Dominic’s Proposal To Improve ICP Governance Staking Re : Tax and Tokenomics

General
43

I’ve been thinking a bit about Dom’s Feature №2: Maturity Is Staked, Not Merged and its reminding me of the old saying - pigs get fat but hogs get slaughtered.

In my opinion, taking the position that accumulated maturity is not a taxable event but merge and spawn events are a taxable event is acceptable but on the aggressive side. One can argue that since ICP is not minted and there is a week delay to get your tokens the taxable event has not yet happened. All that said, accumulated maturity can be realized into liquid ICP within a week so the IRS may challenge that position.

Taking the further position that not only is accumulated maturity not taxable but over and above that one can stake accumulated maturity into a new unit that generates maturity but is also not taxable feels doubly aggressive. Its aggressive on top of aggressive.

Its just asking for a lot. Maybe we should just be happy with the position that accumulated maturity is not taxable until the spawn / merge event? As they say, pigs get fat but hogs get slaughtered.

2 Likes
45

Is it possible to borrow ICP through mortgage neurons, so that the current economics will not change?

1 Like
46

I did not stake in order to create a tax shelter. I staked to be part of a community that delivers on the promise of what ICP and Dominic saw originally.

A mantra from Six Sigma “Focus on the process and the results will take care of themselves.” In other words, quit worrying about taxes and non-value added items that don’t solve real Web 2.0 problems.

This proposal…
does nothing for building out the ICP ecosystem.
does not convert AWS and Azure developers to ICP.
adds complexity that will not entice investors.
will not solve real Web 2.0 problems.
will not capitalize and churn out real-value of what ICP can do to transform Web 3.0
does not entice end users

I will say feature 2 is the only good thing…it allows for automatic merging saving stakers time from going into the NNS.

11 Likes
47

I’m probably in the minority, but I found Dom’s proposal thoughtful and even borderline convincing. There’s actually quite a bit of nuance here. I think some of the comments here straw man his argument.

First of all, the -30% to 5% ICP modulation only applies if you are cashing out (i.e. disbursbing or spawning) your maturity. For stakers who regularly merge their neuron maturities, this doesn’t affect that.

Second, the fundamental problem being solved can best be described with an example:

[In] the USA, those extracting the oil only pay income tax on the receipts of their sales, rather than at the moment of extraction, since doing so would depend on highly speculative measures of fair market value.

To take it further…

When a programmer writes code, they may be producing value, but they aren’t taxed on it until they sell their code (or SaaS).

When a baker bakes a bread, they may be producing value, but they aren’t taxed on it until they sell their bread.

The reason for that, at least according to Dom, is that it wouldn’t be fair to tax something that doesn’t have a “fair market value” yet. That’s why you wait until you sell the bread to tax it (where the FMV is the price of the bread sold).

However, currently maturity can be argued to have a FMV, since you can calculate how much ICP a certain amount of maturity is worth, and ICP has a FMV since it’s publicly tradable. (Actually, Dom argues that the possibility of arbitrary NNS network updates in the future renders maturity too unstable for it to have a FMV, under the Commissioner v. Glenshaw Glass standard.)

This proposal fixes that by removing the certainty with which you can mathematically convert maturity to ICP using a fluctuating “exchange price” that’s modulated by ICP price movements. The -30% to 5% modulation is just one way to introduce uncertainty. It’s not the only way to do it. You can agree with the ultimate goal without agreeing with the method to get there.

Overall, I’m still undecided but I like the out-of-the-box thinking here. After all, the NNS is a self-updating entity and not an immutable contract, so if there are improvements to be made, we should consider them.

FYI, yes, most of us are not tax attorneys, but no tax attorney in the world (or the IRS for that matter) can give any definitive answer on this topic. So I think it’s totally valid for us to make arguments and debate them. This is the frontier, after all.

3 Likes
48

Supply and demand for ICP is complicated and largely out of direct network control. For that reason, I think feature 1 of the proposal would just hurt neuron holders when the market is down for a long time, rather than helping the network. Still undecided on features 2 and 3.

2 Likes
49

This might render the entire debate moot.

Sadly, it means IC will remain highly centralised, with 8-year whales continuing to hoover up staking rewards.

6 Likes
50

Great find and thanks for sharing. This is great news and a useful reminder that the outside world is constantly changing.

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51

Look forward to hearing @dominicwilliams about this, but it looks like feature 2 and 3 are now irrelevant.

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52

That wouldn’t have been solved by that proposal, we need badlands, people parties and quadratic voting asap to improve decentralization.

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53

This range is strange. There is no balance. Those numbers seem totally arbitrary to me.

I believe this proposal will move forward (it is backed by Dnifity, therefore it is already backed by huge whale-vote-power).

So, let’s try to -at least- question those numbers.

Why not a price modulation leading to a mint uncertainty of +10% to -10% ? There is a balance. (nobody will be hit by an unexpected (but possible) -30% penalty .)

Still, this modulation is 100% experimental. So, why not start the modulation with a +5% to -5% ?

Then, we see how it goes. After we collect some data and probe its impact, we could move on, and voto to adjust the bonus/penalty to new levels. (+10% to -10% … or +15% to -15%)

54

I think we should just change nothing.
1 - There will not be tax pressure anymore
2 - The ICP burning is higher and higher
3 - BTC is being integrated.

So this is not the moment to play sorcerer’s apprentice. Let us just touch nothing, wait and see. There is no need. On the contrary : there is need of doing nothing right now.

6 Likes
55

and keep playing to burn cycles:

https://tpku2-kiaaa-aaaai-abala-cai.raw.ic0.app/

56

Super happy that I was completely wrong about the IRS. Also I wonder if Dom sees need to implement his proposal now? Probably not although it did have a non-tax angle too

2 Likes
57

NOT TAX ADVICE NOR FINANCIAL ADVICE. I AM NOT A TAX ADVISOR NOR A FINANCIAL ADVISOR.

My impression was this was an offer to repay ; absent a directive. I think that only an official directive could really settle it(which is why the repay was rejected…to ensure that IRS comes back with an official directive or the courts do the ruling).

1 Like
58

Although ICP burning is higher and higher, the spread ratio between ICP reward minting rate is still very huge compare to ICP burn rate. At current state, around 3-4 M ICP minted / month compare to 4-6 K ICP burned / month. While the minting rate is known, predicted and deterministic, it is not the case for ICP/cycle burn. ICP burn is dynamic, will fluctuate based on demand of market condition.

There is argument that the coming DeFi, GameFi, SocialFi will burn cycle aggresively, but what if the market reaction & adoption take more time and not as aggresively as we hope for ?

IMHO, The ICP reward minting rate (supply side) should match with the state of ICP burn rate that is dynamic. ICP minting rate should adjust automatically to the market condition. If the demand slowdown, should ICP reward minting rate too, and vice versa.

If there should be a change in the ICP tokenomics, I hope community can consider this mechanic.

2 Likes
59

The proposal tried to find a way for US-based whales (and a few non-whales) to keep the ICP earned through staking. It would have ensured the blockchain stayed heavily centralized. If the IRS decision hardens into official policy, it will serve the same purpose. Decentralization would have gained force had tax compulsions forced whales to sell some ICP.

1 Like
60

We have almost burnt 40k ICP in 15 days lastly. And it is just the beginning. So, as I was saying : let us reach the cruising speed, let us have more complete data before any changing. After BTC and ETH integration, the number of burnt ICP will explode. It was anticipated that a lot of more ICP would be minted than burnt at the beginning. Furthermore it could have been worst in a hype scenario, because at the beginning, a lot of stake, so a lot of mint, but the dapp are not yet developed, so few icp had to be burnt. Things are just normal here. Again, let us just trust the thing. We can’t begin with the end. In French, we say : “on ne peut pas aller plus vite que la musique” : “one can"t go faster than the music goes”.

6 Likes
61

Not much would have changed in my opinion, whales have already accumulated hundreds of thousands if not millions of ICPs, even without staking rewards they hold a majority of voting power, the only way to increase decentralization in my opinion are people parties and some form of quadratic voting for KYCed neurons, so if a few whales vote on a bad proposal the community can outvote them even tho it holds less tokens.

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62

Please note that the +5 and -30 numbers have not been finalized. Other bounds are actively being discussed. In fact, +/- 5 is the current front-runner.

4 Likes
63

Great to hear that! Those numbers need to be balanced.

Still, if you plan to run this new “tokenomic Experiment” , please, think about starting with more acceptable bonus/penalty coef. +/-3%. So, there will be a time to collect data, and measure (lets measure!) if the price modulation attempt is beneficial (or not).

If “beneficial” turns to be the case, then we could move on and be more aggressive, reaching -/+5% levels.