Tokenomics Proposal [Community Consideration]

[MichaelAnnh]

@superduper

@superduper

so in a free market parties can decide on rules and boundaries.

You’re right. That’s what the whole discussion is about at the moment.
I’d personally like looser conditions at many points. Others don’t. So we agree on frameworks and the majority (Dfinity) decides. If I think that some points aren’t worth the risk, I could just move to another crypto project.
And that’s the point: I’ve provided so many written lines in here, which show how other projects are governed, and what Dfinity/we as a community could learn from them to improve our tokenomics.
Another of your lines:

@superduper

the rules of the dfinity market are such that people who funded this project and gave it money knew that it would be a staking type system, and in general staking type systems involve locking up coins which generally entails not being able to sell that account.

No, staking type projects don’t require locking up tokens in general. See Cardano for an example. Others have less restricitve rules. One of them is Polkadot (28d unlocking period). Yes, stakers agree to the terms and conditions Dfinity sets, but my point is that others have far better conditions (IMO). You can neglect that fact but in the end, competitors don’t sleep and that’s exactly where pressure starts. Why should someone stake for Dfinity if he has far better conditions somewhere else? For the tech?

To which extent does that compensate better conditions? If you want to sell leasing contracts for a Lamborghini, and prevent people to get out of it, that’s ok, but that’s not my approach. Before doing so, I’d ask people why they need a Lamborghini and if it is a good investment? If they can’t say anything I’d ask them if they really needed a leasing contract and if they could just buy a cheaper car instead. They could also pay a few hundred bucks to drive a Lambo on a race track for an hour if they really needed it for their pleasure. Now translate that to ICP vs Eth/Ada/Dot.

Furthermore you’re already able to sell your Neurons via the shadow market. So that argument is also not valid atm (see discussion above):

@MichaelAnnh

think the free market puts pressure on this from another side. p2p and otc deals. Let’s take a look at this reddit post .
They talk about selling locked ICP with -50% on spot. People could start to sell Yubikeys/ accounts (secure if the seed is deleted from identity managment /if device is changed) via p2p and otc trades. People might start a huge shadow market for neurons/accounts, without anyone knowing about the actual distribution numbers.

And now to your next point:

@superduper

and to your point about decentralization if we were to move to a % based system it would mean that less new coins are available to be sold to the market thus thwarting the ability of new stakers to come on board.

I’ve already made some points in another comment:

@MichaelAnnh

If there is concern that the liquidity of ICP by holders (especially big pockets) is decreased, we’re at the perfect track. => If someone fears that his advantage isn’t here anymore, there might be something we got right. Now we get to a point where the minimum 6month lock-up period could really hurt.
Assets staked for that amount of time and not getting any liquid ICP that fast because of the 2.5% minimum maturity => That might be too much and it’s rather a punishment than an award.
Here comes point 5 into play again.

Your next statement:

@superduper

i don’t know how many have set their dissolve delay to 8 years now but those who have basically have consented to the current arrangement.

Here’s an interesting comment about this.

Tokenomics Proposal [Community Consideration]

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 incredi…

Kyle ∞

@lastmjs

almost no one is creating neurons for 5, 6, or 7 years. It’s as if 5, 6, 7, and 8 year neurons are all equivalent.

As you can see there is a huge gap. Either you’re in long term (8 years) or you are more on the “I stake for 1-3 years and look on how the project has developed by then. Maybe I’ll stake longer, if I like what I see.” Long term could be people with high interest in the projetct/or long-term commitment (Developer/Dfinity wallets themselves)
That’s what the free market tells me.

@superduper

you can talk about free market all you want but you must recognize that in a free market actors are free to collude and agree on rules/contracts

As you can see above, the free market gives you information about the commitment. So what does it tell you that so many actors don’t stake longer than 1-2y and that there is nearly no one staking for 5,6,7y?

@superduper

ou should consider the idea that another reason the minimum exists as such is because of scaling issues around the ledger that need to be worked on.

I’ve considered it. A simple yes/no answer + a reasonable explanation from a dev would have been enough. So why is there neither an yes/no answer or a reasonable dev explanation?

@superduper

and btw the minimum on Eth is 32 Eth, which is quite a lot, and so yes you actually get more for having a high stake vs having only 16 eth and needing to participate in a pool.

Actually exchanges offer staking services. You don’t need 16 Eth there…
However you’ve got a valid point, if you throw in eth/dot vs icp. Their capital requirements in minimum stake benefits large holders (32 eth/40dot). At Polkadot they’ve decreased (~200Dot to 40Dot), however if the price rises it gets countered again. In the end it’s a problem and they’ve to work on that.
As you’ve pointed out, they might benefit large holders there, and ICP benefits them with the 1ICP treshold.
However we should ask ourselves if both systems have their flaws and if there are others which are a bit better? Cardano doesn’t have requirements like that, as far as I know. I also think that Eth will bring down the 32 Eth after the merge. Dot is also decreasing it. => They improve their tokenomics.

We could just play it down and watch them pass ICP. Not my choice.

@superduper

finally as far as payments for following as you say they should collect fees but they can also choose not to collect fees (remember that free market!). an entity that wants more votes would obviously have lower fees or even no fees. in the case of dfinity foundation most of the important proposals come from it at this point and it has a sizable war chest so one can imagine that they value having more followers and voting power at this point rather than charging some fee.

I get your concern. You’re basically saying that price dumping in voting fees might counteract the decentralication which was initially intended. So it might become a tool which adds to unfairness like the 1ICP treshold.

Just a few thoughts:

Why do you assume everyone would follow Dfinity it they had alternatives? Of course most devs and Dfinity are practically in one boat, but in spite of that, I’d prefer voting for a dev directly.
Let’s take @lastmjs for an example. I listened to his podcasts, read his stuff on Twitter, etc…
If he’d set up a voting neuron and he’d take 5% from followees , I’d do it, because I’d know that he’d vote in my interest (since I agree to his views). Would you vote for a party/politician you don’t agree with, just because they offer you more (I don’t want to say that I don’t agree with Dfinity)?

I know many people in this world do so, and that’s a huge problem. Many vote for something in the short term without the long-term view. Do voting fees contribute to this misbehaviour or not? Let’s draw a scenario: Party A collects fees, has a high amount of followers and starts fee dumping so its follower get more. More followers will add their votes to A: A gains more and more power and suddenly makes a vote which is absolutely harmful for everyone. Maybe they don’t get it in the short term but suddenly ICP turns into something we know from 1930-1945.
IMO fees are not the problem if we fear centralization. Fees are only an instrument for bad actors to help them fullfill their wishes. Fees wouldn’t contribute to that as long as:

• Huge stakes have got sincere interest in decentralization, doing the right thing and
• Actors don’t purely put their votes into something out of short term capitalistic interest

If both points are invalid, we’ve got a problem. We’ve got 2 security levels.

@superduper

your concerns are well places but I think in the case of the 1 icp minimum you are attributing to some sort of poor design decision to what is more easily explained by technical scaling issues that in the future may improve.

IMO the liquidity inequality via the 1ICP treshold can add much more to centralization than price dumping of a voting fee. Scenario here:

Party A (huge stake) waits for a sudden price increase and liquidates the huge stack, generated via the 1 ICP treshold.
The market dumps and party A buys back the liquidated ICP for a cheaper price. Stakers with a low stake can’t do anything in the meantime. They can’t interact with the market and counter A’s effort to centralize. Repeat this steps a few times and suddenly you’ve got an instance with absolute power, without ever relying on other voters. You’ve only got 1 security level:

• Party A has got sincere interest in decentralization

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If we’d like to further introduce additional mechanisms for decentralization Dfinity could also integrate a minimum fee on voting neurons to avoid price dumping on voting fees. This would benefit lower neurons thus lead to more decentralization. Now you’ve got 3 security levels instead of one.
=> Big player could shut down the minium fee via a vote (they’d require a majority for this). Afterwards the majority of capitalistic players would have to vote for him. And in the 3rd step his malicious interest has to take over. However price dumping in voting fees isn’t even necessary to gain the majority in power. You could even do that without it. As you see the voting fee could be a governance tool. If centralization is too much you could incentivize voting for small neurons via adjusting the fee (maybe Gaussian distribution?).

@superduper

and with regard to neurons you have to acknowledge that while it’s true that someone locked into an 8 year dissolve may sell their vote it would be highly irrational for them to sell their vote for a change that would have a negative impact 8 years down the line, whereas if he were free to sell his neuron whole the system losses the extra protection of participants who must without doubt consider what are the long term consequences of their actions.

I sincerely think that the community should start to make a load of scenarios on what might actually happen.