I have some non-technical thoughts on ICP tokenomics informed from a few friends I have in other crypto spaces and my own reading on how laypeople perceive tokenomics. There are two big buckets I’d like to bring up and hopefully whoever replies can cure my ignorance.
Firs I think what confuses me is how to quantify the gap between new ICP being created and ICP being burned for cycles. If you look at https://ic.rocks/charts, the rate of new ICP being burned vs minted isn’t even on the same planet The outlier best day in August is 600 ICP burned and the day with the least amount of ICP Minted was ~11,000. With some days being less than 1 ICP burned daily.
Even with the cherry picked best values so far for inflation, that’s an 18x amount of ICP that would need need to be burned daily to get to deflationary. However, that goal post will keep moving as more node providers come online. Because of that, part of me feels like fairly high inflation will happen forever. A lot of people in the crypto world are obsessed with inflation rates, they view cryptocurrency as a hedge to inflation and view it in opposition to fiat monetary policy. ICP does not appear to currently work this way, which I think turns off a lot of people. I say this as someone who is a big fan of ICP and thinks that 100x usage of the mainnet is realistic.
Even then, the numbers don’t add up one way or another. Are most rewards given to neurons or to data centers? How is the rate for rewards to data centers made? Is there an idea of what % of ICP will be minted from neurons vs rewards to data centers? I assume Dfinity has at least an estimate of that and could clarify the direction of new ICP being minted in the short-medium term. If it’s largely just from neurons then acceleration of minting will inevitably slow down and it’s not a concern, if it’s largely from data centers, then there should be more clear info on how they are rewarded and how those rewards will work over time.
The second bucket is the big elephant in the room for some people. The allocation of ICP tokens is kind of a mystery. Talking to a couple people I was able to find the Genesis allocation, but it seems clear that the current allocation is a big question mark. This big question mark is clear from messaging a few different people within the community, and I think where a large source of FUD is created from, and could be stopped with clearer communication/more transparency.
In a recent interview Dominic Williams stated “For the record, the Dfinity Foundation did not sell a single ICP for five weeks after Genesis. And in fact, founder and founder levels, employees were locked up for the first week, so clearly didn’t we cause the fall in price, or the rise.” This leads to even more confusion in my opinion. It’s not clear what percentage of ICP is held by the foundation or employees currently, and if so, what percentage is locked up in neurons and for how long of a delay? What happened after 5 weeks? I assume this is just an off the cuff statement, but it’s a pretty specific time frame and odd not to just say founders, founder levels and employees largely had/have their ICP staked away.
TLDR I think that it should be made clear what amount of ICP is held by the Foundation, the Association and from Founder level employees, otherwise it’s going to inevitably create FUD from misinformed or malicious people. Additionally, most people in the larger cryptospace view cryptocurrency in relation to fiat, and the way ICP does inflation and deflation, while quite brilliant in my opinion, doesn’t really give a clear signal to what inflation currently is and how it will go down, given it doesn’t seem transparent how new data centers get added, or their rewards. It’s easy to just say over time more ICP will be burned into cycles, but the math doesn’t add up as how I currently understand it. While I am not advocating some massive deflation, from my readings it is clear the larger crypto community prefers projects that are either deflationary in nature, or with an inflation rate below recent trends of USD.
Lastly, I’d like to just thank everyone at Dfinity and whoever reads this post. Diego and company have done an amazing job on the subreddit, but I felt since this post took quite a bit of time, it made sense to post it here. My apologies if this is pretty open ended, is says you can help by asking questions so I asked many!