Community Call to Action - Deliberation about token inflation

@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.

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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That is a bit unfair, governance participants extract value sure but they also lock their own money into the system reducing the circulating supply.

Then you’d have way less stakers joining the NNS, nobody is willing to take that kind of risk especially considering the need to lockup for long period of time, it’s already quite unbalanced as it is: lock your money for 8 years in a volatile asset with unguaranteed APR, if you add APR based on burn rate it’s just not worth it and you might get the opposite of what you’re trying to achieve, more circulating tokens and downwards price pressure.

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That is a bit unfair, governance participants extract value sure but they also lock their own money into the system reducing the circulating supply.

Hmm, partially agree with you. Companies in the public space can increase/decrease their “Dividends” at their peril. Why can we as a community not engage in discussion on the merits of decreasing? (I already see plenty on increasing lol) Our purchase of ICP reduces the circulating supply, sure. But how does this help our developers? Is our purpose not to increase adoption by means of supporting our devs?

Let me provide the disclaimer - I too fear a rapid reduction would result in younger neurons trying to dissolve, and may further result in token pressure. Tough one for sure.

Then you’d have way less stakers joining the NNS, nobody is willing to take that kind of risk especially considering the need to lockup for long period of time

You got me on this one - think I agree with you here.

I would imagine, given the low cycle burn rate in the current state of the #IC, rewards would be drastically lower. But in the future state of the #IC, rewards may be dramatically higher. (Would need someone with mathematical prowess to conceive such an idea/model) As an 8 Year holder (and a 6 month and 1 yr), this would be something I would be onboard with.

An alternative idea - what if a portion of our rewards were automatically diverted to developers, and the rest we retained? (Under the current model)

This would require a way to measure the value that a dev/project contributes. This is currently, at least theoretically, determined by what users are willing to pay for using that dev’s project/dapp.

Reverse gas doesn’t mean everything is free. Devs are taking risks with their work, just as investors are with their money. But they also stand to reap profits when it succeeds.

I’m not worried about current inflation cause:

  1. Lots of it comes from Genesis neuron unlocks
  2. The IC has incredible potential, so I don’t mind temporarily diluting token value to increase my token holdings cause I know if devs keep building and the network can become deflationary I’ll benefit from my temporary loss, it’s unlikely price will raise at the moment even if no more tokens were minted, I’d rather accumulate by buying and staking so when the bull comes back I have as many ICPs as possible.

Developers already have Dfinity issued grants, maturity coming from the NNS which can be invested via SNS and community fund and possibly in future an NNS treasury, imo that is already a lot.

Such a system will make it harder to predict tokens issuance, I think we are getting too ahead of ourselves with all these proposed changes to tokenomics, imo our priority should be to make sure operational costs for devs are as low as possible and APR for staking is as high as it can be while still allowing deflation with realistic network usage, reaching that sweet spot should be our goal instead of favouring one side.

Basing issuance on burn rate will make it harder to estimate how this goal can be achieved and add yet another value we have to spend time and effort tweaking. In my opinion at the moment we have more concerning stuff to care about than inflation caused by staking such as this one: Question regarding RE EXC-1168: add non-subsidised storage cost on 20+ node subnets (behind the flag) - #17 by Zane

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I won’t speculate on price, but I will say that the amount of dissolve was significantly higher in Dec - May and has decreased by ~2M starting in June. In addition, staking has negated a lot of the effects of dissolves, see this article for more detail. You can read my old Substacks to see what I thought about the relationship between price and dissolves.

But my bigger point is that the NNS could and should play a HUGE role in stewarding the IC, including growing and sustaining the IC. That, not tokenomics, is the key to success.

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This is what venture capital is… investing in a product you believe in for long term gains without any idea if and when those gains will be realized. I think the thing I’m arguing for is we (the NNS participants) should think of ourselves more as venture capitalists, who look to the long term for their payout and are willing to provide expertise and talent to the company for which they’ve invested in order to increase the chance of success. Currently, the NNS is passive investors. If the NNS, which will reap 100% of the gains of the Internet Computer, are passive, who will be active?

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Well not quite, when a VC invests in a company he knows exactly what he’ll get in terms of stocks, he doesn’t know whether the company will be succesful or not and if so how much, that’s very much different from the NNS where APY isn’t guaranteed. Imo it’s a bit naive to think by offering stakers LESS you’ll get them to work harder to guarantee the project’s success, what will happen is less people will stake and those who have will want out.

IMO most of these discussions about governance are coming from community members convinced they can pump the token’s price by tweaking a couple values, on one side you have people advocating to lower the bar to entry and make the NNS more appealing for newcomers, even suggesting higher rates to compete with CEXes staking options and on the other people asking for austherity.
It’s a reactionary and tunnel vision way of doing things, which I’ve seen a lot of in game dev: gamers think they can solve everything by doing simple tweaks: buff this, nerf that, but many times the problem requires broader changes, which are often not even directly related to the cause of discontent.

In the NNS case I think we should first and foremost improve the governance experience, e.g by adding more voting options (spam, abstain), improving the UI (dashboard is a good starting point), rewarding long term stakers (let’s put age bonus to work) and then look into ways to promote those who are active, e.g DAOs that verify IC code changes or work on code changes dictated community proposals.

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A bit OT but I have a doubt on how yearly inflation is calculated, is it based on a fixed number, e.g number of tokens at genesis or on the current supply? So in 5 years the 5% inflation could look completely different based on how many tokens have been minted.

It’s a bear market, with ICP also having downwards pressure due to exchanges’ manipulation and hit pieces in media, and the unfortunate but unavoidable unlock schedule. I think it would be extremely damaging to base tokenomics/governance inflation discussion on the past year and a half. Let’s go for structural changes that actually enhance the governance experience and relationship between devs and holders instead of making rash decisions that won’t make the price appreciate.

Be patient and have a time view of at least a couple of years, don’t let this bear market push you into making bad decisions.

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Have you notice? I do not blame anyone for my lost. I am the only one responsible for my stupid investment. If Dfinity and their insiders, with their voting power, decide to remove the rewards, I will just feel more stupid but will still not blame anyone else than myself.
No one would invest in ICP anymore. Good luck to find new fresh money then…
I am not the only one feeling this way, believe me my friend.
Dfinity need to be creative and find solution so investors feel a little less stupid, not more.

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So say we all :beers:

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Hey @Zane,

Thanks for conversing!

So, you are not worried about [Circulating supply] inflation because it comes from Genesis neuron unlocks, & because it #IC has incredible potential. This is the common logic our community (My self at one point included) employs when trying to tackle the inflation [Circulating supply] narrative.

Fancy me this – 35ish million tokens were dissolved off the NNS from 11NOV21’ – Present: representing a ~29% reduction. During this time our token was trading for $47.33 and currently trades for $6; representing an 87% drop in token price. This is a material problem in the current state of the #IC. No matter how much we love this tech, I’m worried this type of future circulation increase would be price prohibitive for our token.

Forget the price prohibitive – this may be catastrophic for our token. Why is this not something that we can address? My goal is simply to reduce the circulating supply. As Kyle mentioned in the above thread – there is “north of 200 million tokens that are liquid and available to be staked” – of which, ~86 million represents dissolving tokens. How is this not something that represents a potential for a dire outcome if it’s not addressed?

Per Kyle - “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. “

We are experiencing net outflows of approximately 3 million tokens monthly. (~18 M $ of tokens monthly) We are not in the business of hoping the novelty of the tech will help to subdue the supply pressure of our token – for which it clearly has not done up to this point. Why do we think this will be any different over the next 6 months? Insinuating that this is a means to pump the token price is categorically false – my goal is to reduce the circulating supply pressure.

Interested in your take here.

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Exactly! Devs are taking a risk with their work - but imagine a future state where devs can build on the best tech with the chance to have the community support their work? A system where both parties prosper together, or both parties fail together. In this context - our purpose is to drive the growth of the IC, the rewards are merely a byproduct. (But are dependent on their success, to some degree)

I’m not sure my thoughts are fully hashed out on this - and I will think about it much more over the coming days. But, I’m just not sure diluting supply to support devs is a viable solution in the long term. Our success should hinge on their success. Does this make sense? Sorry for the word vomit lol

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I would encourage you to approach this in in a different light @coteclaude.

You have, I quote, “Invested” into the technology that our protocol beholds. We are all in the same boat together. And thus, it is easy for us to just continue saying we need high rewards - aka, just burn tokens and keep rewarding me the same amount.

Perhaps a change in how we approach this problem will change our outcome?

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Agreed with you @InsaneClownPosse on going for “…structural changes that actually enhance the governance experience and relationship between devs and holders instead of making rash decisions that won’t make the price appreciate.”

Would a relationship where Governance rewards are to some degree dependent on developers not enhance this relationship?

I feel as though many in our community are sitting on the baselines just expecting things to change - “Wait it out a couple years” “Be patient” “The tech will prevail” This is not a direct attack on the comments you have made above - many feel this way.

Our community overwhelmingly takes a reactionary approach to issues - and not an anticipatory one.

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Correlation is not causation, we are in the middle of a major financial crisis and even financial institutions aren’t safe, no wonder a crypto token which has historically performed badly and is ignored in the crypto sphere has dumped.

As I said many of those tokens are probably from Genesis neurons so even with reduced inflation they’d still be added to the circulating supply, Kyle himself even says: " so there’s much more ground to be made by convincing current dissolves to re-commit to the IC."
I doubt you’d achieve that by reducing APR.

We are in a bear market it’s unlikely whatever we do will dictate price action, macro factors will. When Sol was still worth 1$ everyone was bearish on it cause “major unlocks are coming, it’ll dump” and we all know what happened.

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Precisely! Ok, so we’ve made some ground. Perhaps a reduction in the lower end of the rewards curve isn’t a viable solution - but we have both identified convincing those to re-commit is something to ponder. Do you have any ideas on this front?

I’m a bit pessimistic on this front, many genesis neurons are owned by VCs who participated in early rounds, they don’t really care about the IC and would rather exit while still in profit or not at a loss, the IC is a high risk asset and the general mood in the field is to derisk as much as possible.