Setting aside BTC, ICP’s utility mirrors that of Ethereum, Avax, Solana, Polkadot, etc., where all transaction fees are in the native token. Additionally, ICP ensures consistent hosting costs for developers through XDR/Cycle conversion, maintaining stable prices even if the token value surges to $10,000; the cost remains the same, and the ICP is burned in the conversion process, resulting in a decreasing supply and making it deflationary.
The inflationary aspect are node provider rewards, fixed in fiat value (XDR) and paid in ICP, results from minting new tokens, thereby increasing the supply.
When ICP attains a state where the burn effect from hosting outweighs the rewards for node providers, staking, and voting, its tokenomics will shift to deflationary. Ethereum transitioned to deflationary status about a decade after its inception; it remains to be seen how quickly ICP will follow suit.
ICP works if it trades for 10,000 USD. And it still works if it trades for 0.00001 USD. This is why I think it is not an investment. Unless there is a definite mechanism that ensures that it becomes a scarce asset. But if it was becoming a scarce asset, then what would be the point in burning it for cycles? Wouldn’t it be better to just keep it and not use it, defeating the purpose of the reverse gas model?
To me it looks very much desirable to burn as much ICP as possible because this means there is a lot of computation in canisters aka a lot of user interaction. But burnt ICP will be topped up again because Node Providers receive ICP rewards for providing the infrastructure that someone can use to host their content in this infrastructure. In Layer1 blockchains you are not incentivized to make a huge amount of transactions. You are discouraged, because of the fees. This keeps the blockchain tidy.
IC is so much different than Layer 1’s. Ethereum & Co have less capabilities than IC, but they double as a currency, which ICP does not.
I have not yet seen any evidence that would suggest otherwise. If ICP certainly was an investment, I sure would buy it, because the potential of Internet Computer for web3 is second to none.
I’m struggling to grasp your point, as it seems you’re outlining a scenario common to most blockchains, where a burning mechanism is typically absent.
All blockchains reward node providers, and to make it worse, they do so in native tokens regardless of the price. Back at the beginning of 2017, when I was heavily mining Ethereum, the ROI was less than 100 days. For example, Solana costs 50 million per month to run the network, which generates 1.2 million in monthly fees without any burning mechanism.
Currently, rewards for $ICP node providers represent approximately 2% of the total inflation, while the rest are allocated to staking and voting incentives.
Please list three more projects that you regard as sound investments, and let’s compare them to ICP, since I’m not sure if you’re just trolling me ?
Node provider rewards are specified in XDR (Special Drawing Rights), an international reserve asset created by the International Monetary Fund (IMF), and are converted into ICP based on the average exchange rate over the last 30 days. The NNS mints Node Provider Rewards every ~2,629,700 seconds, which is 1/12th of a year.
The rewards are set by the NNS DAO, and changes can only be made through NNS proposals adopted by the Internet Computer community. The rewards are distributed on the 15th of every month and depend on three main factors: generation of hardware (Gen 1 or Gen2), geographic location, and total number of nodes operated.
and
The conversion rate between ICP and cycles is pegged to the XDR (Special Drawing Rights), an international reserve asset created by the International Monetary Fund (IMF). The exchange rate between XDR and ICP is managed by the Network Nervous System (NNS).
As per the information provided in the extracts, 1 XDR is equivalent to 1 Trillion cycles.
However, the exact amount of cycles that 1 ICP can buy would depend on the current ICP/XDR exchange rate, which is determined by the NNS and can be found on the IC dashboard home page.
This relationship between ICP, XDR, cycles and rewards means that the value of ICP is mostly meaningless.
If ICP exchange value raises, then
less ICP are generated for Node Providers
1 ICP buys more cycles
If ICP exchange value falls, then
more ICP are generated for Node Providers
1 ICP buys less cycles
Yes sure you can have a lot of buy pressure on ICP that raises the value, but you can also have a lot of sell pressure, in which case the token supply will inflate more and more.
The ICP token represents potential voting rights in the governance of the NNS. This is one of the things that gives it significant value. By staking ICP in the NNS, you earn voting rewards. The longer your staking period the more voting rights you have and in turn the more voting rewards you receive. This is ultimately what makes ICP attractive as a long time horizon investment, it buys you the right to decide on issues in the governance of the ICP. As the IC gains more adoption and widespread use, more people would want to have a say in the future of that project and how it operates.
The tokenomics of the IC ultimately align the longterm stakeholders motivations with the long term success of the project. Eventually a feedback loop will happen where as price increases, voting rewards become more valuable. The only way to get voting rewards is to stake ICP on the NNS. Therefore more investors desiring voting rewards will lock up ICP for long periods of time, causing a supply constraint beyond the deflationary mechanics of the network (burning ICP to create cycles). This will result in causing low liquid circulating supply, since most of the ICP is being staked long term, this creates pressure and increases the price of the ICP further due to market dynamics, which further makes voting rewards more valuable, and so on. This is how the loop is created further increasing the value of the ICP over a long time horizon. There are more important factors at play here than short term investors looking to participate in price speculation. I personally believe the most powerful force over the the long term which determines the price of ICP token is the appetite of investors to vote on governance issues in the IC and earn voting rewards which are increasingly becoming more valuable over time. You then have a price appreciating asset which also produces yield, this is a very desirable thing in traditional finance and will also draw institutional investment as the network proves itself as sustainable over time.
All of this is to say that ICP definitely has more value than just being a “utility” token. Throughout the existence of the IC, the long dissolve delay neurons staked in the NNS will desire to increase the value of the token and network as a whole, so they will logically vote and adopt proposals that increase the overall health of the network and the long term success of the ICP token.
I can see how voting is valuable, and the voting rewards are also a nice incentive to take part. But what prevents Node Providers from flooding the markets with ICP? You can have an actor provide millions of nodes, collect ICP for them, then dump the ICP on the open market, suppressing the buy pressure, and in turn collect even more ICP rewards. There is nothing that guarantees a balance between buys and sells. We assume that buyers and sellers act rationally, until they don’t.
That is true, and we have seen a mixture of long term staking and immediate selling from node providers. This is similar to bitcoin mining, some miners sell their tokens immediately to pay for operating cost while others choose to hold them long-term. However, I think for the reasons listed above in my previous reply, it would be in the best interest of the node providers to stake at least a portion of their ICP to also receive voting rewards. Some node providers have said publicly here that they stake all of their payments after receiving them because they believe in the long term prospects of the network. One would think that if they have invested a great deal of money into buying equipment to be a node provider, their motivations would also align with the long term success of the network, similar to that of a staked neuron who is not a node provider, and they would want to maximize their investment by subsequently receiving yield from their node provider payments by staking… It is theoretically true a rogue node provider could try to gain enough nodes to make a meaningful attempt at dumping ICP to crash the market to gain an inordinate amount of cheapened ICP for rewards, however node providers are vetted and must be approved by vote of the NNS itself, so I think this is not a likely scenario. This has also been covered at length in other threads and the conclusion was it is an unlikely possibility
Basically, you are describing almost every crypto blockchain. In every PoS blockchain, there are node providers and stakers who receive rewards, inflating the supply. And on every blockchain, people can dump their coins, so what are you talking about?
Hey guys. Thank you for reaching back and explaining.
As for your question, currently I only own Cardano’s ADA, because I understand what it does and I like it better than Bitcoin and Ethereum. Its token has similar properties to Bitcoin, but is Proof of Stake, can be used for Smart Contracts natively, has the prospect of gaining privacy features in the future with Midnight and it aims to make chain interoperability easy. Basically I just want to be my own bank with privacy features and some programmability, for example to have the wallet balance transfer to a relative in case of death/inactivity. I do expect the use cases for the Cardano infrastructure to be much less than IC, but IC and Cardano essentially try to provide different solutions for different problems.
It is still not clear to me how to value ICP. It’s properties imply that the success of IC is not bound to the exchange value of ICP. IC is still great even if ICP trades for less fiat. I really like what IC is and what it enables to do, but the tokenomics do not guarantee price appreciation, which is why I claimed it is not an investment. There is always a chance that ICP loses more and more value, because it has strong inflationary properties by paying XDR pegged ICP to node providers. For developers it makes sense to simply buy ICP and acquire the cycles straight away, which basically just chains the fiat to the intended use. But I can see Esty made an excellent point that the voting right could be very valuable if IC scales to become a major portion of a new censorship free internet.
I don’t know. I really like IC. Perhaps I should yolo into ICP and just see what happens. Perhaps I am dead wrong and ICP is priceless.
This is technically true. But they most likely correlate. Perhaps something like land value, where the value of a property largely correlates to the structures built upon it.
I totally get your concerns about ICP and XDR situation. It’s a bit puzzling that there hasn’t been a clear explanation from the ICP tokenomics architect on the philosophy behind it. Now, since I’ve been in the ICP game from the genesis, I can make speculative guess the rationale behind it.
So, it looks like they’re going for a more inclusive approach compared to other blockchain projects. You know, steering away from the whole early supporter exclusivity thing. The idea is to make it easy for latecomers by introducing features like reverse gas fees and letting developers pay canisters in XDR. This way, you can host your project any time in the future without worrying over ICP’s price doing somersaults.
And here’s the governance twist—they want to keep ICP affordable for late adopters. That’s where the inflationary nature of ICP and the whole XDR minting dance come in handy. It’s like a balancing act to keep ICP’s value growing organically.
Now, here’s the kicker—ICP isn’t just for anyone and everyone. You don’t necessarily need to own ICP to run your project; it’s more for the serious folks into governance. They seem to be downplaying the speculative perks of holding ICP for those looking for a quick win.
Lastly, the tokenomics seems designed to give the spotlight to project tokens on top of ICP. Unlike other setups where the base layer steals the show, they want to make sure those project tokens shine without being overshadowed. Quite a departure from the norm, right?
Those are some thoughtful perspectives on the potential rationale behind ICP’s tokenomics model involving XDR. I appreciate you laying out your speculative understanding based on being an early community member.
You raise excellent points about taking an inclusive long-term approach catering to both early supporters and future developers/users. The reverse gas model and option to pay for canisters in stable XDR do seem aimed at reducing barriers to entry down the road.
The governance-centric focus for ICP holders balances the minting and distribution of coins in a way that may promote organic growth, as you said. Emphasizing ICP as an enabler of decentralized governance rather than a speculative asset is a defining attribute.
I also find the analysis interesting about spotlighting application tokens rather than maximizing returns for the base ICP token. That likely creates better incentives for developers building on Internet Computer while preventing the base asset from overshadowing other innovations.
Your perspective provides meaningful context on the reasoning behind key mechanisms like XDR minting and inflationary distribution. It will be interesting to see how this framework performs in achieving widespread adoption while also rewarding long-term participants.
I am lost as to what you are saying. How can a token that is used to govern a decentralised network and service as the currency to buy the fuel to power applications on the network not be an investment?
Thanks for stopping by man. While I disagree with you that it’s not obvious on how to value ICP, contrarian views are always welcome. We would like to have more people like yourself in the community.
The ICP token design makes sense for the main use case. If someone buys ICP to burn it for cycles straight away, then the ICP price is meaningless. However, holding ICP long for governance, staking and making a return, is a gamble, because ICP is (or appears) unprotected against an out of control inflation, due the issuance of more ICP for IC Node Providers, depending on the XDR valuation of ICP. This scenario is possible because we expect Node Providers to be paid a fair XDR value in ICP always.
I think it is important every ICP owner understands that holding ICP long term has a risk of losing 99.99% of its value. But it also has the chance for great value appreciation because of the IC.
I do own a bit of ICP as well now because I like the IC, but I do not like the ICP token. In my opinion, those people that mainly want to be their own bank and hedge fiat inflation, better hold on to BTC, XRP, ADA and similar.
Well done for your thoughts, you addressed some of my concerns in your article thanks.
I am very active on voting and also I participate in every nns launch of new projects.
In my recent analysis, I came to conclusion that, as an investor, it is not beneficial to swap my valuable ICP into a new Token during initial swap. And below are my confusion;
After the swap 75% of your ICP is locked for several month, only 25% is released in the form of the new Token to use immediately.
Most time after the swap, when you calculate amount of ICP invested and the amount New Token received as neurons, the margin is slim.
Now, here is the annoying part. The fact that you invested your ICP to mine a new token will not give you any special privileges, it means you still have to do LTF(like, twit and follow) before you are eligible for airdrops.
Some of these nns project dont give voting incentives.
The most interesting part is, you cannot use this new tokens that are caged in neurons until the due day. Because they are automatically locked-autocratically.
I can predict launching a new DAO in the nns will be unattractive to investors in the future. It is more profitable keeping my funds in ICP than burning them in new project during swaps.
My Question is, what does the Investor Benefits in participation or allocating resources for the sustainability of a new project?
And this is my proposal, Don’t Lock my neurons in your project after swap, that is my decision to make because the funds in the neuron are solely my funds and I will determine how to use them.
……
Thanks for reading and if you have further information to share on my concerns please feel free to educate.
How are the current 2 projects (EstateDAO and MoraDAO) doing on the Launchpad in the Nervous?
Every investor wants value for their investment.
Do you think Mora or Nora project will pass DAO optimization?
I will invest at 99.999 if they can even get to that.
I love Mora and want the best for this project.
EstateDAO is cryptocratic just because I don’t want to say complicated.