any necessary corrections.
3 Likes
Which is why i donât understand why we donât charge premium for premium features of ICâŚsuch as Bitcoin Integration. I understand the argument against itâŚwe need to attract devsâŚbut i think thereâs a balance.
1 Like
I havenât analyzed the new BTC integration pricing yet. However, I would tend to agree with you if ICPâs transaction price for ckBTC transactions is far below other wrapped BTC tokens like WBTC on the Ethereum blockchain. Where I think a more significant premium could be charged is on ICPâs price for their native BTC integration, since the added security of this integration is surely worth something.
In general, I see ICPâs high performance ckBTC wrapped integration used more on lower cost transactions (e.g., buying a coffee, where you canât wait 10 minutes at the cash register while the BTC blockchain finalizes your native transaction). A fixed low fee per transaction there makes sense.
By contrast, I see ICPâs native BTC integration used more for high-risk, high-dollar value transactions, where extra security is more valued and no other blockchain or bridge can match the native integration of ICP. ICP pricing for this integration should be based on a % of the BTC transferred to extract the maximum insurance premium from each high-value BTC transaction.
I am not 100% certain that I understand the full difference between ICPâs two different BTC integrations, so perhaps my logic is a bit off here.
According to the current token economics, deflation will never happen. Anyone who thinks that ICP will achieve deflation is a miscalculation that is divorced from reality. I once predicted on reddit that the ICP price would fall below $30 (bull market) when the ICP price was $300, and predicted that the ICP price would fall to $3 in a bear market. And give the price fluctuation range of $30 in the bull market and $3 in the bear market. These are estimated based on the token economics of ICP. The token economics of ICP is a very important reason why the price will not skyrocket. I call it shitnomics.
By the way, trying to curb inflation through staking is deluding yourself and trying to fool investors who have been taught to be smart by the market. Never succeedâŚ
Nice call. Stay there please.
This is why bitcoin was created. Inflation is source of evil. And of course we care about TOKEN PRICE. You know many developers in the IC community have left DFINITY, including a great team which have developed many many projects such as plug wallet.
Token price is the stimulation to the development. They earn ICP, Not the fiat money. Price keep going down, Developers keep leaving away.
I disagree sir. Inflation can be good for the economy in moderation. When prices are expected to rise in the future, people are more likely to spend money today rather than save it, which can help to boost demand for goods and services. This increased demand can encourage businesses to invest in production and hiring, leading to economic growth. Inflation can also help to reduce the burden of debt and provide a cushion against deflation. I do agree, itâs important to keep inflation in check so that it doesnât become too high and erode the purchasing power of money. But a moderate level of inflation can be good for the economy. The same extends to cryptocurrency.
3 Likes
Sorry, the fact is : this doesnât work in the cryptocurrency world. ETH is also working hard to achieve deflation, and they almost did that.
Maybe get the developers first and then make the argument for economic sustainability later.
I donât see why cryptocurrency changes the principle of economics at all.
1 Like
Indeed, the tokenomics of ICP truly is âshitnomicsâ, but only to traders, not to long term investors. Thatâs one of the main reasons I find ICP so attractive, since Iâm a long term investor, not a trader. I have long despised the investor shitnomics in all other cryptocurrencies, which has turned the crypto industry into a ponzi scheme.
All of that nasty inflation you speak of (gravitating towards only 5% max + node rewards of decreasing significance) can easily be offset with a far higher return on locked up ICP (over 15% when staked long term). That difference is enough to also cover the opportunity cost of that long term investment, at least in my view. The only question is what is a reasonable price for the long term expected burn rate, which I see as roughly equivalent to EPS, as explained above. What we do agree on is a bear market target price of $3 or less, which is what Iâve had in mind since I first came across ICP just under two months ago.
With respect to the theory of inflation, currency inflation does not necessarily translate into price inflation if the demand for the currency is growing faster than the currency supply. Real GDP growth alone is not far off from 5%, on average, so if the net demand for ICP grows at a faster rate than 5% minus the GDP growth rate over the long term, there will (in theory) be no price inflation in ICP terms, even though the ICP currency itself is inflating at 5% per year. In the very long term, if ICP takes over the entire Internet per Domâs nirvana scenario, the NNS can easily vote to reduce the long term currency inflation to be closer to either the real or nominal GDP growth rate for the sake of increased price stability.
Arguably, it is price instability that is âevilâ (per your other post), not mere inflation. On that note, although not a serious deficiency, BTC has no mechanism to stabilize against deflationary price instability, as compared to all other fiat (and most crypto) currencies that grow at least as much as GDP. Moreover, excess or hyper inflation is inevitably caused by perverse incentives to curry favor built into centralized political power, which donât really exist in truly decentralized organizations like DAOs.
2 Likes
What do you mean by this? I doubt the SNSes themselves will cause major burns, the dApps ruled by them might, but that is yet to be seen. We arenât even sure whether itâs realistic for a subnet to burn more than it mints to pay providers with average usage, let alone whether the whole network can churn through governance rewards.
This is one of the things which set ICP tokenomics apart from other chains and imo not in a good way: ETH, BTC, etc⌠have a fixed monetary policy to bootstrap the network, if by the time those incentives are not worth it anymore the chain is not self sustainable then the project is considered a failure, the fixed inflation is used to pay both nodes and stakers (in ETHâs case) cause running the network and governance coincide, ICP on the other hand hands out free goodies to node providers no matter what and mints a lot of tokens to pay stakers for simply clicking a couple buttons.
All things considered regardless of how promising the IC is and will be, there is no such thing as infinite growth and since price can increase much more easily than usage, there is a price range after which the network wonât be actually deflationary anymore. This is technically true for ETHâs too, provided it had infinite scalability and tx fees in the range of a few cents as price goes up there needs to be more adoption to burn more tokens, but in ETHâs case (and 90% of similar L1s) nodes arenât paid individually but from a shared pool, so when demands increase the burn increases linearly too, on the IC demand must not only increase but increase enough so that the newly created subnet to serve that demand burns more than it mints. In simple terms if ICPâs price 2x, the usage has to more than 2x, cause despite burning 2x more tokens on paper a % of those only offsets the subnet cost.
Iâm not sure, keep in mind governance inflation is calculated on total supply, if we rely on staking as a form of deflation what will happen is inflation will increase year by year, so youâre not only betting holders will stake a majority of the supply and keep it in the NNS but also that theyâll keep merging their rewards AND that theyâll merge an increasing amount every year, as time goes on that becomes less and less likely as long time investors will want to cash out and that could cause a chain reaction.
Those returns will get lower as time goes on and as more people stake, plus if the scenario outlined above ever happens itâs only worth it as long as you are the among the first ones to run for the door.
Simply,
this is a good circle.
Deflation â less supply â ICP price up â more developers come in IC community â more ICP burned â more deflation
this is so-called death spiral (ICP is here !)
Inflation â more supply â ICP price down â more developers run away from IC community â less IPC burned â more inflation.
DO NOT KID YOURSELF, SEE THE PRICE OF ICP, DROPPED FROM $400 TO $4 NOW.
THIS IS THE ONLY COIN IN THE CRYPTO MARKET.
MORE AND MORE DEVELOPERS RUNNING AWAY FROM #IC COMMUNITY. THIS IS WHAT HAPPENING NOW.
2 Likes
Itâs a bear market. Not every project will make it. Many are closing shops everywhere in crypto. If you take part in many communities outside of the internet computer ecosystem you would know that. It doesnât mean the L1 is the cause for that either. Sometimes people just donât have the funds to keep developing, especially in the current environment where the VCâs are more cautious about handing easy money to teams. It is also likely that some are leaving because ICP does not work for them. On the positive side, many new devs are joining the $ICP ecosystem as well. How do I know? Because many actually reach out to me and I to them. Letâs be realistic here. ICP is a start-up, and as such, chance of failure is always high like any startup. The constant doom and gloom predictions do not help though. Good analysis of potential weaknesses and solutions do.
1 Like
Except both governance inflation and the cycles/ICP conversion rate are discretionary amounts that the NNS can change based on future market forces and growth rates. A death spiral can only be argued based on the node rewards (IC costs) being permanently above the revenue from those nodes (i.e., cycle burn from dApps). It the latter were true, then cloud services (and all of Web2) would already be dead, since no one could ever earn enough revenue to cover their cloud hosting costs. Moreover, Web2 is saddled with massive cybersecurity costs that Web3 (under the IC) simply does not have. Think about it.
Except this is simply not true. No doubt, not every developer who tries out the IC or works at DFINITY will stay, but the Github data, among other sources, totally refute that claim. Also, if the cycles/ICP conversion rate is too low to be sustainable, as many might argue, this would only attract more developers, not push them away. Developer hosting costs for their dApps would be artificially low and therefore more attractive in the shorter term.
1 Like
Yes, of course I meant the dApps under the SNS, hence the word âecosystemâ. I agree that this is an open question. However, it should be safe to assume that there is a profitable equilibrium point available for the IC to make significant margin on hosting dApps in a lower cost Web3 network as a monopoly provider, since Web2 hosting is obviously still very profitable in a much more competitive market.
I donât know what âfree goodiesâ you are referring to. However, I donât see these freebies continuing once the network gains a critical mass of node providers and the IC gains any real market traction. There will likely be no shortage of prospective node providers at that point, so extra incentives wonât be required.
As for stakers getting too much in rewards, this is also purely discretionary and can be changed by the NNS, with no permanent impact necessary. Ultimately, this inflation is (in theory) meaningless to long term investors, since they could be OK with getting less rewards and having the ICP price be higher in 10 years due to less ICP supply, assuming everyone else is a long term investor like them. However, the bulk of individuals in crypto are not long term investors. They are traders clicking on their buy-sell buttons like cocaine monkeys. The ICP staking tokenomics works to filter out those individuals and to bias the rewards towards long term investors, which I strongly prefer and endorse.
Yes, and that inflation on total supply will drop to 5% not too long from now, and perhaps lower if the NNS sees this as too high in the future. The less individuals who stake, the more rewards go to those who stake, so there is a natural supply-demand equilibrium that should prevent a mass run for the exit as long as some staking rewards remain.
As for unminted maturity, if that is what you are referring to, I consider these tokens as fully outstanding right now, since they represent a real claim on the ICP token economy with no future benefit to it. (Contrast this with shares issued in the future by a traditional company for fiat currency, which would represent a future benefit to that company.) I strongly suggest to DFINITY that there should be a panel on the IC dashboard to track this merged (or unspawned) maturity that has not yet been minted, since these shadow tokens represent a current claim on ICP market value in my view. They are not like in-the-money stock options in calculating fully diluted EPS numbers, since those options can only be converted to shares after paying a company the strike price to claim them. For unminted/unspawned maturity, these shadow tokens already represent a full claim on the current ICP market value. This is why they need to be tracked to calculate the true market cap. of ICP. If my logic is incorrect here, then please let me know, since I may be missing some information.
1 Like