Possible Optimizations of NNS Tokenomics (Updated!)

[Accumulating.icp]

Why is everyone so quick to try to reduce voting rewards for the second time, when there are much better avenues to explore to reduce inflation / achieve deflation? We’ve reduced APY by 50% at the end of 2022, and then proceeded to go onto bleed to an ATL at the end of 2023 - clearly it’s much more dynamic then “take away more reward and price goes up”. Why do we think yet another 20% reduction solves it, and when do we stop taking away the incentivization to vote to secure the network?

@Accumulating.icp

can’t help but feel like there are better ways to “reduce inflation” than penalizing those who have staked for extended periods of time.

@Accumulating.icp

Lately I’ve been considering various factors that contribute to the sustainability of the supply of $ICP - one of which is staking, and in turn the yield correlated to it.

The current APY Scale can be found below;

6 Months - 8.9%

1 Year - 9.4%

2 Years - 10.5%

3 Years - 11.5%

4 Years - 12.6%

5 Years - 13.6%

6 Years - 14.7%

7 Years - 15.7%

8 Years - 16.7%

Information provided can be cross referenced at:

Governance - ICP Dashboard

This depicts that 6 Month Neurons are incentivized at 53% of the rate of 8 Year Neurons (8.9%/16.7%), while having the staking obligation of 6.25% of an 8 Year Neuron (6 months/96 months).

Additionally, a pattern that can be noticed within the staking reward scale, is that each additional year of staked time, results in about a 1% increase in rewards - however, the base layer of rewards, is 8.9% for only a 6 month timeframe.

For example, the APY scale clearly is not proportionate to begin with, so maybe that’s a better place to start than making such a drastic change that will affect the staking parameters of 56% of staked ICP.

I also have to question, how many voting rewards have to be taken away for inflation to be “acceptable”? This is not the first time we’ve gone in to change the reward scheme for the purpose of altering inflation.

Have you considered exploring the other face of the coin; the deflationary mechanics of the network?

@Accumulating.icp

Referencing the ICP Burn Chart, it can be noted that the Internet Computer has a cumulative burn rate of 136822 ICP - of which, 136,215 ICP come from transaction burns (presumably burning conversion transactions), while 607 ICP comes from transaction fees.

Next, we can reference the Cycle Burn Chart for a more accurate gauge of the cumulative monthly burn of ICP over the last 3 months:

The cycle burn chart indicates that on average, 5.1B Cycles were burnt each second over the last 3 months, which equates to 440.64T Cycles burnt a day.

For simplicities sake, we’ll convert this to an ICP amount before extrapolating to a monthly basis.

This can be done by first dividing the daily cycle burn rate by the SDR exchange rate to determine the daily fiat expenditure of the network.

440.64T Cycles / 1T = 440.64 SDR (• 1.31 = 581.17 USD$)

This can then be extrapolated to an ICP amount by utilizing a 90 day average of the ICP token price, of 3.5$.

581.17 USD$ / 3.5$ = 166.0485 ICP

Now that we have determined the network burns 166 ICP / day across a 3 month average, we can extrapolate this to estimate a monthly network burn of roughly 4957.45 ICP.

In contrast, the previous article “Node Provider Inflation Spiral” depicted that the Internet Computer Protocol minted 500k+ (on the lower end) ICP each month, during this timeframe, reaching an all time high distribution of nearly ~600k ICP tokens last month.

Utilizing Augusts Node Provider Reward Distribution data, we can determine that of the 583,577 ICP minted to compensate Node Providers, only .84% of it was correspondingly burnt via Cycles, showcasing a disparity of 99.16% between Node Provider payouts & ICP burnt via cycles.