I think a good middle ground to address critics concerns would be to allow those users who wish to continue merging maturity and minting and staking ICP to do so. While adding the option for those who want to stake maturity without minting new icp. This way users can choose whether to use the new system, or continue operating under the current system. I think an expert opinion should be used to determine if allowing both options to exist would threaten the tax benefits of the new option. To the extent that an expert says it would have a negative impact, then I think the old option should be removed and replaced as contemplated in the proposal.
Other benefits of this proposal in addition to potential tax benefits:
Reduced minting and inflation of new ICP.
Critics have said it complicates the system. But it also simplifies because it removes the spawning of a new reward neuron, it enables auto compounding to simplify the need to constantly merge maturity manually. The UI can be designed in a way to maintain the simplicity without adding confusion, while giving advanced users ability to access advanced options.
This change could benefit people who are currently forced to sell upfront to pay taxes. It may or may not achieve that goal. However this change comes at no cost, if it is successful in achieving this goal, it would overall reduce downward pressure caused by forced selling, but if it fails, it would not have any negative impact on those who arenāt required to force sell to pay taxes upfront because they wouldnāt need to make any changes.
To those who say there hasnāt been enough discussion, I think there has been over 4 weeks since the original blog post was released, and forum discussion has been over 100 posts. Some are against, and others are for the proposal. The next stage is to go to a vote.
To those who say that the concerns from critics in the original forum post werenāt addressed, this proposal actually adjusted the price modulation mechanism from the original proposal, and stated it can be adjusted further in the future.
To those who say that they already staked for 8 years, and therefore now a change canāt be voted in through the NNS. I think this is a misunderstanding of how the NNS works. By locking for 8 years, you therefore have a right to participate in governance and vote on changes. It is the very opposite of what you are asserting that since you staked, no more changes can be made.
I share the same concerns as @lastmjs, @Kyle_Langham and many others on this thread. If this proposal is submitted, I will be voting to reject.
If Dfinity does move forward with this proposal, I would like them to go on record with a vote. Given the recent change to remove Dfinity as the default followee I believe itās well within reason to ask them to vote.
Dfinity is a powerful stakeholder. Most people look to them as a benevolent leader while we wait for the NNS to decentralize. However, I think true intent will be shown in their voting record. Abstaining just hides that truth from stakeholders who may otherwise choose to follow a different neuron.
My biggest concern is still the exchange maturity feature coupled with the narrow modulation range. In my opinion, the modulation range needs to be the full +5% / -30% that Dom initially proposed.
I have a lot of concerns about seed investors who are dissolving and have accumulated a lot of maturity suddenly being able to extract their locked minted ICP in a tax free way and replacing it with the unminted āstaked ICPā that is auto compounding voting rewards until the neuron fully dissolved. This enables people who are trying to exit the system to take a larger fraction of the total voting reward pie than they get now. It also seems like a lot of ICP will suddenly flood the market unless the modulation algorithm has a greater penalty for dissolving in a down market.
The narrow modulation range of the current proposal seems like a big mistake to me. Our biggest problem is dissolving neurons and I would much rather see a disincentive for disbursing in a down market or a penalty for dispersing that softens the impact of all those dissolving neurons. I think if the modulation range were wider I would be in support of this proposal.
Just to note, the modulation being proposed affects only maturity, not stake. The majority of ICP coming onto the market is from dissolving neuron stake, and not from maturity being realized as ICP.
It would be nice to gauge enthusiasm on this by a headcount, as that might help as a preliminary gauge of pro/con interest that isnāt inflated by voting power before we get to the actual thing.
I would hate for this to be such an unpopular proposal that if it passes by a majority in terms of voting power, but a minority in terms of on an individual basis that it would break trust irreparably and drive developers away from the platform at a time when we need them the most.
Feel free to repeat the poll here if it would be more visible
(1). Staked maturity still can be treated as taxable event, if tax authority decide to do it. They can tax your floating reward based on historical reference yield, and then ask you to do tax calculation again when you materialized the reward to know your real amount of the tax you owe. So the proposal will cause more headache and compliant cost for investor.
(2). If the proposal thinks that obscuring the price of ICP (+/- %) prevent tax authority from forcing taxable event, then it is a wrong assumption. Tax authority still can decide to use a āreference price pointā as the base calculation for the taxable event if they had to.
They can use like 5 days moving average price as the reference point for taxable event calculation.
So, obscuring future price is pointless.
Iāve left my two cents there. They need outside assistance from blockchain-tradefi to put forward a couple of good proposals to the community. Itās been an ongoing issue for some time and needs sorting out sooner rather than later to restore faith.
Why do they keep saying that the selling pressure is coming from disbursed ICP to pay taxes, in the other hand, looking to the charts, there is only 8M disbursed ICP from rewards, meanwhile the circulation supply is 84M ICP more from the genesis. This states that 76M ICP has flown in from somewhere else than disbursing rewards (which the proposal tries to fix). So the selling pressure isnāt coming from disbursing neurons, but from the dissolving of genesis neurons.
Also, if you say there is selling pressure on ICP now, I think this is a mistake, because the market is all on bearish trend. From my experience when the market is going down as a whole, you canāt escape. Having this in mind, why the rush? The ICP is so early, are there any studies made on this topic so we would clearly know if the proposal would fix anything, or just make it worse?
Having unstable tokenomics like this, which change every time the laws of a country change, that makes things worse and scares people away. How could we achieve a wider adoption of ICP then?
People are latching onto the +/-5% modulation of newly minted ICP, but thatās only one part of the proposal.
If a neuron is staked for multiple years, any income generated by that neuron, at the beginning of its dissolve delay, will be in the form of staked maturity and not newly minted ICP. This happens because stake is paid out in exchange for staked maturity, as described above. What this means for stake holders is that they will not need to sell for taxes during this initial phase, so all of that ICP can be re-staked to increase voting power, which increases overall returns.
I strongly urge people to read this paragraph from the proposal. If you donāt understand every word, then read it again. I had to read it at least 10 times.
I admit the 7-day modulation of newly minted ICP is a bit of a gimmick. Is it possible to cut out that portion of the proposal, but keep the rest? Or does the entire proposal make no sense without the modulation part?
This proposal is almost unreadable. Maybe its so absolutely alien and concept defying that it renders itself unreadable to the common individual. Either way it definitely needs to be broken down and explained in more simple terms or it will only create unnecessary confusion and stigmatization from already wary investors.
Why complicate an already complicated system. Why not wait and see how a countries crypto tax systems develop before we commit to our own tax mechanisms. ICP staking is only a plus, a monetary incentive to join the community and become a part of its governance. but it is only that an incentive and nothing more. It is not what will generate mass adoption, it is not what will drive droves of individuals to participate in an ecosystem day in and day out. it is a very small incentive that dwindles over time.
The focus at the moment should not be on improving ICP staking, tax simplicity or Maturity systems.
The focus should be on delivering on what was outlined, on decentralization, making sure no one individual has more authority or pull then another for whatever reason. on the Core tech. On the ecosystem. On making sure those with immense voting power donāt fully drive the narrative.
I may however have read this completely wrong. It is very hard to follow.
Another 2 cents from an 8-years neuron holder. Iām in favour of the motivation for this proposal, but not sure yet if Iād would vote for adoption of the proposal in itās current form.
What I like
The proposal adds many new options and doesnāt take any away: everyone can have exactly the same workflow as before (some see this as controversial).
Staked maturity has the same effect (or globally a more positive one) as minting and restaking of ICP now, so I donāt consider this option as being lost.
I kind of see, that the modulation is likely to help with the price stabilization even though the effects might be negligible. I concervatively assume that the modulation will have no effects on the tax burden.
Even though I can keep doing what I did before, I would start using the new feature of exchanging the maturity for staked ICP to get my own coins back and defer the taxation of the gains to the day where I need them (if there will be any gains at all).
Addressing some of the concerns
Complexity. I agree. Itās getting more complex to comprehend and to explain to others. And I am an advocate of simplicity as a central design principle for everything, especially when designing reliable systems. However, there is a difference between simplicity in how things are built and simplicity of the actual task to accomplish. E.g. you build a rocket in simple way, but you canāt have a āsimpleā rocket. To build a rocket, you need to apply the rocket science. And weāre trying to build a complex system working well in a multi-dimensional space (dimensions are jurisdictions, nations, developers, users, what not). Iām not convinced that NNS can be super simple and still make a dent in the universe. Also, even if we could universally stick with simple things, how to avoid that all we can dream about are āfaster horsesā? (quote by Henry Ford)
Tax-evasion. I do not understand yet how you can pay less taxes on new money if this proposal passes? If my understanding is correct, with the new proposal, you either pay the same taxes as before or you actually donāt make any new money. The staked maturity increases the VP (can this be taxed?), but is a dead weight for everything else. And if you exchange maturity for your stake ā you get literally your own ICP without any bonus back. Effectively, I locked them up for actually nothing and even lost some value (inflation of the fiat e.g.). This is true until (and if ever) I disburse my staked maturity, which will be properly taxed! Also, my assumption is that the modulation will not help with the taxes at all.
Tax-optimization is bad. Cāmon, it exists as long as taxes do. We all do it and should do it just as IRS does the opposite on their side. This proposal does not help you avoid taxes, but it enables more options for different taxation systems making ICP an attractive investment across the globe. I canāt see how this part can hurt?
CONCERNS
I still do have concerns.
Minor: too many changes in one proposal. The simplicity principle is violated and, as expected, it dilutes the focus and makes the deliberation difficult.
Major: the main āfeatureā of this proposal IMO is the automated and tax-free compounding. If the proposal passes, everyone (not just the whales!) can start compounding and growing their shares in the distribution. The problem I have is that this is an arm race and to not loose your share you have to start compounding as well. But the difference with the whales is that they can afford to compound on their 8 year neurons (itās just an entry in their portfolio), while many small investors probably cannot because they rely on these returns to pay their rents. One could say that the small investors are still investors and need to compound partially, but this requires some advanced thinking, which canāt be expected from everyone. So I wonder if this change could facilitate the NNS to become even more of a ābusiness oligarchyā?
This is not a tax avoidance proposal. First, it is unlikely that merging neurons today creates a taxable event, but there is some uncertainty around the issue. This proposal (as far as I can tell) is designed to remove the uncertainty. Second, the question isnāt whether you pay taxes on rewards, itās when you pay taxes on rewards. You still have to pay taxes on rewards: the new mechanism would just make it 100% clear that taxes arenāt due when maturity is merged, but rather at a later date. Finally, it is not illegal to read the tax code and design a system in accordance with that code. Itās what lawyers do all the time (and Iād be shocked if lawyers didnāt help design the system proposed here). How is this any different from, say, a business looking at the tax code and deciding to reinvest earnings on future growth to avoid paying taxes on that earnings today?
Iām not commenting directly the proposed changes as I didnāt study them in detail, donāt seem to be currently relevant for region where I live.
But as it seems to make the general staking process more complicated (which might discourage mainly newcomers) Iām quoting below my suggestion from previous discussion - can be the choice optional per neuron?
I really hope people take the time to read the proposal in full. The writing and examples are very clear. It does take some time to process, but there are some really interesting ideas. For example, the part about inflation.
This is not tax evasion. I cannot state that strongly enough. Hereās the issue from my perspective. People are rewarded for voting on governance proposals and they have the option of effectively redeeming that reward for newly minted ICP. When people physically receive the new ICP, that is likely a taxable event (although I could be wrong about that). Currently, there is a āmergeā option that mints new ICP, but the ICP is locked up and therefore not in the control of the person who merged it. The question is whether the minting of new ICP alone is sufficient to create a taxable event. This proposal seeks to render that question moot and allow people to compound their rewards by giving them an option where it is crystal clear that the compounding does not actually mint new ICP.
That does not evade taxes: it just provides a guarantee to people who use that option that they donāt owe taxes on their rewards until they actually mint the new ICP.
The ātrade inā feature proposed also does not help people evade taxes. Instead, it ensures that they donāt pay double taxes. Under the current system, if someone uses the FIFO system (first in first out) and they spawn a new neuron with ICP that they then sell, they have to pay taxes on (1) the newly minted ICP, and (2) the difference between the price of the new ICP they sold and the price of ICP when they first bought it. For example, under the current system, if I buy 100 ICP at $20 and spawn a new neuron with 10 ICP when ICP is $100 and then sell those 10 ICP, I would have to pay taxes on both (1) the 10 ICP I received at $100, and (2) the $80 gain for each ICP I sold. Thatās double taxation. The new proposal makes it clear that when they ātrade in,ā they only have to pay taxes on the gain in ICP price: because the new ICP hasnāt actually been created yet.
Edit: To be clear, I had nothing to do with this proposal, and this is just my interpretation.
This is a comment not only about the current proposal but also about one that was put forward in the recent past by Wenzel Bartlett and Kyle Langham to increase the bonus provided to long-term stakers. It is also about the philosophy of ICPās tokenomics which is explicitly aimed at having 90% of total ICP staked on the NNS.
All of these proposals and ideas have in common the notion that drying up liquidity is unquestionably good for ICPās price. And I can see why. Simple supply and demand dictates that the scarcer a commodity the higher its price, other factors staying constant.
However, having sufficient liquidity in a token is equally important, something that can best be explained through the idea of āfloatā in stock trading. A stockās float is the percentage of its total equity that is available for purchase. In general, mature investors dislike stocks with low float, because they are vulnerable to excess volatility and to manipulation. Stocks with very low floats of around 10% typically see wild swings and boom-bust cycles driven by cartels. Conversely, a stock like Apple, which has a very high percentage float, with some 16 billion shares out in the market, has not suffered as a consequence of the absence of scarcity.
Of course, crypto does not work precisely like stocks, so this is not an exact analogy. Nevertheless, if the market assigns a particular value to the approximately 500 million ICP tokens, that value will not depend much on the āfloatā of ICP in the long term. The overall inflation of ICP matters far more than the percentage available in exchanges.
To conclude, while the idea of encouraging staking is good in general, tied as it is to community engagement and the functioning of the NNS, there definitely can be too much of a good thing. I hope that proposals in the future do not make a fetish of increasing the amount of ICP staked. Attempts to influence the price of ICP through tokenomics should be thought through carefully because markets often donāt follow common sense rules.