When the icp is 100u, I will agree with you, but now the icp is 4u. If icp develops with your current ideas, it will soon enter the death spiral. There are too many uncertain things in the past 10 years, which will lead to new comers not daring to enter, institutions not daring to enter, teams not daring to enter. Can the funds of ICP be enough for 10 years of operation?
@slym-23, please post your spreadsheet model showing this death spiral and which uncontrollable variables make it so. Iâll wait.
Providers get paid individually by minting tokens no matter the ICP price, rewards may get lowered but there is no plan so itâs speculation for now, just like lowering the NNS rewards, which if it were implemented might lower long term inflation but cause lots of tokens to be dissolved in the short-medium term. This kind of stuff should be carefully planned and monitored along the way, if we only act once the problem is apparent, it might be too late.
No matter how long oneâs investment timeframe is eventually heâll want to cash out something, what happens when 20 years from now millions of tokens are dissolved and hit circulation? 8 years might seem like a lifetime in crypto but for a network which is supposed to be part of the future internet itâs not that much. Even at 5% yearly inflation, which is what Iâve based my analysis on thatâs 25 million ICP which either need to be burnt or compounded in the NNS every year, but by doing so the inflation is compounded too. In just 5 years thatâd be 138 million ICP tokens added to the total supply and the yearly inflation would raise to 32 million a year and as time goes on it gets worse.
Do you really think stakers will not only keep their initial investment locked but also perpetually merge an amount which increases every year? All it takes is a sparkle and the house of cards might collapse, compounded interest is the 8th wonder of the world according to Einstein, but in our cause it might be ICâs demise.
Inflation isnât 400 mil ICP a year
Again, the 5% inflation is not written in stone forever and can be changed. Moreover, even a slumbering level of GDP growth would eat up about half of that in a perpetuity scenario. Between that very long term and now, demand for ICP should grow at significantly more than that. When demand growth for a currency exceeds its supply growth, price deflation can occur (i.e., an increase in the value of ICP) in spite of any inflation in the currency supply. It is simply far too early to project these future growth rates with any certainty. However, the 5% inflation rate is a controllable variable in the long term and not a real cost like node rewards (excluding temporary extra incentives), so Iâm not that concerned about it. In short, I donât agree with your logic about the imperative to burn or compound all inflation to keep the ICP price from declining.
You also seem to ignore the natural supply-demand pricing equilibrium in staking. Yes, one could argue that almost all staked ICP will eventually become unstaked. However, the more dissolving and unstaking that happens, the higher the compounded return being offered to those who remain staked or want to stake more given a higher return being offered.
yes, i make a more 0. but still 40,000,000
conside LP staking is a disaster, those will collapse just in one minutes
You keep saying this, yet you keep âarguing this questionâ, except without any compelling math. Perhaps you should follow your own advice.
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And again there are no plans to do so, if Dfinity chose certain parameters at Genesis it probably means they did some research, but we havenât seen it. Supply and tokenomics must be kept in check and monitored based on the most up to date data, which is what this thread tries to incentivate.
Problem is when deflation occurs (assuming it can) demands instantly lowers due to XDR/ICP conversion mechanism, monetary supply is the wrong analogy imo. Imagine if oil had constant inflation and the energy produced by barrel burnt depended on the barrelâs price.
It wonât matter if by the time it is lowered there are hundreds of millions of ICP in the NNS, which could be dissolved due to the change and hit the market at any time, cratering the price. Dom himself forecasts 90% of the ICP being staked in the NNS, that would lower the 8year APR to 2-3% which is incredibly low for such a long and risky investment.
That is cause for that to happen not enough tokens have to be staked staked and compounded so that the APR stays high and staking is worth the risk, which would in turn mean a considerable chunk of the yearly inflation must enter in circulation and we go back to the âat which price is it realistic to burn all those tokensâ argument OR a majority of tokens are staked, APR slowly decreases, at which point 2 things can happen:
Scenario 1:
- Stakers start slowly selling their rewards cause compounding isnât worth it anymore
- Nobody buys those tokens to stake cause the APR is too low
- Price dumps
Scenario 2:
- Large portion of tokens are dissolved.
- APR goes up
- The tokens are staked again
- APR goes back to where it was
- So long as there is a greater fool willing to restake the dissolved tokens the system works, sounds familiar?
No other chain uses staking as a true deflation metric cause being based on human behaviour it could cause negative feedback loops. Iâm not saying it shouldnât in some way help regulating the supply but it shouldnât be the only factor to base a bullish thesis on.
Your scenario 2 makes no sense. Why would APR go back to where it was if APR pricing already pushed a large portion of tokens to be dissolved? Thereâs a positively sloped supply curve along the APR price continuum. Why would the supply curve ever go perfectly vertical when both historical data and variable risk aversion among investors makes this effectively impossible? The same logic applies to your scenario 1, where staking demand suddenly drops off a cliff (i.e., ICP supply suddenly goes up vertically), in spite of APR increasing gradually and proportionally to compensate as unstaking increases.
As for Domâs 90% scenario, how would APR go below 5% if that is the overall inflation rate? If APR would be 2-3% with 90% staking, I can assure you that staking would be significantly less than 90% due to better APR opportunities at lower risk. That thought experiment is an irrelevant fantasy scenario.
Iâm aware of this, as I pointed out in my math, where a target ICP price of roughly $175 in 10 years would require 40X more cycle burn than today to burn through the same amount of ICP for deflation purposes. Thatâs why I said the current token price is still quite rich (not depressed), and why I think something under $3 (or even significantly less) could be a fair price for ICP today.
Iâm sorry. Iâm not telepathic. Please show us your doomsday model on a spreadsheet.
Thatâs assuming the tokens are restaked, otherwise they are added to circulation and we are back to the burn/price dilemma.
It doesnât have to, depending on how much the price has been artificially inflated by the apparent scarcity even a small portion of dissolved tokens will have markets reconsider the tokenâs valuation. How much staking demand must drop to cause issues depends on the price and how much the supply has inflated due to compounding.
APR depends on your VP amount compared to others, so 5% would be the max APR if you were to stake for 8 years and keep compounding.
That is effectively what the actual APR would be in that scenario, it might be fantasy but Dom seems to believe itâs achievable, so I canât ignore that, mind you not cause I trust him to be right but cause he believe itâs possible and might base his thesis on it.
I see nothing in what you wrote to support either a vertical ICP supply curve or a disastrous negative feedback effect on ICP supply due to historical ICP price changes (where supply = total ICP - staked ICP). If you can model this effect out somehow, where a doomsday scenario results instead of a new equilibrium, then please do so and show it.
What is happening to the ICP price now is basically price discovery in slow motion, as the original seed/early investors are given the choice for the first time (recurring each month) to dissolve or keep a sizable portion of their ICP staked. Since this slow motion ICP supply pressure has been clearly upwards - and even more so in a bear market with higher interest rates, where fiat funds are more scarce - that puts downward pressure on the ICP price. Although I expect this pressure to continue through 2023 and beyond, this is ultimately a temporary effect (and of diminishing importance) until price discovery comes much closer to a natural equilibrium between ICP supply (as defined above) and demand.
However, countering this downward price pressure is the growth (and future perceived growth) in the ICP ecosystem. So if someone is trying to time a good entry point for investing in ICP, it would be when the latter pressure begins to exceed the former. When that will be is uncertain, since it depends on the marketâs perceptions. Another problem with trying to time this flip in relative price pressure is that the ICP price will likely spike upwards more quickly when the market collectively perceives that this flip has definitively occurred.
I know it is frustrating if you are already heavily invested, but just be patient. The price will most likely deteriorate more into 2023, but at some point this flip in price pressure will happen if the IC ecosystem growth continues on its current trend or higher. Feel free to mark my words here for future reference.
What Iâm talking about has nothing to do with current or past price action, ICP barely had the time and adoption necessary for any real tokenomic test to play out, it was merely a victim of a series of unfortunate events.
I think we got a bit lost in the woods discussing, my thesis is quite simple:
Do you believe the supply/demand ratio dictates price in an efficient and rational market?
If the answer is yes, then we must figure how to get that ratio in our favour:
If IC had node rewards only as inflation then simply increasing the usage would trigger deflation and lower the supply, causing price to go up. The XDR exchange mechanism applies to both node rewards and cycle conversion, as long as cycle burn is greater the node rewards threshold, the supply deflates and price action reflects it.
But there is more: governance rewards. They are denominated in ICP tokens and vary based on a % of total supply, say 5%. As ICP price increases the value in XDR of those tokens does too, so either:
- Usage must increase exponentially to offset the reduced token burn caused by the higher price.
- Tokens minted to pay stakers donât have to enter circulation at all.
- A combination of the 2.
Since there is no such thing as infinite growth the new question is what is the maximum amount of governance tokens that can enter circulating supply while still keeping deflation (on the circulating supply) going? That depends on the ICP price.
As price increases due to the apparent scarcity so does the value of those tokens exiting the NNS and we face the same problem again: how can we keep circulating supply stable or deflating?
- Increasing usage
- Reducing the number of tokens hitting the market.
- A combination of the 2.
Usage is constrained by physical factors and hoping the NNS tokens outflows would decrease with time is irresponsible, as:
- Long time stakers will want to cash out
- Its unlikely stakers not only keep merging, but also keep merging an amount which increases every year, due to the 5% being compounded yearly, inflating the supply.
Furthermore as price keeps increasing due to apparent scarcity, the aforementioned outflow amount required to stop deflation keeps getting lower.
So to sum it up:
- Price goes up due to fake deflation.
- Stakers eventually might want to cash out.
- Yearly rewards increase due to inflation.
- Number of tokens that must exit the NNS to stop the fake deflation lowers.
Seems like a negative feedback loop to me and our only hope against relies on greater fool theory, that being the assumption there is always someone else who will restake the NNS outflow tokens.
I agree with most of the dynamics that you pointed out, but none of that demonstrates any negative feedback loop leading to some sort of death spiral or other doomsday scenario. The ICP and APR price mechanisms will ultimately reach and maintain a relatively stable equilibrium. Both the tokenomics logic and the historical data show that.
For example, the % of all ICP staked has stayed at roughly the same % over time, with a slight downward trend due to the temporary impact of seed/early investors getting their first opportunities each month to choose an exit (i.e., not because of any negative feedback loop). There have been no dramatic shifts in this % since inception, excluding the one-time shift at the end of 2021 for tax or similar reasons that are not systemic in nature.
On the one hand, you are so worried about the ICP price going up causing major problems, but on the other you are so worried about a perpetual excess of inflation in ICP token supply (at only a 5%/yr. level), which can only have a long term downward pressure on price. Thatâs basically a false dichotomy fallacy, since the APR pricing mechanism is always there to help gravitate the ICP price and supply towards an equilibrium. So I donât see the problem here.
The âgreater fool theoryâ is what the rest of the crypto industry has relied upon for years to pump up prices and dump supply for greater fools to buy, totally oblivious to any fundamentals around actual coin utility. That metaphor simply cannot apply to a coin that is gradually decreasing in price over time as a result of slow motion price discovery that is easily apparent per the ICP dashboard.
All you said is just based on your guess, no data.
we just talk about the real situation for now.
- first, ignore the LP staking, because it depends on people, and finally they will cash out for making money, rely on LP to reduce inflation is meaningless, because they are still exist. you say ETH LP staking wonât be taken out? but ETH staking are counted in total number, the total is still in deflation.
- based on several year later, the min 5% inflation of ICP. we neglect the total increase in nex few years, just based on now, itâs new huge inflation number is about 25,000,000 - 30,000,000 ICP release.
- we know cycle burns based on token price, if price goes up, means less burned happens. just according the price of now, ICP 4$, after i calculate, it only can burn about 100,000 ICP according to nowdays cycle burn rate situation. We defnitely know if price goes up to 8$, means only hafl of 100,000 can be burned.
now we calculate how much cycle burn rates does ICP needs to eliminate all inflation per year at just price 4$.
30,000,000/100,000 =300, it means the cycle burns needs 300x times than now can destory the inflation every year.
how do u think it can increase to 300x times? no way. let alone the price goes up to 8$, it needs 600x time than now. - ignore the transaction fee, itâs only 0.0001 per time. nearly 0.
- plus i donât add the extra nodes rewards.
tell me how do u think it can be success under such terrible infnite huge inflation?
it seems like a bank keep printing money day by day without stopping.
we all know, neither coin in crypto history like this can be successful.
ETH BTC DOT ADA MATIC and so on, they all have constant total number or be on deflation road.
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itâs already in death spiral now , see the price , even solana wonât fall down hunders times.
huge inflation make the total coin from start 469 to 500 million. increase 31 millions ICP. the price from 750$ to 3.5 $ lowest. how do u say it does not in spiral death. It already happend.
any test show you are right? no. but everything happend shows itâs terrible and worst tokenism.
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The equilibrium will happen only if the price is kept in a reasonable range and NNS âdeflationâ doesnât raise to the levels Dom predicted.
Thatâs hot hand fallacy based on not even 2 years worth of data.
That has been the case so far yes, but it wonât last forever and many projects have designed tokenomics which enable price appreciation through utility and burn mechanism, staking is mainly used as an incentive to be honest rather than a form of deflation.
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That can happen if the scenario Dom is aiming for becomes true, when the lead of Dfinity aims for it, then I canât ignore such a possibility. 90% of tokens staked would cause both to happen? Is that possible? It doesnât matter if Dfinity ultimately think it is, cause they might have based their tokenomics and possible future modifications on it.
I never mentioned ETH as you claim, nor did you present any model backing up your conclusion. Try harder. Good luck!