Tokenomics Proposal [Community Consideration]

Summary

The Internet Computer tokenomics can be updated via proposals to the NNS. Calling the community to review and discuss updates to the network’s tokenomics.

Status
Community Consideration

What you can do to help

  • Ask questions
  • Propose ideas

Key people involved

@johan John Wiegley (@jwiegley )

10 Likes

I know there are discussions at Dfinity for things like automatic compounding for neuron voting rewards as well as combining and splitting neurons. Is that something we need to discuss here is is that just a go-do for Dfinity? If that is a discussion, I would like to say I am in full support and would like to see that happen ASAP.

11 Likes

Given the intentional long term investing tokenomics design, I would like to see better solutions for how neurons can be transferred to beneficiaries of an estate. I want to remain invested for life, but the solutions to this problem that seem to be available today are quite unsatisfying. I think there must be better ways to transfer neuron ownership to beneficiaries than fully dissolving an 8 year neuron or enabling a single beneficiary to take control of the principle ID. I think a better solution needs to come from Dfinity instead of 3rd party products. I agree with the reasoning why neuron ownership transfer is not allowed, but this is the one exception that I think makes sense. I’m not at all trying to open the flood gates for other reasons for transferring neuron ownership and I understand this is a risk, but I’m just hoping someone at Dfinity can come up with a clever way to make this happen.

7 Likes

A way to beat/match the Eth burning strategy should be explored if possible. Eth burn 120million Eth coins at peak.

1 Like

Good point. How about a Master II (refer my post here) which can manage multiple IIs. Also, perhaps the Master II could be pre-configured for certain eventualities for example in the event of a death (which needs to be verified by say the beneficiary), NNS will automatically spawn and pay ICP rewards to beneficiaries (assuming this is the intention for beneficiaries to have a continuous source of income from ICP staked) in the proportion set by the holder of the Master II.

3 Likes

Firstly, thanks for opening up these proposals for community consideration - much appreciated!

At the moment, we can increase dissolve delay but cannot decrease. Is Dfinity planning to allow this to occur, in the event for example (referencing wpb) a death occurs and beneficiaries need immediate access to the funds locked-up (or perhaps if an unforeseen event occurs and the ICP holder needs urgent access to funds). Perhaps there should be some discussion around this and what type of penalties need to be applied if a staked account is unlocked and disbursed.

In the alternative, perhaps some smart developer may already be developing a defi product that can borrow against the staked ICP in return for another token (say a stable coin or an ICP-derivative) which can be repaid from funds (and rewards) staked on the NNS.

2 Likes

I like the idea of letting people unstake with a severe penalty. That penalty could then be distributed to other stakers.

2 Likes

According to Coinmarketcap (Supply (Circulating, Total, Max) – CoinMarketCap),

"Circulating Supply is the best approximation of the number of assets that are circulating in the market and in the general public’s hands. We have found that Circulating Supply is a much better metric than Total Supply for determining the market capitalization.

Assets that are locked (via smart contracts or legal contracts), allocated to the team or private investors, or not able to be sold on the public market, cannot affect the price and thus should not be allowed to affect the market capitalization as well. Examples include, but are not limited to, the following…"

Does the listed circulating supply of ICP take into consideration the tokens locked into neurons at any given point in time?

1 Like

I prefer dfinity open up ownership transfer of a neuron (without restrictions) and then letting the market build the 3rd party marketplaces that allow someone to liquidate their neuron (by selling to another person), borrow against it, etc.

3 Likes

I think (but am not totally sure) that circulating supply is total ICP minted minus all ICP not on an exchange. Most of the ICP not on exchanges is on the NNS.

The definition you provide basically states that locked coins are illiquid, which is only somewhat true in the case of ICP. On the NNS there are millions of coins that are unlocked (or unlocking soon) and could be moved to an exchange in theory. These coins are practically liquid. However, there are many millions (100M+) that are locked for many years. These coins are completely illiquid and couldn’t affect price for many years.

I imagine one reason for this thread is because of the discussion of a change in tokenomics spawned by Domicic (…h5aet-waaaa-aaaab-qaamq-cai.raw.ic0.app/post/88087/tokenomics-proposal-for-nns).

My personal opinion is that no sweeping change to the tokenomics model is needed at this time. While there is still a lot of ICP in fully dissolved neurons, and if these tokens were to be sold it would probably negatively impact the price in the short or medium term, I think the overall design is working as it should (moving tokens from short term traders to long term stakers). Over time this dynamic should work itself out.

However, I do think managing the number of new nodes, the inflation rate and the cycle burning rate should be closely monitored by anyone who has staked (and adjusted accordingly) to ensure, in order, : (1) rapid adoption by developers, (2) flexibility in network to support growth and (3) the proper balancing between minting new ICP tokens and the current burn rate.

4 Likes

I’ve given input regarding the Tokenomics and the 1ICP treshold for spawning a neuron.

That’s one important thing which came to my mind.

2 Likes

I like everything you said except for the ‘without restrictions’ part.

There are valid security concerns with letting someone just transfer their neuron at will. One of the abuse cases described by Dfinity was a scenario where someone capable of acquiring a large amount of ICP staked it for 8 years, voted in favor of a proposal or series of proposals that would harm the network, and then immediately sold it to avoid any financial loss.

I think there should be some sort of delay or waiting period (no voting capability) before a transfer can be completed.

3 Likes

I fully agree with this. I think the tokenomics model is working just fine. This will take time and I’d prefer ICP to slowly transfer into the hands of long-term stakeholders instead of day traders.

3 Likes

Hello all, just wanted to introduce myself. My name is John Wiegley and I’m a Principal Engineer at DFINITY, since three years ago. I’ve working with @johan on ideas related to future Tokenomics proposals, and have read all of ideas above with great interest. Please keep the flow of ideas coming, and let me know what you find confusing or worrisome, or what works great for you, in the current model.

Transfer of neurons is a hot issue that gets asked about in many places. There are definitely security issues, as mentioned above, where transferability could detach stakeholders from consequences, leading to negative voting scenarios. However, allowing early exit at penalty is definitely worth thinking about more. It’s something Johan and I have discussed in the past, and even written some proposals to address, and we are still chewing on the idea. How would you imagine something like this working, that does not take away accountability from our current voting system?

John

11 Likes

Nice to meet you John. I understand that there are security issues with an “early exit,” but I think those issues can largely be mitigated if you impose a severe penalty on those who do exit early. The way I envision this working is imposing some threshold amount for exiting a neuron early (say, 10%), and then increasing the penalty based on how much time is left on the neuron (up to, say, 40%).

I cannot stress enough how important it is to make the penalty severe. As of my writing this, an 8-year neuron makes a return of nearly 30% in a year. If the penalty is not severe (e.g., if it is only 5%), an investor who wants to lock up their tokens for a short time (e.g., 6 months) could lock up their ICP in an 8-year neuron, and exit early for a massive profit. Indeed, if the exit penalty is low enough, no rational investor would lock their tokens in anything but an 8-year neuron.

Separately, the penalty acts as a “tax” for any bad actor who wants to harm the system by (1) buying ICP, (2) voting with the ICP, and (3) selling the ICP immediately after voting. That tax must be severe to deter bad actors.

4 Likes

I’m curious what the initial reason for opening this thread was? Are there any problems with the tokenomics that the Foundation finds grave?

2 Likes

One of my biggest concerns is the gravity of the all-or-nothing lockup. I’m curious to know how this system was designed, as in was any empirical evidence used to test human psychology at a 4 year lockup versus an 8 year lockup?

I really wonder if there are differences in human behavior (we want people to choose to maximize the value of ICP and thus the Internet Computer, or vice versa) between 4, 5, 6, 7 or 8 years given it’s an all-or-nothing lockup and that number of years is just so incredibly long on the curve of innovation.

So, one proposal I have is getting rid of the all-or-nothing lockup by unlocking ICP in proportion to the current dissolve delay.

Right now, the dissolve delay mainly affects rate of return (in the maturity calculation) AFAIU, unless the dissolve delay is 0, and then the ICP can be unlocked. What if a portion of the ICP were unlocked as the dissolve delay decreased? So if you hit dissolve on a neuron with an 8 year delay, 1 year in to the dissolving you could unlock 7/8 of the ICP, and this would of course by calculated each day or whatever, similar to how the maturity is calculated now.

4 Likes

Good question.

I cannot seem to find the exact thread on Dscvr.one. but the inspiration for this thread is that Dom was on a dscvr thread with folks and he both received some feedback and said foundation would propose some changes.

2 Likes

I would not make any changes to this amazing neurons tokenomics, but only few technical upgrades.
As it is design now, it offer the best of all worlds. People can create multiple neurons and set them up with different dissolve delay if they think about claiming back their original token amount. Having 8 years lockup offer more rewards which is normal. Some people, like me, intend to build a yearly income by leaving the 8 years for ever. As it reward bow, in 5 years, with reinvesting all the rewards, it will produce the same amount per year as the original amount to create the neuron. This is huge. Why would you change such a great system?
The upgrades could be:
Have a huge screen warning with full explanations of the impact when upgrading the dissolve delays, with an Accept button.
Would be also very nice to be able to combine neurons with the highest dissolve delays of the two.
It would not be fair to have people to get in the 8 years in order to get maximum rewards and be able to get out before, even with penalty. Everybody would do this for sure.

And I will come back with a optional proof of ownership system. Was thinking about creating a NFT with the account and the owner info where the voting system could give back control of the account to the real owner. This will be necessary to have mass adoption and remove being scare of loosing everything on a simple mistake, or stolen account, etc… This will happen and may ruin or seriously damage a life. But I think Dfinity have enough on their plate for now so this is why I do not push hard for something like this in the near future. This would be huge as people would feel as safe as a bank account where people cannot loose their account in any way.
If blockchain NFT can proof a piece of art to be the original for ever, I cannot see that all IC engineer cannot create a proof of ownership somehow, which is closely the same.

1 Like