Community Call to Action - Deliberation about token inflation

General
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Hey ICP fam – Imagine checking in.

As I’m sure many of you In-Tune ICP folks are aware, there have been several discussions recently about the inflation of our protocol. Specifically referring to comments @chepreghy & @Kyle_Langham had regarding the most recent episode of the neurotic podcast.

I’m surmising here from personal judgement, but essentially, the premise is something of the sorts:

  • “Rewards should be limited by X amount until the IC reaches profitability”
  • “Rewards should be limited unless they are directly, or indirectly, contributing to the growth of the network.”

I must admit, my initial thoughts on this made me infuriated. After thinking about it for some time, I decided to just look at the data the Dashboard already hosts. Let’s make this black and white folks:

Circulating supply of ICP as of 5/11/2021 - 123,103,469
Total supply of ICP as of 9/29/2022 – 469,213,683

Circulating supply of ICP as of 9/29/2022 – 262,243,167
Total Supply of ICP as of 9/29/2022 – 489,975,184

Staked dissolving as of 11/6/2021 – 121,235,398
Staked dissolving as of 9/29/2022 – 86,307,380

Circulating supply increase: 113% (Horrible)
Total Supply Increase: 4.42% (Very solid honestly)
Staked dissolving neurons: -28.56% (Very, very solid)

Using the simple math above, one could reasonably assume the tokens are becoming sufficiently distributed amongst holders. Staked dissolving quantities have been trending downwards, and Total Supply is barely moving upwards in proportion to the rapidly growing circulating supply. However, over this time, the price of the underlying token has taken a nosedive. This leads me to believe supply is simply outpacing the demand for the token. And thus, we can reason a few things:

 - How can we reduce the supply?
 - How can we increase the demand?

I believe the latter is self-explanatory – System adoption, Robust applications people are using, novel features that drive adoption, marketing efforts, etc. Fairly straightforward – and which I believe the Foundation and Developers are overwhelmingly doing an outstanding job (Maybe excluding marketing lol. But been MUCH better as of recent)

Arguably more important for the short to midterm - How can we reduce the supply such that the inflationary mechanisms are more muted? Some half-baked thoughts:

  • For Neurons who have had zero system activity since genesis, do not provide rewards. A proportion of rewards should be burned, and perhaps a proportion of rewards should go into the Treasury. (There are clearly a million more questions that arise from this, but just fancy the thought for a moment in respect to the supply situation)
    • Please note – when I say zero system activity I’m directly referring to those who have had staked neurons since genesis, have not logged on, have not actively/passively voted, have not staked, have not raked, etc. They’ve quite literally done nothing.
  • Consider linear reduction in the inflation rewards, EXCLUDING 5-6-7-8 year neurons. (As a means to incentivize those to stake longer. One can assume this supply will always be locked and is essentially eliminated from the supply forever. Yes, I realize the protocol is “Mutable” – just consider for a moment)
    • I believe those who stake LESS time should be rewarded, but why does my 6-month neuron get 10% when my 8 year gets 20%? Seems totally ridiculous. This should be a MUCH more extreme difference. If I was a LARGE genesis holder (Disclaimer, I’m not lol. Not even genesis) I would just front run everybody in a 6-month stake for 10%. I literally have a percentage of my holdings in a 6-month neuron for this very reason! If price appreciation DOES occur, I would just dump at the highs. You understand the dilemma? REDUCE them (Me!) to an even smaller proportion. They can either dump it down here, hold it and eat the passive inflation effects, or stake it into a longer neuron.
  • Increase transaction costs from .0001 to .001
  • Rewards are a direct proportion of a moving average of burn rate (Excellent idea by @Mancopter / @varon1980 on Twitter! )

These are just some half-baked ideas. Rather, I hope to encourage the community to come and join in on some civil discourse. (Whoever, you are on that Subreddit, well done… :smirk: ) It is unfair for me to verbally attack those who have taken it upon themselves to propose a mere question. Some of the responses to Kyle and Andrew are just nauseating. Think of the time both have poured into making this community, and the ICP great. You mock them for making one claim you disagree with? Heck, I personally disagree with them both. But shame on us for ostracizing them with half ***** strawman arguments. The other half just tries to strong arm the discussion with their so called Insightful [antics] replies. Their motive was clearly to force the community into discourse on this subject …Smell the roses people, our community is lacking somebody in a leadership capacity right now. Food for thought…

Much love ICP Fam.

Imagine

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To fix a problem, first you need to know exactly what is the problem. To me, the actual rewards system is not the problem. Here is why:
First, the pressure for down price does not come from paying rewards but from selling ICP. So the sellors are the problem, not the receivers of the rewards.
There was 43m ICP given as rewards through maturity
Only 18m has been converted to ICP.
From what I can read, the vast majority are merging their rewards. Let say 75% but would be nice to have the exact amount. Some of these may use those ICPs for buying NFTs, ect. So my rough figure is that there is only few millions that may contribute to the pressure. Under 2% of the actual inflation.

On the other end, there are nearly 90-100 millions coming on circulation within the next 2 years. They are in neurons locked in 2 years or less. Most are certainly part of the seed investors unlocking schedule. There is nothing anybody can do about this and this is why another 100m will come on the market within 2 years. It has nothing to do with the rewards system.

@Kyle_Langham is the specialist on these data and he know this fact very well. He can certainly bring some precision to my numbers here. With all the respect for Kyle, I think this is why a lot of people were really surprised that had this taught about zerowing the rewards for a while and had those reactions.

First, find the problem with strong proof. Then look for a solution. The real proplem has not been found yet. Well, to me it is those 100m unlocking seed ICPs.

We cannot always make changes on assumptions only. It would do the same as it did with NNS spams.

Why owners of those 100m ICP are getting their neurons to be unlock during the next 2 years? Well, good chances are to sell them. Only 1 possibe solution then: Change their unlocking schedule and make it over 10 years. Problem solved TMO.

Under my narrative, stopping the rewards system would not solve anything.

Does this make sense?

Screenshot_20221001_070538
Screenshot_20221001_070538502×567 117 KB

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Hello @coteclaude

Thanks for your thoughtful reply. I agree with many points you have proposed. In fact – think we are heading in the same direction of thought. I believe I’m understanding your thoughts around this issue – but please don’t hesitate to correct me where I’m wrong.

Your basic premise boils down to something of the sorts – “The real problem is the swaths of supply that continue to be unlocked and are continuing to unlock over the following year/two.” During the token’s inception, circulating supply outpacing demand has led to token destruction of nearly 99%. From Nov 21’ – present, there have been ~30 million ICP dissolved off the NNS. There are now ~90 million tokens remaining to be dissolved off the NNS. Do you think our token can sustain another 90 million tokens dissolving? I’m not sure to be honest – but I’m not in the game of gambling.

And from this context – we mutually agree on the problem. The supply of the of circulating tokens is far outpacing the demand of tokens. Quite simple, doesn’t need to be complicated. Had demand for our token been keeping up with supply – we can posit price action wouldn’t have plunged.

I’m 100% NOT in favor of hurting Genesis holders who have dedicated their funding to see this project succeed. It is they who took the most financial risk, and it is they who deserve the most outsized reward. Destruction of this system to their disadvantage would destroy the fabric of what it means to work in a Governance DAO environment. All attempts to hurt Genesis holders will render future investment into DAO’s futile. (This would be TERRIBLE for our entire space.)

I’m most definitely NOT in favor of stopping the rewards. I’m suggesting a primary driver of tokens dissolving off the NNS/Large proportion sitting in 0month – 3yr neurons is because we have designed a poor rewards system. Why is that? I believe its because I can get a large amount of rewards for a 6 month stake ~10% in relation to an 8 Yr neuron pulling in ~20%. I’m not suggesting hurting anybody who has staked for 8 years. I’m suggesting a reduction in rewards for those not vested in the system for the long run. (Maybe 6 month - 2/3 years?)

We should try to navigate, “How can we incentivize those who are dissolving to stay locked in, and for longer terms?” I tried to reason a primary driver of this issue was the fact low age neurons get too large a piece of the pie in respect to their older companions. Thus, reduction of the front end part of the rewards curve (Not the latter end) may result in those dissolving tokens re-staking into longer term pools. This may alleviate some of the pressure from tokens dissolving.

P.S - I’ve attached Kyle’s sub stack below where he shows a dissolve schedule.

What do you think?

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While I’m on this topic - If anybody is familiar with any Genesis holders/large holders who are dissolving, please refer them here. I would be very interested in engaging with them here, publicly.

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This is a good take. Inflation is not bad right now. The worst part has been giant neurons dissolving, and that’s slowing down.

There are lots of people though that didn’t have those giant neurons who staked for 8 years. Reducing our rewards further will just piss us off and do nothing to help this token.

Any talk of reducing or eliminating rewards misses the main problem of 3-5 million tokens unlocking each month.

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I am on board. Cut short-term rewards in favor of long term rewards. An 8 year investment is substantially riskier than a 1 year lock. Perhaps 8x as much. Perhaps the rewards for 8yr investors should be 8x that of a 1-yr stake.

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Hey @smaug,

Thanks for participating in the thread! Excellent to see community members chiming in - love this community.

Let me play devil’s advocate with your thoughts on Perhaps 8x as much. Perhaps the rewards for 8yr investors should be 8x that of a 1-yr stake.

The amount of rewards one should yield is up for a larger debate. More important however, in my opinion, is the total reduction in [Future] circulating supply. The question that I would posture, " How can we modify the rewards parameters such that Longer term holders absorb a larger proportion of rewards in relation to their shorter term siblings? A precursor element of such a change must result in a total reduction of circulating supply."

What do I mean by this? Lets make it simple. Lets say voting neurons in low age neurons are reduced by 10 million spawned ICP per year, but by increasing 8 year nuerons to 8 X, so much more ICP is spawned it actually results in worse inflationary conditions, and more outright total supply increases. This would not be good! Rather, such a proposal should result in the total net reduction (If someone more mathematically inclined can fancy such a thought/diagram would be great!)

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Thanks for your great reply. I am 100% with you. I wrote that locking all 1 and 2 years neurons for 8 years would solve the problem but I would never want to do this. I am for respect of promises. Same for rewards now.
But you got me right, the short term neurons and the selling is the main barrier for the price to go up.
The question we need to ask ourselves is Why these 1 and 2 years want to get out and sell their tokens.
What does an investor needs to be convinced to lock his money for 4 to 8 years?
I am proposing some taughts and hope Dfinity and the community will seriously think about it. For me this has been grossly neglected and we are paying the price now. The price is that many neurons get dissolved instead of locking for longer term.

1- certainly the most important aspect for an investor is Security of his investment. The way and the frequency the NNS have been changed in the name of evolution is a big toll on how secure is your investment. If I was a 1 or 2 years neuron, I would certainly not lock longer and get out of all this. Of course, the idea to kill the rewards is making this insecurity much worst, as worst as it can be. This is a killer for locking more time. Huge mistake for even disclosing something like this. It create uncertainty and there is nothing worst for investors.

2- For investors to lock their money like anywhere else (8 years is hugely long term), the rewards has to reflect the same. So the actual 20% is not too much, far from it. Why would people lock for 8 years at 8%? I will refer them to some stock market Preferred shares where they easily can get 8-10%, the capital is almost guarantee and does not vary much, and you can follow the financial statement of the company every 3 months, Also, they can sell their shares and get their money within 2 minutes. So, 20% is really not much now.

So because of the instability of the system, the insecurity and those kinds of ideas to kill the rewards, I don’t see any smart person who would lock his 1 year neuron to 8 right now.

I am not saying I have a short term solution but the solution need a deep analysis first:
Are those dev grants put pressure on price. These grants goes directly on the market… So need to balance those and make sure they are well worth.
How Dfinity finance themselves? Selling tokens or they use fiat cash they have? Who knows?
How to convince dissolving neurons to lock for longer term. That was the goal of Dfinity to get 90% locked.
Actual rewards are not the problem, I am convinced 100%. For many reasons, very few reach the market now. Removing or lowering rewards would make it worst, much worst. The reputation of IC, for investors, would been totally destroyed, if it still can be more.
The modulation thing is big mistake too. Investors don’t like these kind of things This is not innovation. These are the kind of things that keep and push investors away.
I am 8 years neurons so I cannot go anywhere. But with what I have seen so far, I would never recommend any of my friends or family to invest in such an unstable system. And I would never do it again myself.
Then and lastly, an idea could be to create a burning mechanism. As an example, since dev have low cost and users don’t have any, why not scooping a % of ICP and burn it for financial transaction.
Let say a NFT market, a user sell an NFT to another user for 100 icp. If the market place keep 5% for the sell, why don’t the network take a 25% of that 5% and burn it? This would be beneficial for all, the marketplace included since ICP price would go up and would compensate for the 25% easily.
We will need to be creative, not punitive.

I still have hope people will realize these things are hugely important. Sooner or later, people will realize the price of ICP is hugely important and I am not taking just for investor’s profit.

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Hi all,

Disclaimer - I am a DFINITY employee, but the below comments do not represent DFINITY. These are my own personal opinions.

I LOVE that this thread is happening and that the community is taking a data-driven approach to identifying and solving problems. I 100% agree that governance rewards are not a significant concern at the present. See this Medium article, which shows that the majority of governance rewards get minted as Merged Maturity and thus don’t get added to the liquid supply of the token (although, I have seen cases where a neuron dissolves and merges maturity just before moving all the neuron ICP off the NNS, but I haven’t quantified this yet). For high-level context - about 0.5 - 1M ICP is spawned (or merged at the time of dissolve) per month, whereas 3-4M ICP dissolves, so there’s much more ground to be made by convincing current dissolves to re-commit to the IC. There’s also well north of 200M ICP tokens that are liquid and available to be staked.

So why did I suggest the idea of zeroing rewards? If you listen to the most recent Neurotic podcast, you’ll hear a more detailed answer, but here is the abridged version. The NNS should be a net contributor to the IC’s growth and maintenance, however outside of DFINTY the NNS does nothing to contribute to growing or stewarding the IC. Governance rewards are a net drag on the IC’s growth because it transfers wealth from the people who are growing the protocol (the users and devs) into the hands of the NNS participants. Therefore, not only is the NNS currently not encouraging the growth of the IC ecosystem, it is actually providing a small net negative. That needs to change. So, in my opinion, we (the NNS participants) can keep our governance rewards, but we also need to become a net positive to the growth of the ecosystem. This is a drastic change in mindset for NNS participants. We (again, the NNS) should be organizing ourselves in ways that support maintaining and growing the IC. In some cases that might mean setting up parallel services to DFINITY, in some cases that might mean setting up services that DFINITY is currently not doing.

Again, I’d recommend listening to the Neurotic episode that dropped yesterday to get a better idea of why I think these things and perhaps next steps. Overall, I want to change the conversations within the NNS participants towards being one in which each participant sees themselves as a steward of the IC and thus an active participant in growing the IC.

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Kyle, with all the respect, how can you say this, transferring the wealth to NNS participants? By the way, I have listened the podcast and strongly disagree.
Let’s go back to this comment. 99% of retail investors are at lost now. Personally, I bought all my ICP during 2021 so you can imagine my lost. I have financed IC and the devs all 2021 long. Now, are you telling us that the NNS, that you have strongly promoted the locking during 2021, is transferring wealth to me and all to all of us, the loosers? We are still 50 to 95% down. The rewards is the only way to reduce, very slowly, our huge lost right now.
What about the real wealthy, the seed investors? All the one who are dissolving their neurons now and selling?
How will you convince new investors to join?
How will you convince actual owners to lock their ICP.

For me, it just does not make any sense. Total non sense.

At worst, I would agree to deactivate the Spawn button for a couple of months to see if this change something. NNS participant would receive their maturity and could merge but not spawn and sell their new ICP. 2 months max to see if you want try something. But doing something is a Trial and Fail strategy which I am against too.

All of this is very bad for reputation and will clearly shove investors away for ever.

Or there is something that I really do not understand. I am open to be convinced with a credible analysis.

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Also, Kyle
just want to say that even if you disclose that this is your personal opinions and do not represent Dfinity. You are a Dfinity employee and have contact with people that we don’t. Your influence on Dfinity is much stronger than ours. So we still see you as a Dfinity employee when you will be posting here. This is a fact that you cannot separate with a simple disclosure. Same for all Dfinity employees.

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Hey @Coteclaude,
Thanks for the lively debate. I want to drive our discussion back to a data-based approach for fear this thread gets out of control with both of our “Hot opinion takes” . After this, if possible, I’d like to drive our discussion back to the hard data we have on hand. (And from that vantage point we can spar :stuck_out_tongue_winking_eye:)
Some thoughts below referencing your direct points:

  1. Is this not what truly makes ICP great? Everything is mutable, everything is up for community debate. In what other system do you feel you have the authority to truly drive the direction of an enterprise independent of a centralized authority? In some facets, I almost feel as though we retain too much power. I Digress. This brings up further questions. Can we enact changes that are immutable for a set period? Perhaps we have a rolling period for specific changes?

I’m driving towards creating a true governance system with enacted principals to help aid in driving the direction of the IC.

  1. I 100% concur – the rewards rate should be higher for those who bear significantly more time-bound risk. But perhaps the proportion of shorter stake rewards should be thought about in relation to the totality of rewards?

  2. I Enjoy your initial idea to create a more robust burning mechanism, but disagree that the liaising party in the transaction should bear the burn cost. Do we truly want to disincentivize those that are creating the applications to bear the costs of burning? I most certainly don’t. They are the very ones driving the value of our protocol. Such changes to our protocol would only disincentivize future developers from joining. This would have a negative feedback loop with already existing devs as well.

I’m saddened you would not recommend ICP as a technological masterpiece to your friends and family. Have you arrived at your decision purely because of financial implications associated with the tokens decline? I too have experienced the unfortunate consequences. But, as backers of the system who both retain some level of governance, it is our purpose to promote change where we see fit. There is no denying the technology of the IC is light years ahead of anybody – the token’s cost is merely one component. (Albeit an important one. And there are some Tokenomics changes I certainly think are merited in the short/midterm)

Being a bit hypocritical here, but we delved down the theoretical avenue…In the Short/Midterm/Longterm - As a governance holder, I believe our mission should be driving to create a robust protocol for developers to flock to. I had this revelation in another thread with @integral_wizard . Here, I personally had a revelation about dissociating the financial associations of being a governance holder. Before you call BS, let me explain.

Enacting governance proposals to make our protocol #1 for developers is our purpose. Token appreciation is merely a byproduct of such changes.

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I was talking about my family and friends as far as investing only. For sure the tech is amazing. I was a programmer for over 20 years so I can appreciate the tech.

I ask my brother to buy 50k of ICP and lock it for 8 years. He would receive zero rewards or anything. He said no. Can you help me to convince him? I am kidding for fun of course. LOL.

You told me it was fair for seed investors because they were early and we need to respect that. OK, agree

I bought ICP during 2021 with the promise of 20-25% rewards. I am at big lost, while financing lots of dev for a year. How is this fair, like for the seed, to remove my rewards and do anything to the seeds? I was very early too? I bought some at 300$ on June 2021. That show you how strong was my belief and my support to IC. Why only us, the early retail at lost would have to take all the lost and the punishment?

I think we need to be creative and burn ICP, not being punitive.

Taking 25% of a market place transaction fee (not on the nft price itself) can be very beneficial for everyone if the ICP price goes up by 50%. So no one loose anything, neither the dev, neither investors.

If nobody never pay anything, this protocol, as good as it can be, will die. No business or organization can survive with no fee, no income. ETH has huge fees and is a success.

The one that are making money with the network should pay. As first and as an example, these marketplace are they only one making money right now on their fees. I do not think scooping a small cut on their profit would kill the dev.

If IC is used only because it is free, we have a bigger problem, much bigger.

If new investors do not come in because they have no incentive at all. No more locking in the NNS. Everyone want to sell because of all this… For sure the ICP price will keep going down, and fast too. Who will finance the DEV then?

What would be the plan B if that does not work and make the situation much worst?

Can we take that chance?

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Hi @Kyle_Langham ,

Thanks for joining in on the fun. I hope your appearance in this thread helps to uncover the qualm’s some governance holders have had with your recent takes. Let me provide the disclaimer - I’m extremely grateful for the value you have poured into ICP both with/without DFINITY. Please continue to do what you do.

I’ve had a chance to listen to your new podcast, and I agree with most of your take (Bob is a builder, nice lol). To surmise for the broader community:

“The governance participants are not the ones to grow the ecosystem. Governance participants need to be focused on how you incentivize those token stakeholders to grow the ecosystem such that governance participants benefit from it. Governance participants can capture all the value from the product, and token stake holders are the ones who create the value.”

99% agree with your take and believe this is a material problem with the current structure of how rewards are allocated.

For the broader community to think on – How would you feel if your Governance rewards are directly attributable to the growth of developers?

Let’s dive in. Imagine a future state #IC where a portion (Small? Large? All?) of rewards are allocated to developer projects building on the #IC. Imagine a rewards system in which we as a community hold a vote (With the aid of the NNS voting system) to allocate a portion of our rewards into developer projects collectively. (Or not? Should each party individually choose?) Lets imagine our rewards are allocated into Distrikt, and it goes on to become the next billion user social media platform. Is it not they who will ultimately drive the value creation for the underlying?

@Kyle_Langham – I’m not totally sure how this idea could play out, but I am fascinated. In this hypothetical, How could we prevent IC token holders from acting merely as a dilutive instrument to drive the value for developers? This would imply the cycle computation “burn” for their projects would need to be net beneficial to governance holders in the long run (How would one go about mathematically extrapolating)

Perhaps this leads us more into @varon1980’s thoughts on Twitter. Should our rewards be dependent on the cycle burn rate developers are using? They Grow - We grow. They Lose - We lose. I like the mutually beneficial structure to this approach. I tend to think this may be the more appropriate direction. Obviously, such a state would ensure longer stakers are receiving an outsized proportion of rewards similar to our current system.

This discussion may be better suited in another thread, but lets go with it. I can always change the tile around if we get more participants.

Thoughts, All?

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That is very much possible and somewhat planned, with latest changes to how rewards are distibuted, undistributed rewards can be stored in a treasury and used to pay devs.

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Hey @coteclaude,

I’m sorry you have experienced substantial implied losses from the monetary value you have provided to the #IC. I’m in the same boat as you bud, believe me.

I think Kyle’s initial remarks on Twitter were half baked and purely theoretical in nature, and have been discussed ad nauseum in the most recent episode of @nueroticpod. (Highly recommend the listen)

It is my belief he thinks the rewards should not be eliminated, but rather, should be indicative of developer growth. Our protocol doesn’t survive without developers building amazing projects on the #IC. However, we [governance holders] extract value from the NNS while developers are building. We are both siloed. We need to construct a rewards system that is mutually beneficial to both of us.

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Hey @Zane,

Thanks for chiming in. Can you link me with the appropriate thread? Think I half read through earlier this morning, but cant seem to locate.

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Sure! ReProposal: Spam Prevention - Convert from system-based rewards to voter based rewards - #5 by kvic

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@Kyle_Langham, I appreciate your studied analysis of the various pressures on ICP value.

For high-level context - about 0.5 - 1M ICP is spawned (or merged at the time of dissolve) per month, whereas 3-4M ICP dissolves, so there’s much more ground to be made by convincing current dissolves to re-commit to the IC.

It looks like we can expect substantial downward pressure on the ICP token price over the next 2 years due to upcoming dissolves. Assuming current 6-month trends otherwise hold, at what point would you expect the amount of burned/staked ICP to reverse the ICP price slide? Is it simply a matter of weathering a 2-year storm?

To point out the obvious, current dissolves are more likely to recommit when they foresee a profit.

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Ok, just glossed over - thanks for posting!

I like the vision of having a community run Treasury that allocates ICP to developers. However, I do not think the current construction will work in a long run setting.

With the proposition above - unallocated rewards are distributed into a community run treasury. From there, the treasury will allocate to projects (By NNS vote?) My thoughts are similar, but with slight (Important) caveats. This doesn’t solve the the structural problems our current reward system has.

The current relationship of rewards for Governance Participants vs. Developer rewards is unilateral. That is - Developers create value, Governance participants extract value. As developers continue to build killer apps, we continue to dilute their holdings by extracting rewards. This perhaps results in downwards price pressure, removes eyes from our token, and ultimately, removes eyes from our devs apps.

My thoughts on this are slowly pivoting into something of the sorts:

What if our rewards were baselined to our developer growth/app usage? (computational burn rate? Active users?) In this system, we would create a mutually beneficial relationship with our devs. The current structure benefits us at the expense of them.

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