Request for feedback: Compounding Maturity Proposal

Governance
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124

I think you are right that a lot of people can be wary of change and have anathema to changes in how tokens are treated. Yet these kinds of changes just happened in a big way and I don’t observe people complaining about it.

Specifically, a proposal was presented in November to change proposal weights, which gave governance proposals significantly higher value. It was deliberated for 2 weeks before if was submitted the the NNS. Very few votes were cast against it and little of the deliberation was in opposition. It has now been implemented and voting rewards have changed in big ways for everyone. Those who vote on Governance topics are getting much higher voting rewards and those who do not are getting a lot less. The pie didn’t get bigger, it’s just getting sliced differently based on participation.

This was a governance change that has major token distribution implications. Some people who did complain originally, or were at least wary of change, seem to have become supporters of the change. I do understand and respect the need to be wary of change, but I’m not observing that the system is becoming weaker due to change. In fact, it is my opinion that the system is becoming stronger because we have the ability to make changes to the tokenomics and everyone who participates in governance is doing so according to what they perceive to be the long term best interest of the IC.

I think the fact that our tokens are locked helps in this regard. When anyone commits to staking ICP, they must do so knowing that they cannot leave just because they don’t like a change. The entire system is mutable through NNS governance proposals. I think that drives us to stay in the conversation and argue pros and cons of a wide variety of changes and in the end the system will move in the direction that the majority believes adds value. I personally think the mutability through governance is a major strength of ICP.

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125

I understand what you are saying about how auto compounding enables more passive investing, which is the opposite of what we should want. However, setting a Followee and forgetting would be a bad strategy because you could come back 9 months later and find that you are not getting rewards because you are not voting. For example, someone could submit a proposal that changes a default Followee relationship from All Topics to All Topics Except Governance and give higher weight to Governance proposals. Or perhaps you set a Followee that you believe will vote on everything on your behalf and they don’t do that for some reason. For sure many people will seek a passive strategy, but there are no promises that NNS governance and tokenomic policies will stay the same. Hence, it is still up to each individual to participate in whatever way they feel is in their best interest. I like the auto compounding feature. Any passive investors who use it must still remain aware of what is going on and respond accordingly, else they risk losing profitability of their investment. Diligence is still required by every participant in NNS governance even with auto compounding.

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126

The first time I looked at the tokenomics it was apparent that giving the same importance to exchange rate related transactions and to consequential governance decisions made no sense. There were many things that only Dfinity was equipped to do, and it made no sense to oppose the foundation in those matters. On the other hand, taking some power away from Dfinity was imperative in other areas.The change helped decentralisation. In my view any shift that promotes decentralisation without endangering security is good.
So, yes, I am not saying changes in tokenomics should never be made. What I am questioning is Dominic Williams’ failure to separate changes in tokenomics from technical advances in his idea of malleability.

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127

You talk a lot about democracy and how democratic IC is. Have you ever seen a democracy system where you can have other people voting for you? I have never seen this.
This is new, but not much democratic.

128

Humm…it’s kind of like that in the US to pick the President
We pick some delegates, so they can pick the President :blush:

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129

DON’T BELIEVE ME

On this last post, I am recommending that you guys don’t believe me on anything I wrote about the tax. It has never been a better time to do your own research.

On Monday morning, why don’t you take a screen shot of the maturity screen, send it to your accountant, tax firm or tax advisor, explain him (or her) clearly how the reward system works and ask him his opinion on how you should manage these maturity rewards.

This would clearly help to make the right vote for this proposals.

Would be nice if you come back and share your tax advisor meeting here then after.

The best would be to hire a reliable and reputable tax firm by Dfinity but I have no faith that this will happen.

Have a good week end to all

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130

Ever heard of parties? Only difference is in government there are 4/5 years mandates and you can’t immediately revoke your support to a party, once elected they stay there.

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131

Taxation seems to be the main driver for this proposal.

I am convinced that changing business economics of an entity to optimise for taxation to benefit a subset of current stakeholders of that entity is not a good idea in general.

I state this as a generalised rule I believe in. That said, I think it very much applies to the Internet Computer taxation discussion currently going on.

Even more so, as the Internet Computer is designed to be a GLOBAL compute platform for decades to come.

Global, trusted, fair, predictable, decentralised.

So, why mess with economics so early in the life of IC to optimise taxation for one (albeit large) country?

What about the other 190+ countries globally? Do we invent and implement tax optimised solutions for all of them, too? Is this leading to a in-fight between IC communities in different jurisdictions!? Instead of working together to make and keep IC successful?

How many taxation changes are happing every year around the globe? Dozens!? Do we change course every time a taxation change might effect IC holders somewhere on the globe?

Would small country communities ever be able to win enough votes for their (globally marginally representative) needs regarding taxation changes?

We are very early into IC.

Don’t mess with it now, while decentralisation is still very weak!

I suggest an alternative route: invest into educating your countries tax authorities. This is something everybody globally can do. Without messing with a global platform in the interest of few!

Klaus

Member of the 8 year gang

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132

Hello! Please clarify with specifics why

  1. You believe the exercise of proposed maturity options will, by design, only benefit a minority of certain neuron holders if enacted.

  2. You believe they cannot be at least potential firewalls to taxation overreach in more than one country’s tax system.

Thanks in advance for your reply!

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133

What I don’t understand how the current tokenomics mitigate the concerns we have with the proposed changes. If people are worried about maturity could be considered taxable, couldn’t they simply continue doing what they currently do now? Sell the maturity you receive to pay for taxes if you think they are taxable? This whole thing is too complicated.

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134

I think this counter from @Dylan is one of the biggest flaw’s in the current proposal.

Dom’s argument that price modulation obfuscates the price and so income won’t be recognized by the tax authorities feels shakey at best.

Why can’t tax authorities just tax at 95% of the value and then do a true up when minting occurs? In the US we currently estimate our taxes on a quarterly basis and then do a true up at year end.

Estimations for tax are not new. The government would rather get 95% than nothing at all.

Can folks who don’t agree explain why?

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135

Hi I’m new here too.

I would like raise an issue with the price modulation proposal. If, as I assume, that the price being referred to is the price of ICP in USD, then this creates a problem for all investors who trade instead in EUR or GBP. Not only does the proposal mkae it hard to know what your staking reward is in ICP, it adds FX risk. For example, it is possible that, due to changes in the USD-EUR rate, that the price of ICP could fall in USD while rising in EUR.
How are small investors outside the US expected to hedge their (unknown and unknowable) FX exposure?

To my mind the proposal adds unnecessary complexity and is too US centric, meaning that it may not even work as intended for ICP stakers outside the US.

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136

I have moved from being against the proposal to being for it. I am no tax experts but I see many people are pointing out potential issues or concerns without providing a solution to address the problem it is trying to solve. We’re all speculating what tax authorities may or may not do. I will vote for it if there is a chance that it addresses some of the issues with tokenomics and people liquidating ICP to pay taxes. We can always change things if they don’t work out. It’s an evolving protocols that move fast.

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137

It’s not for me to state what DFINITY assumes, so I would recommend re-reading Dom’s medium post and his reply above about this proposal. Taxation is mentioned frequently in both places, so it is definitely a strong motive behind these changes.

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138

The more I think about this proposal, the more I think this option should be included in the proposal from the beginning :

This option would allow people to take advantage of the auto compounding AND to stay into a “staked ICP” grammar.

The articulated concepts are the same as in the other ones, so they not involve any complexification, just like this other possibility does not involve complexification, since it is what people currently does :

So here is my question : since we consider to separate the proposal into parts, could we include at least the 5th possibility into the governance proposal ? Idealistically, we would set 6 proposals, correlative to these options described by @jwiegley

And we would add the price modulation feature as another proposal.

By shooting these 6 features in “one time”, we would avoid differed proposals which could bring confusion precisely because of the fact they are differed : people would get used to using the new system, and once they would handle the new system, a new proposal would come to modify things, even if it is just to complete it.

The exhaustivity of these options described by @jwiegley is here compatible with harmony, pragmaticity and even beauty, it is rare we have them gathered, so let us not deprive us of it !

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139

"It is hoped that these changes will improve the tax situation "

hoped? you are just throwing shit at the wall hoping it sticks?

i’ve already spent enough money on tax lawyers and a system for daily accounting of rewards. have you consulted with actual, real tax lawyers in various jurisdiction or are you hoping that you all somehow magically have come up with something that actually solves the issue definitively?

there are literally 100s of tax codes in the world. just leave it be and let folks sort out for themselves. anyone with half a brain would realize they could move these staking coins to a corporate structure in a very low corp tax jurisdiction and avoid paying tax. Estonia comes to mind as a country that has no corp tax on retained earnings…

ffs you don’t need to write code trying to capture some magical no tax unicorn when there already exist mechanisms for this!

go focus on more constructive things for the ecosystem than this.

and if you plan on carrying on with this at the very least go get the opinion of a few highly reputable global tax accounting firms!!!

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140

I am in total agreement with you.

I find it totally unprofessional that something like this would be considered without analysis by some heavy weight firms as to whether or not it would bring the desired result.

can we please get some tax professionals involved before you engineers run off and make some rube goldberg tax avoidance device…

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141

Genuine question: which tax professional in the world has an answer to this?

Dominic provided a reasonable argument why maturity (especially post-proposal) does not meet the standard set out by Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955) for taxable income.

Nobody, including the IRS, knows whether it does or does not. If they maintain that it does not, then someone will sue. Nobody knows what the court will decide then…

What we can do is act on what we do know. We do know this standard is widely accepted for determining whether something is taxable income (in the US at least), and we do know how the NNS works. If we think we have a better system that makes maturity better meet the standard, then I think we should do it.

Also, it’s not like this proposal introduces any additional tax liability… Maturity in the current system may very well be ruled as taxable income even if we don’t act…

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142

with all the respect for Dominic, KPMG and Deloite are, at least for me, a much better reference for tax law interpretation than Dominic himself.
They would certainly give us a much better advice on how to act until everything clarify and would make all investors much more confident on how to act with the maturity. It can only be beneficial for all investors. What does Dfinity have to loose to have a consultation with one of them? I just don’t get it.
Why the rush?

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143

@jzxchiang

According to the “leading CPA firm” referred to by Dominic, increasing maturity is an taxable event. This is also consistent with other financial advice that others have reported in this topic.

The implications of relying on whether certain other methodology of calculating maturity that may or may not be taxable would have very significant implications for each person. This opinion should be clearly worded, unambiguous and from a financial authority. This is all that i think the common theme. Ask the competent authorities of their professional opinion. Is this too much to ask?

1 Like